Boston, MA -- (SBWIRE) -- 08/16/2012 -- Venezuela's real estate sector is like none other in Latin America. In essence, the government - and, thanks to a variety of populist policies, the public sector - is the key player. For years, the government ran a sizeable budget deficit (in spite of the general upward trend in revenues that it received from the energy sector). High inflation has discouraged savings and investment. Populist government policies have also discouraged the long-term commitment of funds to real estate projects. Investors look for real appreciation in capital values. However, it is relatively difficult to identify what is going on as a result of the low level of transactions, particularly in the commercial sub-sectors. Parties who are lucky enough to actually own prime property have little incentive to sell - in a country where there is, and will continue to be, a chronic shortage.

Construction activity in recent months, however, has picked up, as part of President Hugo Chavez's social spending measures ahead of the presidential elections on October 7 2012. Overall construction growth reached 4.75% year-on-year (y-o-y) in 2011, and BMI expects a continued pick-up in activity over the short term.

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Similarly, we expect an uptick in wider government expenditure in the run up to October's election, although we are predicting a slowdown in economic growth in 2013. Real GDP in 2011 came in slightly above our 3.2% estimate, at 4.2% y-o-y. However, while the current macroeconomic trajectory is sustainable until October, we highlight that immediate challenges will face whoever wins the presidential election.

Key Opportunities In The Real Estate Sector:

- In Venezuela, the main opportunity for the real estate market is a wildcard: the possibility that the current administration will completely revise its policies; or that Henrique Capriles' opposition party will assume power and alter investment plans.
- It has been reported that housing will play a major role in October's presidential elections. While current developments are firmly rooted in the residential sector, an increase in general real estate activity may consequently drive interest in the commercial market.
- Automotive production growth is set to continue in Venezuela, although remaining below the peak in 2007. This could support and drive industrial real estate developments.

Key Risks To The Real Estate Sector:

- The key threat is that of ongoing stagnation. Under the status quo, there is little reason for capital to flow to the real estate sector. The distortions that arise from the way Venezuela's economy is managed also constrain the development of large retailers and manufacturers. - The country's debt burden is set to rise, and a third devaluation of the bolivar seems on the cards.

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