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Oil Heats Up a Housing Market

Petrodollars contribute to soaring prices in Caracas. Some blame the president's socialist policies for the lack of new construction.

July 29, 2006|Chris Kraul | Times Staff Writer

CARACAS, Venezuela — The lease that Vanete Barr and her husband signed for an apartment here in October 2004 didn't seem like a bargain at the time, given the huge number attached: $3,500 a month.

But even with the Barrs paying that lofty sum, it certainly looks like a steal these days.

Rents have since doubled in her building in the expensive San Roman neighborhood, which is popular with foreigners. Prices have risen 60% in the mid-priced El Rosal and La Castellana barrios that cater to natives. And similar increases have registered in the blue-collar zones of Sucre and Baruta, brokers say.

"This place is becoming more expensive than Manhattan," said Brazilian-born Barr, whose American husband works for a Texas-based oil drilling firm. She keeps tabs on the market and helps arriving couples in her husband's company to find housing. "It's because business is going really well here."

Rising housing costs have cast a pall in the city otherwise prospering with new wealth. With the South American country expected to reap more than $50 billion in crude oil sales this year, President Hugo Chavez is liberally circulating the proceeds abroad and at home.

Just this week he joined Russian President Vladimir V. Putin at the Kremlin in announcing a deal to buy Russian military aircraft as part of a long-term package of contracts worth $3 billion.

Chavez also has used Venezuela's oil windfall to wield influence closer to home, offering fuel under preferential terms to his Caribbean neighbors.

But here in the capital and in other urban areas, the influx of petrodollars is contributing to a superheating of the housing market and virtually every other good or service.

Although the Chavez government has largely been able to contain inflation by subsidizing food and keeping a tight rein on monetary supply, real estate prices in many neighborhoods have rocketed because of a housing shortage. Brokers and economists say it could last many more months, even years.

Chavez has taken measures to encourage housing demand, especially among the poor, but his socialist policies have scared away builders, creating a classic market imbalance: Too many renters and buyers are chasing too few available apartments and houses, and prices in many neighborhoods are going through the roof.

Apartments at any price are hard to find, said Pilar Szabo, a real estate broker with Century 21-Mi Casa. She said Century 21's listings, covering two-thirds of this city of 4 million residents, showed only seven apartments available at rents of $2,500 a month or less. And with little new construction underway, prospects for price breaks are dim, she said.

As long as oil prices stay high, Venezuelans probably will keep spending. The economy has grown at a 9% clip in the last year and a half, and the Chavez government has boosted government spending 40% this year from last. It has expanded public works and added hundreds of thousands of Venezuelans to the government payroll, many of them working in low-paying social outreach projects called "missions."

The result has been a 30% rise in consumer spending in the first five months of 2006 from the same period last year, according to a new AC Nielsen audit of Venezuela store sales. Purchases of clothing and other household items are up by 39%, alcoholic beverages by 28% and general foodstuffs by 38% in stores monitored by Nielsen.

Demand is so strong that customers have to wait as long as eight months to buy cars and trucks at Caracas dealerships.

"The consumption boom we are witnessing is typical of oil boom periods, as seen both in Venezuela's past and in other countries.

"But this time is much more dramatic," said Francisco Monaldi, an economist with the Institute of Advanced Administrative Studies in Caracas.

Ordinarily, the spending binge would be expected to cause rising inflation, but just the opposite has been the case.

The Chavez government brought inflation down to about 11% this year from 14% in 2005 and is promising a single-digit rate next year.

How does Chavez do it? He uses much of his oil wealth to subsidize the prices of basic foodstuffs sold through the government-run Mercal retail chain, which accounts for 50% of grocery sales in Venezuela. The government buys pasta, sausage, cooking oil and frozen chicken at wholesale, usually from foreign suppliers, then sells the goods at the 13,000 Mercal outlets at an average 35% discount to traditional store prices.

Inflation also is contained by central bank policies that drain as much cash as possible from the money supply. The bank does that by buying bolivars on the open market to boost their value and by selling bonds at high interest rates to banks, creating an incentive for them to shed cash.

But Chavez's moves have been less successful at keeping housing prices under control. The culprit, experts say, are policies that are at odds with one another.

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