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Venezuela home builders face new difficulty

Those constructing houses in the Venezuela of Hugo Chavez already contend with land seizures and squatters and now may have to refund inflation charges to buyers. The country is strapped for homes.

July 31, 2009|Chris Kraul and Mery Mogollon

BARQUISIMETO, VENEZUELA — Home-building in Venezuela is not for the faint of heart.

For starters, you've got land seizures, squatters, double-digit inflation and socialist President Hugo Chavez's unveiled hostility to private enterprise.

Now builders such as Mariano Briceno, a 30-year veteran of the construction industry here in western Venezuela, are facing a new curveball: an order from the Chavez government to give large refunds to home buyers.

"This isn't socialism -- it's abuse and nonsense," said Briceno, an MIT grad. He said the national home builders association is protesting the order this week before the Supreme Court. "It's a populist attempt to pit the have-nots against the haves."

The mostly low- to middle-income buyers at Briceno's Yucatan subdivision paid cash at the start of construction, but promised to pay adjustments for inflation between purchase and move-in, a common sales practice here.

The clause is designed to protect builders against rising material and labor costs, but Public Works and Housing Minister Diosdado Cabello has accused the construction industry of abusing the practice, and this month he ordered builders to refund the inflation charges.

Venezuela's inflation rate over the last two years has topped 40%. With an average final price of $30,000 per unit at his Yucatan subdivision here, Briceno says, returning the inflation charge to his 2,000 buyers could bankrupt him.

The increasingly difficult climate for home builders and the inability of the Chavez government to deliver on promises to build enough apartments and houses have led to a housing deficit now estimated at 2 million units.

One survey recently rated Caracas, the Venezuelan capital, as the most expensive city in Latin America for foreign executives, in large part because of skyrocketing rents caused by the housing shortage.

Chavez has presented several plans to address the problem, and has often said housing should be controlled by the government. He recently announced a new kind of low- income housing to be financed by oil revenue. Still, private industry built 45,600 units last year, twice as many as the government.

Miguel Tinker Salas, a history professor at Pomona College, cited abuses in the home-building industry's practice of buyers paying in advance and then having to pay more later for inflation.

"Undoubtedly, the construction companies need to recoup cost increases, but with little control over the process, some companies have also used the system to increase profits," Tinker Salas said.

Cabello, the Chavez minister who issued the decree requiring builders to refund the inflation adjustments, said his office recently has received 1,700 complaints from home buyers about excessive markups for inflation.

Chavez and his local allies have seized dozens of private properties this year, mostly farms and ranches that the government deems to be underutilized. He has also encouraged squatters to occupy land and residential buildings.

The measures reflect Chavez's goal of building a socialist economy and weakening private enterprise, but they have had a chilling effect on construction, exacerbating the housing shortage, critics say.

One new wrinkle was added this week when Chavez allies in the Vargas state government authorized the takeover of two golf courses in the seaside Caracas suburb of Caraballeda. Local officials say the courses will be converted to housing and parkland.

Economists say the Chavez government's attempt to impose controls on vital industries such as housing has only led to scarcities and rising prices. According to Venezuela's central bank, the inflation rate for the last 12 months is running at 27%, the highest in Latin America.

The constantly shifting playing field for private industry is a major factor in investor flight and the alarming drop-off in the economy's productivity, said economist Jose Manuel Puente, an economist at IESA, a Caracas graduate school of business.

"Venezuela has always had a housing deficit, but it's gotten worse in the last 10 years, since Chavez took office," Puente said.

"With the oil price boom, he has had the resources to improve things, but relatively little has been accomplished."

If the government decree sticks, Briceno is unsure how he will manage the refunds and whether he will be able to keep his 300 workers on the payroll.

"If this becomes law," he said, "the collateral effects will be loss of jobs and economic paralysis."

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Kraul and Mogollon are special correspondents.

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