Venezuela Real Estate Report Q1 2013

The Venezuela real estate report examines the country's commercial office, retail, industrial andconstruction sectors in light of the re-election of President Hugo Chávez.

With a focus on the principal cities of Caracas, Maracay and Valencia, the report covers the rental marketperformance in terms of rates and yields, examining how best to maximise returns in the commercial realestate market, while minimising investment risk and exploring the relatively static supply and demandlandscape. In spite of an uptick in construction activity as a direct result of government spending planspre-election, the long-term outlook for the industry remains unchanged.

However, in spite of several chronic problems inherent to the market - including a lack of investment,public sector dominance and an anticipated slowdown in economic growth - the commercial real estatesector is not a dearth of bad news. Our latest data collection in July 2012 demonstrated that, while theoffice sector continues to struggle, the landscape for retail and industrial property remains promising.

Key Points:

Venezuela's low-income housing programme is providing a considerable boost to constructionsector output, and in light of strong H112 data, we have decided to revise up our short-term realgrowth forecast. However, following the October 2012 elections, we believe much of themomentum will run dry and, given the high fiscal deficit, government spending may have to bereeled in. Therefore, we remain bearish towards Venezuela's construction sector over themedium term.

We maintain our forecast for a devaluation of the Venezuelan bolívar in 2013 and now seeJanuary as the most probable month for it to occur. While an exchange rate adjustment would betoo politically damaging in the run up to the country's December 2012 regionalelections, Venezuela's sizeable fiscal deficit and substantial depreciatory pressure on the unitsuggest that the government is likely to devalue the currency soon after.

We believe investor confidence in Venezuela's private sector will remain low following the reelectionof Chávez, adding pressures to reinforce political ties with allies such as China, Russiaand Iran to secure investment. However, given the uncertainty surrounding Chávez's health andthe growing unity among the opposition, we cannot rule out a regime change in the comingyears. Even in the event of a new government emerging, it would take years to shift awayfrom Chávez's deep-rooted unorthodox policies that continue to overshadow Venezuela'seconomic outlook.