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Venezuela Real Estate Report Q1 2011
Business Monitor International, Nov 2010, Pages: 56
Business Monitor International's Venezuela Real Estate Report provides industry professionals and strategists, corporate analysts, real estate associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Venezuela's Real Estate industry.
Inflation and a rapidly rising external debt continue to be the main risks facing Venezuela’s economy, and the ensuing structural imbalances and falling productivity will flow through to the prospects of the country’s commercial real estate sector.
Traditionally, the markets for office, retail and industrial property have been distorted by the persistent inflation in the country which, in turn, is the consequence of the monetisation of public spending. Both rents and capital values have risen by 20-30% annually, with the result that yields have been fairly stable. Tenants are usually required to re-sign leases every year. Because of the extension of the public sector into the private sector – both through the imposition of price controls and outright nationalisation – investor sentiment remains dismal. Our sources in Venezuela confirmed that the few new commercial real estate projects under way in Caracas and elsewhere have been put on hold. Real capital values of property would probably fall, but for the tendency of tenants to buy the premises that they are occupying if the opportunity presents itself.
In the short term, we see a country even more reliant on high oil prices than it already is. We are still forecasting a 3.8% year-on-year (y-o-y) contraction in Venezuelan real GDP for 2010, but we believe the worst of the recession has passed. Although the consumption and net export outlook remains weak, an uptick in government consumption and investment from China is likely to help push the economy towards our above-consensus projection of 3.2% y-o-y in 2011. One of the main beneficiaries will be the infrastructure sector.
Inside Venezuela itself, opinion is divided as to whether rents for commercial real estate will continue to rise. In our projections, we assume that yields will continue to rise gradually – even as nominal rents and capital values move broadly in line with each other.
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