Photo: EFE, retrieved

So you thought owning real estate in Caracas was a good way to defend your savings against hyperinflation? Buddy, you’re hyper-wrong: the value of apartments in Venezuela has dropped so low now, that only boli-capitals and a sweet spot in Chacao or the hills of Baruta can save your investment with some revenues. What’s sadder is the Metropolitan area middle-class is stuck with not an asset, but a liability, because they couldn’t foresee the future.

See, middle-class families in Caracas’ metropolitan area defended themselves against “tolerable” inflation by renting their apartments, or selling them at a high price. At the time, they thought they were making fine deals, as many in that position did, but we took a look at some data from the Cámara Metropolitana Inmobiliaria and guess what? Since September 2016, apartments lost 68% of their year-to-year value, and people sold over 40% more apartments. This brought a vicious cycle of oversupply, with property brutally depreciating as more people left the country seeking to earn a little pocket change to afford their new, better life. The brutal market laws in action.

Focusing on those facts alone is enough for serious concern. In any “normal” country, a 68% loss of value in the real estate market is impossible. During the 2008 housing crisis, CNN was surprised with an 18% drop in just one year, but in 2018’s Venezuela it seems like nobody cares; personal finances only focus on getting the maximum amount of credit possible, or savings in foreign currency, but the loss of value of the middle class’ main asset (their houses) goes under the table.

Only boli-capitals and a sweet spot in Chacao or the hills of Baruta can save your investment with some revenues.

What we’re talking about here is that the equities of many Venezuelan families are practically worthless now, and with little room to improve. The two options are dead simple: 1) they can sell their assets at a massive loss and migrate, or 2) they can stay here, try to maintain the property as best as possible and wait for things to change.

Now, we know what you’re thinking: “two guys whose work is real estate finance should come up with a better strategy.” One recommendation in normal circumstances would be to get a loan against your property to liberate equity in bolivars and convert them into hard currency. Thing is, no Venezuelan bank will give you a loan against the property, because they see the same numbers we see. Another strategy would be having our friends living abroad to acquire residential real estate at a big discount with their foreign currency. If that’s your pick, always remember: the bottom doesn’t exist. The market can keep descending.

So everytime you pass by those great constructions at Las Mercedes, remember they’re being built from ambition and capital power, at a great price that the hopeful people who gave it all to own a house must bear — on their wallets, their minds and their souls.

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27 COMMENTS

  1. In 1983, I turned down an opportunity to purchase a nice 3 bedroom condo in Caracas for 40,000 Bolivars or about $20,000. At today’s exchange rate, it would have taken less than a penny to pay off that loan.

    A doctor we know got the condo. It may be a long time before it changes ownership again.

      • Jose,
        In old Bolivars, not the BF Bolivars Fuertes, the exchange rate would now be
        643,571,000 Bolivars to the Dollar. You are right about the 4.3 rate in 1983.

        • It (the bolivar) was stable for decades prior to that. I read that in the 1930’s-40’s it was actually below Bs.4 – something like Bs.3,18 to the buck. But you also have to take inflation in the dollar into account. That is based on a basket of goods, including housing costs, so it’s a relatively true comparison, given that the dollar has been the world’s reserve currency for a long time (I think I got that right). Inflation in the dollar from exactly 1940 to 2018 is over 1,700% – that is, it takes $17 dollars today to buy what $1 dollar bought in 1940.

          Here: https://en.wikipedia.org/wiki/Venezuelan_bol%C3%ADvar “The bolívar is named after the hero of Latin American independence Simon Bolívar. The bolívar was adopted by the monetary law of 1879, replacing the short-lived venezolano at a rate of five bolívares to one venezolano. Initially, the bolívar was defined on the silver standard, equal to 4.5g fine silver, following the principles of the Latin Monetary Union. The monetary law of 1887 made the gold bolívar unlimited legal tender, and the gold standard came into full operation in 1910. Venezuela went off gold in 1930, and in 1934 the bolívar exchange rate was fixed in terms of the U.S. dollar at a rate of 3.914 bolívares = 1 U.S. dollar, revalued to 3.18 bolívares = 1 U.S. dollar in 1937, a rate which lasted until 1941. Until 18 February 1983 (now called Black Friday (Viernes Negro) by many Venezuelans),[9] the bolívar had been the region’s most stable and internationally accepted currency. It then fell prey to high devaluation. Exchange controls were imposed on February 5, 2003 to limit capital flight.[10] The rate was pegged to the U.S. dollar at a fixed exchange rate of 1,600 VEB to the dollar.”

