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Viewing cable 07CARACAS1318, BUY HIGH AND SELL HIGHER: REAL ESTATE IN THE

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Reference ID Created Released Classification Origin
07CARACAS1318 2007-07-02 15:55 2011-08-24 01:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Caracas
VZCZCXRO1250
RR RUEHAO RUEHCD RUEHGA RUEHGD RUEHGR RUEHHA RUEHHO RUEHMC RUEHNG
RUEHNL RUEHQU RUEHRD RUEHRG RUEHRS RUEHTM RUEHVC
DE RUEHCV #1318/01 1831555
ZNR UUUUU ZZH
R 021555Z JUL 07
FM AMEMBASSY CARACAS
TO RUEHC/SECSTATE WASHDC 9149
INFO RUEHWH/WESTERN HEMISPHERIC AFFAIRS DIPL POSTS
RUCPDOC/DEPT OF COMMERCE
RUEATRS/DEPT OF TREASURY
RUMIAAA/HQ USSOUTHCOM MIAMI FL
RHEHNSC/NSC WASHDC
UNCLAS SECTION 01 OF 03 CARACAS 001318 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
TREASURY FOR KLINGENSMITH, NGRANT, AND MMALLOY 
COMMERCE FOR 4431/MAC/WH/MCAMERON 
NSC FOR DTOMLINSON 
HQ SOUTHCOM ALSO FOR POLAD 
 
E.O. 12958: N/A 
TAGS: ECON EFIN VE
SUBJECT: BUY HIGH AND SELL HIGHER: REAL ESTATE IN THE 
BOLIVARIAN REPUBLIC 
 
------- 
SUMMARY 
------- 
 
1. (SBU) Real estate prices are skyrocketing in Venezuela as 
the oil boom fuels an ever-increasing number of people 
chasing an increasingly limited supply of properties.  Sales 
are up 30 percent so far in 2007, after growing 80 percent in 
2006 and 60 percent in 2005.  Venezuela continues to suffer 
from its historical problem of housing shortages, which are 
worsening despite massive government intervention in home 
construction.  The problems are exacerbated by machinery and 
materials shortages as well as disincentives to investment, 
including rent controls.  Despite a recent up-tick in housing 
construction, demand for residential and commercial real 
estate is expected to exceed supply and prices will continue 
to go up, pricing many Venezuelans out of the market. 
 
------------------ 
NO ROOM AT THE INN 
------------------ 
 
2. (SBU) According to the Real Estate Industry's Chamber of 
Commerce (Camara Immobilaria), Venezuela suffers from a 
housing shortage of 1.6 million homes and another 1.1 million 
are in disrepair.  Given an average household of 4.3 
individuals, this means that over 40 percent of Venezuelans 
do not have adequate housing.  This is a long term problem in 
Venezuela as the population has tended to grow faster than 
the market and government have been able to provide homes. 
In the 1990s, prior to Chavez' election, Venezuela averaged 
100,000 new homes annually.  In the eight years since, on 
average, 20,000 homes have been built per year.  The country 
needs to build 130,000 new homes annually just to keep pace 
with population growth, let alone dent the current deficit. 
 
3. (SBU) Venezuela lacks large construction firms capable of 
meeting the demand.  According to Camara Immobilaria, the 
largest Venezuelan firms can build between 2,000 and 3,000 
apartments annually, little when compared to firms in Mexico 
that are building 50,000.  The difficulty of doing business 
here has driven out many contractors and engineers.  They 
have moved their businesses to Miami, Panama, and Colombia 
where conditions are more business friendly.  These expat 
firms are now marketing their offshore projects in Venezuela, 
with Caracas' high end shopping malls filled with posters for 
apartments in Panama City and Miami. 
 
4. (SBU) The BRV has thrown all sorts of ideas at the 
problem, from bilateral agreements to build homes with China, 
Uruguay, and Iran, among others, to the recent inauguration 
of a petrochemicals plant that will supposedly provide 
material to build houses completely out of plastic.  Little, 
if any, progress has been made.  One contact described to 
Econoff the horror of Chinese engineers who arrived to begin 
construction at a building site, only to find that no roads, 
utilities, or ground clearing had been done.  They returned 
to China without hammering a nail. 
 
-------------------- 
BRV MIS-INTERVENTION 
-------------------- 
 
5. (SBU) There are shortages of building materials in 
Venezuela due to price controls and government demand for 
public works projects, including preparations for the Copa 
America, for which the BRV has built two new soccer stadiums 
and completely renovated seven others.  The President of 
Cemex Venezuela recently denied in an interview with El 
Nacional that there were concrete shortages, blaming 
"bottlenecks" in the distribution chain for most problems. 
He acknowledged that concrete consumption had grown 116 
percent over the last two years and claimed that production 
would increase to keep pace.  Shortages of skilled labor are 
also rampant due to poor technical schooling, high demand, 
and the Missions, which discourage labor force participation 
via handouts.  The President of the Heavy Construction 
Chamber told Econoff that they are also suffering from 
shortages, with a deficit of at least 5,000 heavy machines, 
including earth movers, cranes, and dump trucks 
 
6. (SBU) Rents were frozen in 2003 for buildings built before 
 
CARACAS 00001318  002 OF 003 
 
 
1986 (and rumors are that a new law is planned to freeze 
rents in apartments older than 1997 (the combined total would 
affect between 60 and 70 percent of the market).  As owners 
cannot raise rents, there is little incentive to improve 
buildings.  Rentals now make up less than 10 percent of the 
housing market, down from 30 percent prior to 2003.  In other 
Latin American countries rentals make up between 30 and 50 
percent of the market.  The lack of rentals primarily impacts 
poorer and younger Venezuelans as they cannot afford to buy 
an apartment. 
 
