Construction in Venezuela:

SUSTAINED AND PROGRESSIVE GROWTH IS THE GOAL

 

By: Jessica Morales

The average growth of the construction sector in Venezuela from 2004 to 2007 was 23,8%, a conduct basically attributed to an increase of public investment due to the higher income resulting from oil prices but also influenced by the social programs for the purchase of housing and preferential financing for producers and buyers of housing units.

Specifically in 2007, construction activities in the country showed a 13,3% increase, lower than the average of the past four years. But upon review of this behavior by periods, according to the figures of the Banco Central de Venezuela, the growth of construction during the first 2007 quarter was 27%, a figure much higher than the figure that, according to the Venezuelan Construction Chamber, was registered for the same period of the current year. It has been estimated that there was 5% growth of this activity between January and March 2008.

The President of the Chamber, Fernando Azpúrua, has explained that this slowdown in the activities of the construction sector in the first 2008 quarter, compared to the first 2007 quarter, is basically due to an increase in the construction proceedings and a slow disbursement of public resources for large infrastructure works. “Resources have flowed better than during the last quarter of 2007, but the amounts are still very low, not what was expected”.

The Venezuelan Construction Chamber estimates that even though the activities of the sector began at a slow pace, it will get better.

One of the elements taken into account with respect to the behavior of the activity is that 2008 is an electoral year and, based on previous experiences, there could be a significant disbursement of resources for infrastructure investments in the upcoming months.

The Chamber also estimates that construction growth this year will be near 13% to 14%.

Fernando Azpúrua affirms that this sector is operating at practically 100% of its installed capacity. But one of the principal goals of this sector is to achieve sustained growth and to become less vulnerable to the behavior of oil income. That is, to maintain a moderate but constant rhythm. Azpúrua recalls the experience of this sector in the past years, during which it has gone through periods of great activity and then has had to face periods of paralysis, affecting investment. Past experiences create uncertainty among manufacturers of materials, promoters and constructors, who stop to think before daring to invest. “That is what is generally happening in this sector, people are busy, but there is fear that next year there will not be any investment and the sector becomes deadlocked, as has happened in the past. Oil prices go up, then there is construction, but then, next year, there is no money and you end up with investments in machinery and cold, unsold apartments. That is the fear”.

For these reasons, they have proposed the creation of a housing and infrastructure plan together with the National Government that determines the works and housing to be built, its location, the materials required for their construction and resources needed for their building. Fernando Azpúrua states that this proposal seeks the approval of a long term State plan that is to be performed notwithstanding which government is in charge; a plan that offers reliability among promoters and entrepreneurs of the sector to make the required investments.

 

 

Housing Solutions

 

The housing inventory of the public and private sector of the country is 244.189 housing units which are under construction or already have the necessary permits. According to figures of the Construction Chamber of Venezuela, 112.00 from this total, there are already 112.000 under construction. However, the President of the Chamber affirms that only 100.000 will be completed this year.

However, this figure is much higher than the figure registered last year, which, according to figures of the Ministry of the Popular Power for Housing and Habitat, was of 65.339 delivered units.

Venezuela requires 1.800.000 housing units to meet the national demand. Each year, 110.000 new housing units are required only to cover the vegetative population growth, not counting the units needed to decrease the housing deficit that has accumulated over the years.

The Construction Chamber of Venezuelan estimates that in order to cover this demand, over 250.000 new units per year should be built. This is one of the goals that they know will not be achieved in the short term but intend to do so within the following seven years in a progressive and sustained manner.

Nevertheless, Fernando Azpúrua warns that, at the pace the construction sector is working - 100% of its installed capacity - up to 120.000 housing units per year could be built. That is why building 250.000 houses and apartments per year require an increase of the material manufacturing capacity, technology and generally the capacity of the entire construction sector. Doubtless, this implies an increase of investment levels.

He believes that 2.000 housing subsidies are required for the construction of these 250.000 housing units. The Chamber expects that the 30.000 units delivered in 2007 are doubled this year.

 

Scarce Materials

One of the difficulties that the sector has had face recently has been the construction material shortages.

The President of the Construction Chamber of Venezuela states that in the case of cement and steel there have only been a few specific difficulties related to transportation issues. He says that, with respect to the production of cement, the country has an installed capacity of 10 million tons per year, and consumption is 7.4 million tons per year. Further, one of the problems with this material has been its cost. In Venezuela, the cost of cement is lower than in countries such as Colombia, resulting in a production flight. He adds that the steel production entirely covers national demand.

Azpúrua says that the problems with materials are related to added materials and pottery. Many pottery stores closed down since 2002, never to reopen.

According to a study performed by the Chamber, all of the available aggregate material was consumed in 2007. Therefore, he believes that to increase concrete production new investments in sand domes and quarries must be made, as well as a speeding up of the times to obtain the permits required from the Ministry for the Popular Power for the environment and from the Regional Governments.

This activity also requires the doubling of heavy machinery in the country and the increase of qualified workforce in the sector.

 

 

Rising…

 

According to figures of the Banco Central de Venezuela, between April 2007 and April 2008, the price of construction materials suffered a 22,8% increase.