          I’m not doing the math on the Bs.1,600 again. I did it once, and I think I got it right, that it still works out to very close to a 1,000 to 1 devaluation relative to the dollar. Taking dollar inflation into account, divide today’s BF exchange rate by about 17, and you get a valid comparison. So … let’s take BF 680,000 to the dollar today just to make the math easier … i.e. 4 x 17 = 68. BF 40,000 to the 1940 dollar, and someone else can do the math on the devaluations of the Bs.3.18 to the buck, through the Bs.1,600 thing, to check on the accuracy of the “add three zeros” math, but if that’s correct, then Bs.40,000,000 is the number. Actually, a little more by about (I mean “about”) 25% to devalue from Bs.3.18 to Bs.4.30. Heck, call it Bs.60,000,000 and have done with it.

          I hope someone bothers to read this. The sick feeling is, “Does it make any difference?” But yes, it does.

          • Thanks Gringo,
            You demonstrate great historical knowledge of Vzla.
            The bottom line is that the Bolivar is at most chump change to the dollar today. 60,000,000 Bolivars is about 9 dollars.

            I have not heard about toilet paper shortages lately. Have Bolivars replaced TP?.

    • During my maternal grandmother’s retirement years (the 1980s and 90s), her oldest son rented a house for her: 1,000 Bolivars a month for a four-bedroom, three-bath quinta with an enormous flowery garden and a backyard full of mango and guava trees. It was paradise during my childhood. At one point, the owner of the house offered it to my uncle, along with its twin on the next block, for 1,000,000. At the time, my uncle thought it wouldn’t be a good investment, since my grandma was getting to the end of her life. Were his knees in decent shape today, he’d physically kick himself every morning.

    • No, Gringo. The linked Petrodollar is a previous cryptocurrency, unrelated to Maduro’s Petro. While it is a failed project, it gained some momentum earlier this year due to the confusion with Venezuela’s “cryptoasset”.

      • Thank you. I don’t mean to impose on your knowledge or generosity, but I’m really kind of curious about whether anyone has an actual sales value for Maduro’s Petro cybercurrency? The “guarantee” is for the market price of a barrel of oil, and it seems to me that guarantee would be discounted at about the same rate the bonds are discounted at. I haven’t heard of anyone walking into some government building with a cell phone with one Petro on it, and walking out with $60 dollars (or whatever the market price of Venezuelan crude might be that day). And I have no idea what denomination of a bill payable to the Venezuelan dictatorship in Petros equates to in BF. E.g. if someone owes BF 10,000,000, how many Petros is that?

        Just to make one post only of this, and include a comment on real estate in Venezuela, back in 2015 when I looked at it for the first time in ages, it seemed unreal to me that anyone would pay approximately 50% of the prevailing market rates in the U.S., for housing in Caracas. Checking listings in Venezuelan newspapers, that’s what I saw. The explanation was that real estate was seen as a means of preserving value in a highly inflationary environment. And later someone suggested that the government built new buildings as part of El Guiso.

        In 2007 in the U.S., there was an inflated real estate market, and prices in some extremely inflated areas did fall by as much as 50%. American homeowners as a class have been known to, in some few instances, walk away from their mortgages when they owe more than the house is worth in that current market.

        The philosophical implications of all this are very interesting, in this hyped world of financial assets, that money is after all, only a vehicle of exchange. A long time ago (decades), someone said words to the effect that the only real value is the utility one gets from ownership of something physical. I’m not sure that’s entirely comprehensive (because it ignores, for example, that one can borrow money to invest in producing assets, and the lender receives interest payments, but probably nothing is ever entirely comprehensive).

        That idea of physical ownership certainly applies in the sense of real estate in Caracas in what sounds like a crashed market, that all finances and monetary profit and loss aside, one has the utility of a place to live. And in the converse I think it applies in the notion that cybercurrencies are a medium of exchange and have very little other value other than pure speculation.

  2. I don’t understand what the 68% is based on. Real prices? Nominal prices? Bolivars? Bolivars adjusted for inflation? US dollars? In normal circumstance it wouldn’t be a big deal but the inflation rate was 2,616% for 2017 according to the IMF. So the big gorilla here is the value basis. Maybe the Big Mac Index? Oh! Wait! They don’t sell Big Macs in Vz anymore. Geez! In Venezuela everything seems to be at least ten times more complicated than it should be.

    • Lorenzo – Good question. I’d guess it’s based on dollars. But speaking of Big Macs … buy a house with a cellphone and a Petro account? It’s a bit like Japanese Bunraku Theater – all shadows on a screen.

    • Real value against hard currency, also, properties tend to depreciate over time, so real estates with decades of crumbling apart are basically worthless because of that.

