Once the Safest Bet Against Hyperinflation, Real Estate Loses Value

Even though middle-class Caraqueños tried to protect their savings with residential real estate, their year-to-year value dropped dramatically in 2017, leaving them helpless against inflation.

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.