Venezuela is one of the countries in Latin America that attract the most interest from investors. The difficult economic, political and social situation it is currently undergoing, far from ruling out the country as an attractive destination for investments, has made it a destination where the investment return in the mid-to-long-term is much higher than in practically any other country.

Venezuela has been in everyone’s eye politically and economically in recent years, but for all the wrong reasons. A couple of decades ago, the country was one of the most stable democracies in Latin America and a thriving economy.

But after 20 years of socialism, things start going south.

Despite a huge oil revenue due to the price hike of over $100 for many years, Venezuela was an economically unstable country: Double-digit inflation, isolation from international markets, growing debt, and a dramatic reduction of the FDI flow.

By 2014, inflation in Venezuela was close to 70% and the GDP was already declining. Everything got worse when oil prices fell in 2015 and then, in 2018, when the US approved the first group of economic sanctions that were not exclusively aimed at high-ranking officials of Maduro’s regime.

All this led to an economic crisis that included inflation of 10,000,000 %, according to the IMF. Also, the last time Venezuela’s GDP grew was in 2013. Since then, it has contracted by 49.6 % until 2018. This means that it is projected to fall by more than 60% between 2013 and 2019.

Reading all this, you will surely think that in Mundo we are crazy to recommend investing in such a country. Of course, considering the current situation Venezuela is going through, it doesn’t seem too attractive for investments.

However, with great risk come great rewards. Venezuela has hit rock bottom and that means it is wise to bet on a medium- or long-term economic recovery, even if there is no political change. In fact, before the coronavirus crisis, Venezuela was already taking some small and shy steps towards small deregulation of the economy in search of progressive recovery.

And, as we told you in the title, real estate investments promise an otherworldly investment return for those who are bold enough.

It’s certainly not an investment for the faint-hearted, but Warren Buffet once said, “when everyone is afraid, be greedy.”

Venezuela seems to be a wonderful opportunity for those who want and can take the risk. Across the board, Venezuela resembles Russia and the post-Soviet states of the 1990s: failed socialist economies with a highly educated population, vast natural resources, demand for western goods, and almost no foreign investment.

Just look at Cuba: with much less potential than Venezuela, a military dictatorship, and a barely shy opening, it is receiving a huge influx of investment.

Real estate: the best bet in Venezuela

Venezuela enjoys very diverse landscapes and cities: from the financial potential of the capital, Caracas, the oil and agricultural potential of Zulia, to destinations with great tourist importance such as Margarita Island. Venezuela offers all kinds of investment opportunities in diverse sectors, all with great expectations of return.

The complex political situation that Venezuela is currently going through is characterized by a series of international economic sanctions that the government of the United States of America has issued through the Office of Foreign Assets Control (OFAC). The sanctions aim at hindering and even blocking transactions with the Government of Venezuela and with any public or private entity that operates within certain economic sectors.

The ambiguity of these sanctions led some companies, such as Adobe or MLB, to over-comply, which improperly extended their real scope.

The US Government’s economic sanctions prohibit almost any type of commercial transaction with the Venezuelan Government and any of its institutional agencies. These prohibitions are extended to the oil sector and any organization where the Venezuelan government or its agencies own 50% or more. This, considering most of the Venezuelan industry was nationalized, leads inaccurate analysts to say it’s an impediment to operations with and in Venezuela.

On the other hand, it is important to emphasize that US sanctions do not prohibit transactions between individuals on assets located in Venezuela. Hence, the real estate market is a market with high potential investment returns and with the greatest international legal certainty.

Who will be able to take advantage of all the investment opportunities that Venezuela offers? Those who have the best legal advice to guarantee the interests of shareholders, to allow the channeling of investments and the good administration and protection of assets while the current political situation lasts.

Venezuela, having been one of the richest countries in Latin America between the 70s and 90s, enjoys an infrastructure that received considerable investment (economic and intellectual) at the time of its construction. For their construction, the best materials on the market, the most innovative designs, and first-class techniques were used.

Many of these buildings are today in disuse or with partial occupation and waiting for visionaries to acquire and reactivate them.

The current economic situation in the country has meant that many organizations do not have the cash flow or the economic means to maintain and develop the full potential of this infrastructure available in different sectors of the economy.

This potential includes, but is not limited to, shopping malls, agricultural farms, fish and shrimp farms, residential and office buildings, industrial plants, and land in highly strategic locations in the heart of the country’s major cities.

Another element to consider is the massive emigration from the country. There are a number of individuals of all kinds (workers, professionals, novel, and seasoned entrepreneurs) who are leaving the country looking for better opportunities.

This has even caused them to sell their assets (from vehicles to real estate) at excessively low prices to obtain sufficient capital to start a new life in another country. This has caused the supply in the real estate market at auction prices to be excessive. Thus, prices are not only affected by the crisis but are also affected by an excess supply of goods at incredibly low prices.

Venezuela is the perfect storm for the visionary investor. There are lands of excellent location in the main cities of the country with a current market value of $130/m2 when only five years ago, they were valued at $500/m2. There are sectors where these gaps are even more dramatic and whose development potential is unmatched.

Concerning leasing, the regulatory framework differs according to whether the sector is office or industry, commerce, or residential.

Regarding office, industrial and commercial leases, the laws are relatively flexible and allow normal management of these types of rentals. However, in the area of residential leases, the regulatory framework is highly protectionist, to the point that housing evictions are virtually impossible to carry out. This has the following consequences:

1. It is advisable to use an exclusively holding strategy when it comes to investment in housing property;
2. As a result of this difficulty in renting, housing properties are even less expensive on the market because few owners take the risk of renting out this type of property.

Caracas has, by far, the cheapest square meter among Latin American capitals. While in Buenos Aires it is over $2,000 and in Bogota, it is around $1200, in Caracas today it is under $500. And in other cities, such as Maracaibo and Valencia, the square meter cost can be as low as $150.

A three-bedroom, 120-square-meter room in an upper-middle-class area in Caracas could cost around $200,000. The price has fallen to about $60,000. In other cities, like Maracaibo, it is even more dramatic. An apartment of the same characteristics in an AAA zone can cost $50,000, and in a middle-class zone, it can even reach $15,000.

Estimates by various experts in the Venezuelan real estate market indicate that, regardless of the occurrence of a political change, the market of real estate destined for housing should see a revaluation of at least 600% of the current value. In the case of properties destined for office, industrial and commercial use, the revaluation ranges between 400 and 500%.

Even if these estimates are not correct, a revaluation of 100 % is still much higher than any in other places.

This is why one of the most attractive forms of investment is in properties for office, industrial, and commercial use. The profitability of a lease varies between 6% and 12% per year of the current market value of the property. What does this indicate? That, when it comes to real estate structures intended for commerce or business use in general, the investment strategy is not limited to a simple holding company as significant cash flow can also be obtained through a lease of such property.

These levels of profitability by renting are almost unique in the world. However, this requires you to have an expert ally that offers first-class legal and financial advice to guarantee the legal security of the property and the investment in general, since part of the profit is precisely in the correct management of the risks.