Abstract
This is the second review of Venezuela’s real estate sector. Although we
have been able to incorporate
some new data, we believe that the key
issues that we highlighted in Q109 remain the most important.
Specifically:
- The lack of new supply of housing stock – and
offices – has produced a shortage relative to
demand. Consequently,
prices and rents have over the last two years or so risen rapidly, and to
unreasonably high levels. Looking forward, we expect that both will come under
downward
pressure, given the poor outlook for Venezuela’s economy.
Nevertheless, the lack of new supply
should prevent a collapse in prices
and rents.
- The real estate sector cannot grow without funding being
available for both developers and
purchasers. The banks are not willing to
lend while inflation is at a level where the real value of
debt is under
constant downwards pressure. It will take a change in government fiscal policy
to
set this chain of events in motion.
These conclusions are closely
tied to our proprietary Real Estate/Construction Business Environment
Rating (RECBER), the component factors of which we discuss in detail. The
conclusions are also set
against recent conditions in the commercial
office market and in the residential real estate market.
The underpinning
concern remains the state of the economy. Venezuela' s Q109 current account
figures
showed a continued contraction in oil and non-oil related revenues
and a still-high reliance on imports.
The current account deficit stood at
US$3.5bn, down from a surplus of US$9.5bn in Q108. We have
therefore
revised our full-year current account figures to reflect lower non-oil
exports. We expect to see a
current account deficit of US$1.5bn (0.5% of
GDP) down from the previous forecast of a US$0.8bn
surplus and US$39.2bn
(12.5% of GDP) in 2008. The current account should recover to a US$7.6bn
(3.2% of GDP) surplus in 2010.
We are concerned that imports have yet to
fall in Venezuela despite the slowdown in consumer spending
and the
weakening parallel exchange rate. Imports made up a staggering 64% of private
consumption in
Venezuela last year – a figure which averaged 36%
through the period 1989 to 2005. Given that the
overvalued official
exchange rate made imports much more attractive, and with dollars as abundant
as
they were last year, the rise in import reliance was to be expected.
However, the action taken this year to
reduce access to dollars at the
official exchange rate and the weakening of the parallel exchange rate
should have led to a collapse in imports. This did not happen.
The
continuing wave of state takeovers and threats to introduce a profit cap on
private companies has
eroded confidence in businesses to invest. On March
1, for instance, President Hugo Chávez ordered the
military to seize
control of Venezuela' s rice mills. Reduced private investment has seen
private
production stagnate. Investment spending actually contracted by
3.2% in Q408, while government
production has struggled to stay above
water despite the expanding role of the state. Together, these
factors
have eroded Venezuela' s productive capacity. Exports of non-oil products fell
by a shocking
55.8% y-o-y and 29.8% q-o-q to US$718mn in Q109, the lowest
figure on record. We have lowered our
forecast for 2009 from US$6.0bn to
US$2.5bn and also lowered our 2010 forecast from US$6.5bn to
US$2.5bn.
Indeed, we believe that there is little hope of a revival of the non-oil
export market, regardless
of how weak the parallel exchange rate goes.
This is because of the deterioration of domestic production
capacity.
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