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Venezuela Real Estate Report Q3 2011
Business Monitor International, June 2011, Pages: 56
The 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.
The government's distortive economic policies, nationalisations and a major currency devaluation, as well as double-digit inflation and price controls, poor infrastructure, continuing electrical supply problems and concerns over the country’s political future, have severely discouraged real estate investment, especially new construction. Demand for commercial property space has been stagnant at best.
Key Trends:
The 100% devaluation of the Venezuelan currency, the bolivar, against the US dollar on January 10 2010 stalled the property market – and there are also rumours of possible further devaluation later in 2011 – though activity had resumed by mid-February. The outcome of the devaluation was a substantial increase in the volume of rentals, but a fall in rentals in US dollar terms of more than 50%. Leases are often renegotiated annually, which has been attributed to the environment of high inflation.
President Chávez has signalled his intent to further his government's nationalisation drive, which will continue to undermine private sector business activity. The danger of land and investment expropriations remains serious. The government has nationalised almost 4mn hectares of land over the last 12 years. Rents in US dollars are expected to remain roughly stable in all monitored cities into 2011.
However, rents in local currency are expected to increase, due to the delivery of higher quality and more expensive space over 2011. Rents and nominal capital values have typically risen by 20-30% annually but are set to remain approximately stable over 2011. Absorption is expected to increase in 2011, mainly due to stalling activity in 2010. Vacancy rates are expected to increase. New construction will deliver further office space, as will companies vacating offices in certain business areas, such as capital markets.
Market Outlook:
As Venezuela continues to battle inflation, economic activity remains somewhat subdued. The country will rebound from its two-year recession in 2011 and expect real GDP growth to be 1.9% in 2011 and 2.3% in 2012, up from the 1.4% contraction of 2010. While this implies that the economy is beginning to recover from its deep recession, huge structural imbalances will remain. The recovery will be driven in large part by rising oil prices.
Inflation is set to stay elevated at the highest level in South America. BMI projects that it will be 29% year-on-year (y-o-y) by end-2011 and 26% at end-2012. Domestic demand remains weak, and the government’s business-hostile policies look set to remain entrenched. Furthermore, electricity supply shortages could lead to a major decline in industrial production, potentially leading to another year of recession.
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