7. (SBU) Post has experienced these trends first hand as the 
number of available properties has declined and costs have 
skyrocketed.  Post now requires waivers for every lease in 
the housing pool (as they are in excess of USD 25,000/year) 
and the few remaining renters ask to be paid in dollars in 
accounts abroad.  According to the Director of human 
resources firm Marsh Venezuela (PROTECT THROUGHOUT), 
competition for housing in the Valle Arriba neighborhood 
where the Embassy is located is complicated by its 
desirability for expats employed by multi-national companies, 
who stipulate an apartment in the neighborhood as part of 
their contract.  These expats are understandably eager to be 
close to the American school and in an area deemed "safer" 
than other parts of Caracas. 
 
8. (SBU) BRV actions have discouraged investment in new 
projects.  According to the Director of Century 21 Venezuela, 
housing prices peaked in 1998 (before Chavez came to power) 
and had fallen by as much as 25 percent by 2001.  The fall in 
prices coupled with disruptions due to the oil and general 
strikes in 2002-2003 essentially halted construction in the 
country.  Prices have increased in recent years, and by the 
end of 2006 prices had returned to their 1998 levels (in real 
dollar terms). 
 
9. (SBU) Housing starts have trended upwards in the past two 
years as the economy has grown and currency controls have 
forced individuals and firms to invest some money locally. 
Century 21 estimates that there are as many as 2000 
residential projects under construction and the real estate 
chamber expects 105,000 homes to be completed in 2007.  While 
still below Venezuela's needs, this marks a substantial 
increase over recent years. 
 
10. (SBU) Local politicians have attempted to exploit the 
housing shortage by expropriating properties to turn over to 
their supporters.  According to the real estate chamber, 
while Caracas Mayor Juan Barreto threatened to expropriate up 
to 5,000 buildings, in the end only 200 were identified, and 
as of yet none have actually been taken over. 
 
----------------- 
DEMAND AND SUPPLY 
----------------- 
 
11. (SBU) Given the history of inflation and devaluation, 
homes are a primary means of savings in Venezuela.  This has 
also helped drive the price of real estate up as people look 
for "safe" investments to place their money in increasingly 
uncertain times.  The lack of supply and almost inelastic 
demand has led to a surge in prices.  A one-bedroom apartment 
in the upper-middle class neighborhood of El Rosal in Caracas 
now costs upwards of USD 2,500 per month, a 2/3 increase over 
two years ago. 
 
12. (SBU) Real estate is essentially priced in dollars and 
brokers have admitted to Econoff that the trend has been to 
price in dollars at the parallel market rate (Bs. 4070/dollar 
as of June 27) as most sellers are looking to get their money 
out of the country.  The increase in the parallel rate this 
year has contributed to increased prices, as well. 
 
13. (SBU) New residential construction has not been 
paralleled by an increase in commercial buildings.  Office 
projects are significantly more expensive and have longer 
return times (apartments can be pre-sold, whereas offices are 
usually leased).  Bank financing is more difficult to obtain 
for office projects.  The shortage of office space (in 
Caracas, the real estate chamber estimates 80 percent of new 
projects are residential and only 20 percent are commercial) 
has also led to an increase in prices.  Class AAA office 
 
CARACAS 00001318  003 OF 003 
 
 
space now sells for $3000 per square meter. 
 
14. (SBU) Residential properties are often pre-sold and 
mortgages, while limited, are becoming more commonplace. 
Mortgages in Venezuela require 20-30 percent down payments 
with a term of 15-20 years.  Mortgage rates are below the 
rate of inflation, but amounts are limited by family income, 
with most banks refusing to lend more than 20 percent of a 
family's annual income.  Banks are required to have 10 
percent of their portfolios in the housing sector, which is 
actually below most Latin American peers where, according to 
the real estate chamber, housing makes up between 30-35 
percent of loan portfolios. 
 
------- 
COMMENT 
------- 
 
15. (SBU) Venezuela's government has been incapable of 
providing adequate housing for its population for a long time 
and it would appear that the housing shortage has been 
exacerbated under Chavez.  BRV policies such as freezing 
rents and interest rates (during times of high inflation), 
price controls that have led to shortages, large public works 
projects, impossible labor regulations, and relying on 
Uruguayan home builders instead of loosening the reins on 
private sector Venezuelan firms, have all contributed to the 
pitiful situation of housing in Venezuela.  It is estimated 
that anywhere between one and two million Caraquenos alone 
live in barrio slums on the hillsides (most without legal 
rights to their property) and as that number continues to 
grow, associated social problems will grow as well. 
 
BROWNFIELD