      “They don’t sell Big Macs in Vz anymore.”

      Actually, they do, that they’re not affordable for the “perraje” (80% of the population sunken in extreme poverty) is another issue.

      I don’t have an exact price for the burger now, maybe after I get out of the workplace I can take a look at the local Mc Donald’s.

  3. “Another strategy would be having our friends living abroad to acquire residential real estate at a big d
    discount with their foreign currency.”

    We sold ours … I dont know, I think 10 years ago?

    Got a very ridiculous price for it that is going to look like a jackpot today.

    Sorry but I dont see it. Would would you buy something in Caracas? Apart from all the normal problems of being a very distant landlord, it would be sitting on an investment that loses money all the time for the hope that someday it will recover. Oh, yea, if it recovers I may make some money out of it.

    If.

    Who knows when.

    • If I had any money I was willing to gamble with I’d buy properties in Industrial zones (Guarenas/Guatire, Maracay, Valencia) or in your typical middle class enclaves in Caracas.

      This is money you have to be willing to kiss goodbye, of course, but I’m willing to bet that 2 years after this regime goes bye bye you’ll see rapid appreciation that will allow you to double or triple your money.

      • Or it gets nationalized, and the records of the previous owners get lost. The only decent speculation would be buying up in the wake of Marines – from fleeing enchufados.

        • Here you bring up a point not mentioned often enough.

          Records, specifically property records and other notarized docs.

          With so many Cubans entrenched in the notaries and registries of Venezuela, who’s to know how fast and loose they’ve played with these vital documents and records.?

          • Well, for the record, the almost 7 million fake votes chabizmo gets in EVERY recent election clearly were pulled from the cubans’ sleeves.

  4. Fact is the bottom has totally fallen out. There’s nothing to hang on. Word I’m hearing is that those bondholders who have been ignored through default are organizing for acceleration, and if that goes through people will actively be going after whatever resources Chavismo has left. Maduro has ignored everyone but he can’t ignore people going after all he has overseas and any oil bleeding out of the country. And if some form of oil embargo happens following the sham election in a few weeks, and it seems likely, the chaos will be grave and the borders to Colombia and Brazil will have to be secured for all the people pouring out. Whoever is left in what then would be a totally isolated failed state would literally be on their own.

    Sure hope I’m wrong about this. The Chavistas, as mentioned, survive like cockroaches. They can’t seemingly be killed even by a nuclear blast. But how they survive the above is anybody’s guess.

  5. Would you buy property in Haiti, Syria, Afghanistan, Vzla or Somalia? Sure! Depending on 3 factors: when, for how many pennies, and the drugs you’re on.

  6. My wifes family has since evacuated Venezuela, but they did have some property that they rented. It turns out that the guy who was taking care of the properties decided to leave Venezuela too, and now nobody knows what is going on with the properties. One has squatters occupying it (the neighbors were offered the property free of charge and it was they who told us about the squatters) and the other… nobody knows. My guess is that Maduro will deem it “abandoned” and take it as war treasure, to be given to a worthy Chavist.

    Anything in Venezuela right now is a suckers game, IMO.

  7. Zimbabwe, though, happens to be an excellent choice, way better than Venezuela or Congo these days. A solid ranchitos for the right price, 3 bs. fuertes. Superb investments choices in Africa.

  8. Great article! It is crazy an investment as solid as real estate has depreciated this way. The tricky thing about the current situation is that it might be the best time to buy if you have the financial means to do so. However, recouping that investment would only be possible if there is a change in government. That is the bet my friends. That is the bet… And with the current odds, might as well just try at the casino.

    • There is an old, old saying: “The time to invest is when blood is running in the streets.”

      Not quite there yet.

  9. This story must mean that many owners have abandoned their properties, or at least have lost all incentive to maintain them. So as the chavistas have boasted about building homes for the people, their policies are ensuring that the stock of existing homes is rapidly deteriorating. Thus one of their few (inflated) claims that was not totally without substance is nonetheless being nullified by the disastrous economic situation.

  10. Heheheh, one of the users who used to post very often that “venezuelans deserved chabizmo because they are so stupid!” must be biting his elbows now seeing how his allegedly six-figure business of real estate is now worthless.

    https://www.caracaschronicles.com/2018/01/28/crisis-consumes-venezuelans-nobody-else/

    “I was writing those comments on the day i sent my wife to live back in France, as i hold the fort here so that my six figure investments dont go to shit in Venezuela.”

    That must be the reason people like that twit stopped posting here, must be trying to scrounge the six-figure money that went to shit because “benesuelans deserbed it”

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