The Venezuelan commercial real estate sector is set for turbulence over the course of 2013. While we are confident that the leasing market will retain a certain level of stability braced by basic demand dynamics and a lack of new supply, risks are certainly weighted to the downside. The likelihood of an impending Chavismo win in the April 14 elections will continue to suppress the private sector, and, when combined with a weak economic outlook and the depreciation of the bolivar, opportunities for growth in the short term remain limited.
Following President Hugo Chavez's death on March 5, Venezuela is on the brink of a political transition, marking the end to Chavez's 14 years in office. While this opens the scope for a change in government, we believe the ruling Partido Socialista Unido de Venezuela (PSUV) will remain in power and continue to maintain a firm grip on the country's institutions. We therefore anticipate Chavismo to remain the dominant political force in a post-Chavez era.
This is exemplified by the March 2013 introduction of a new dual exchange rate system in Venezuela which will not be enough to address the severe foreign currency shortages in the economy. This in turn will prompt government officials to continue to implement strict regulations to reduce the current high levels of scarcity in essential goods, ultimately curtailing business activity. We also highlight that there is a level of uncertainty in the market as a whole as to what effect the currency depreciation will have upon rental levels, as there remains a chance that landlords may raise rents in bolivar terms in order to offset the loss in value relative to the dollar.
- Our outlook for the Venezuelan construction sector has been closely in line with official data. However, looking forward, we are revising up our 2013 outlook for the industry, based on plans for a new election which should see a continuation of the expansion of housing construction. Factoring in the impact of base effects, we now anticipate growth of 7.6% in 2013 (from 5.0% previously), with the slowdown instead to take place in 2014, when growth is expected to reach 4.1%.
- We forecast real GDP growth to fall by half in 2013, driven by a significant erosion in consumers' purchasing power due to the devaluation.
- The current administration will continue to pursue Chavez's expansionary policies with a focus on social spending as a main strategy to retain the ruling party's popularity. The devaluation will increase fiscal capacity by boosting the amount of local currency the government receives per petro-dollar, though we anticipate large fiscal deficits to remain in place.