Clay products showed the largest price increase at 58,5%. Steel products suffered a 14,9% increase; cement products and lime, 5,5%; concrete aggregates, 15,1 %; wood for casing, 49,5%­­; concrete products 26,2%; and plumbing materials 40, 1%.

The price increase of materials has resulted in the increase on prices of housing units, which, according to Francisco Neri, President of the Real Estate Chamber of Venezuela, was more than 30% in 2007.

 

Caracas Prices.

 

Real estate in the Caracas Metropolitan Area is the highest of the country and it varies according to the municipality where it is located.

Thus, in the Baruta Municipality, the price per square meter is between Bs.F:3.400 to Bs.F:14.700; in the Chacao Municipality, the price per square meter is between Bs.F: 3.700 and Bs.F:14.800; in El Hatillo, the minimum price per square meter is between Bs.F: 3.400 and the maximum at Bs.F: 12.700; in the Libertador Municipality, the price o the square meter is around Bs.F:2.000 to Bs.F:6.000; and in the Sucre Municipality, the price is between Bs.F:2.000and Bs.F:12.000 per square meter.

These are the prices for sale units in the secondary market, that is, used houses or apartments.The number of housing units commercialized in this market was 16.997 in 2007, well below the 19.900 commercialized during 2006.

Francisco Neri, President of the Real Estate Chamber of Venezuela, explains that new housing units are harder to access, the demand is covered mostly by the secondary market which is another element that drives prices up. According to Neri, there are currently 93 projects in their execution phase in Caracas, representing 16.321 housing units and 898.270 square meters. He estimates they will be completed in two and a half years.

 

Behavior of the Real Estate Sector

 

The President of the Real Estate Chamber of Venezuela informed that during the first quarter of 2008, the sector showed a downfall of approximately 12%. He believes this fall can be attributed to the increase of inflation, the shortage of important materials in the housing area and the announcement of the nationalization of the cement industries and Sidor.

He believes that the basic fundamental to achieve development in the real estate sector in Venezuela is through respect and the guarantee of private property, of large owners and businessmen and of all citizens generally.

Also, to achieve significant advances in matters of housing and urbanism, one option could be granting property titles to persons who have built their houses in barrios and popular areas, so they are able to settle properly if they want to. “I am sure that there are people willing to sell in order to transform those sales into road systems, drinking water, sewage, an adequate electrical system and an improved, harmonious life”.

 

 

The nationalization of Sidor and the cement companies

The Construction Chamber of Venezuela affirms that the beginning the nationalization process of Sidor and the cement companies has no had any impact on this sector yet because the distribution of these materials has not stopped.

Fernando Azpúrua states that these companies and the Government have guaranteed the supply of cement and steel, and that is exactly what they are expecting.

On the other hand, the Real Estate Chamber of Venezuela has stated that the beginning of the nationalization process of these corporations and the labor conflict existing prior to the nationalization announcement has had a negative impact on the activities of the real estate sector. They attribute delays in the deliveries of materials and therefore, in the productive process.

Francisco Neri, believes that instead of acquiring more operative companies, the Government should have created a new cement company or invested those funds in the construction of new housing.

 

 

More malls…

During the last 18 months, 17 new malls were built in Venezuela. These constructions, and the extensions and remodeling of older buildings added 2,500 new commercial premises to the market.

Based on these figures, the number of significantly active malls in the country went from 103 to 120, and the number of commercial premises went from 18.000 to 20.500.

This has resulted in a 15% construction growth in approximately one year and a half. That is, 10 % inter annual.

Arnold Moreno, President of The Venezuelan Chamber of Malls, Merchants and Related, informed that there are currently 10 to 15 ongoing constructions of this kind. Further, he states that the construction of a mall, because of its size, requires an approximate term of 24 to 30 months, from the beginning of the project until its delivery date and opening to the public.

According to figures of this Chamber, there is currently one mall per each 50.000 inhabitants while in other countries such as the U.S., there is one mall per each 7,000 inhabitants. This leads Moreno to believe that there is a lot of room to grow in this area.

The Chamber of Malls estimates the construction sector will show a 7% to 9% growth in 2008.

 

Leases at Malls

The rent amount for commercial premises located in malls varies according to the area in which they are focused. As explained by Arnold Moreno: “The sales of jewelry stores per square meter are not the same as the sales of a movie theatre per square meter. When the jewelry store sells a piece of expensive jewelry, then the piece has an impact in the sale per square meter and also, jewelries tend to occupy small spaces”.

The minimum lease range is paid for large format premises such as department stores and movie theatres. According to figures contributed by the Chamber, the rent can be close to BsF: 30 per square meter.

Smaller premises between 40 and 80 square meters pay an approximate rent between BsF: 120 to Bs.F: 150/Mt2. Gastronomy oriented premises pay higher amounts because they are believed to make the best business within the mall.

Arnold Moreno explains that the Chamber does not fix the amounts of the rent payments. They are established by each mall in a very particular manner, though very similar in all.

According to estimates of the Chamber, these rent payments have had a 20% increase in the past year.