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RR RUEHAO
DE RUEHCV #0808/01 0861542
ZNR UUUUU ZZH
R 271542Z MAR 06
FM AMEMBASSY CARACAS
TO RUEHC/SECSTATE WASHDC 3757
INFO RUEHBO/AMEMBASSY BOGOTA 6201
RUEHLP/AMEMBASSY LA PAZ 1824
RUEHQT/AMEMBASSY QUITO 1898
RUEHSG/AMEMBASSY SANTIAGO 3381
RUEHAO/AMCONSUL CURACAO 0692
RUEHGL/AMCONSUL GUAYAQUIL 0385
RUCNDT/USMISSION USUN NEW YORK 0038
RUCPDOC/DEPT OF COMMERCE
RHEHNSC/NSC WASHDC
RUEATRS/DEPT OF TREASURY

UNCLAS SECTION 01 OF 03 CARACAS 000808 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON PGOV VE
SUBJECT: VENEZUELAN URBAN AND RURAL EXPROPRIATIONS CONTINUE 
(PART 1 OF 2) 
 
REF: A. CARACAS 00335 
 
     ¶B. CARACAS 00330 
 
This message is sensitive but unclassified, please treat 
accordingly. 
 
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Summary 
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¶1. (SBU) On March 6, President Chavez signed a Presidential 
Decree declaring a "housing emergency."  The decree makes it 
easier to import construction materials and allows for 
further expropriations, stating only that they will occur 
"without violation of the law." The BRV has fallen short of 
promised housing construction goals (in 2004, it announced 
120,000 homes would be built in 2005 - only 41,500 were 
built), and a weakened construction sector has further 
exacerbated the severe housing deficit.  The government has 
waged a public campaign to vilify the private construction 
sector and is launching plans to urbanize de-populated areas 
and enact real estate price controls.  Over the last few 
years, the BRV housing strategy of solely stimulating demand 
has largely failed -- leaving a large housing deficit 
impossible to cover with Venezuela's existing budget.  The 
BRV is looking toward other countries, such as Cuba, Iran, 
and Uruguay, for imported materials and pre-built homes.  The 
disjointed and improvised BRV position on housing has at 
times included expropriations at the municipal level and 
declarations against expropriations at the Ministerial level. 
(Septel updating rural expropriations).  End summary. 
 
--------------------------------------- 
Chavez Declares Urban Housing Emergency 
--------------------------------------- 
 
¶2. (SBU)  On March 6, Chavez signed a Presidential Decree 
declaring a "housing emergency" in Venezuela - the third 
emergency decree in less than six months (the Ministry of 
Housing (MINVIH) issued one in Nov 2005, as did the Mayor of 
Caracas, Juan Barreto, in January 2006.)  The decree allows 
for more construction material imports and further 
expropriations of urban land, vaguely explaining that they 
will take place "without violation of the existing 
expropriation law."  The decree familiarly cites "natural 
climatological phenomena" (read: unusually heavy rains) over 
the past years as the reason for the crisis. 
 
-------------------------------------- 
BRV fails to deliver housing solutions 
-------------------------------------- 
 
¶3. (SBU) The urban housing shortage in Venezuela is not new. 
Though the BRV likes to blame the weather (in fairness, 
mudslides have wrecked a significant number of homes), many 
Venezuelans have been without adequate housing for over 25 
years (Ref A). (Comment: blaming the weather is largely a 
tactic to divert attention away from the BRV's failure to 
deliver the homes it promised.  End comment.)  In 2004, the 
BRV vowed to build 120,000 homes by the end of 2005 -- it 
only built 41,500.  The President of Venezuela's Construction 
Chamber, Alvaro Sucre, told EconOff that the BRV's number of 
"homes built" is inflated, as it counts remodeling and/or 
significant repairs as "newly built."  For 2006, MINVIH 
promised to build 80,000 homes, though in his March 26 "Alo 
Presidente" speech Chavez nearly doubled the number to 
150,000. 
 
-------------------------- 
An Ailing Construction Sector 
-------------------------- 
 
¶4. (SBU)  Negative growth in the construction sector has 
intensified the housing crisis.  According to the Venezuelan 
Workers' Confederation (CTV), over 50 percent of this sector 
is "paralyzed."  In 1999, 2001 and 2003, the sector 
contracted by 17, 8 and 29 percent, respectively, and only 
saw minimal growth for 2000 and 2002 (4, 13 percent.)  In 
2004-2005 the sector bounced back, but not to pre-1999 
levels, despite a strong correlation between oil windfall 
revenue and construction booms in Venezuela in the past. 
Import licenses are difficult to obtain, and prices for 
 
CARACAS 00000808  002 OF 003 
 
 
construction materials have nearly doubled thanks to 
inflation and increased demand. 
 
¶5. (SBU)  The Minister of Housing, Luis Figueroa, is 
finalizing details on a real estate price bracketing plan, 
which would set minimum and maximum prices for the sale of 
property in high-demand urban areas.  The construction sector 
opposes the price-fixing measure, as previous BRV pricing 
blunders suggest the brackets will likely fail to cover a 
steep rise in material costs and the February 2006 minimum 
wage increase.  According to Sucre, price bracketing will 
only deter investment and boost black market transactions (as 
happened with price controls in the past).  Sucre mentioned 
that existing construction companies would be helped by 
public sector spending, but that new investment (in equipment 
or development projects) was at a standstill due to fears of 
expropriations and price controls. 
 
¶6. (SBU)  The BRV's strategy until now has focused on 
catalyzing demand by providing grants and low-interest loans 
to home buyers.  Persons holding one of the approximately 
2,600 "high risk area housing" certificates (for areas prone 
to mudslide risk) issued from Nov 2005-Jan 2006 obtain USD 
8,000 (average) grants for new homes from the National 
Housing Council (CONAVI).  For 2006, the Central Bank has 
announced that banks must set aside 10 percent of their loans 
for housing: 30 percent for home buyers and 70 percent for 
the construction sector.  According to Sucre, in the last 
four years, 70 percent of housing construction has been 
financed by the BRV, while 30 percent has been through 
independent private sector funding. 
 
----------------------------- 
Other BRV Housing "Solutions" 
----------------------------- 
 
¶7. (SBU)  Though Figueroa declared that BRV housing policy 
would not be "directed at invasions or expropriations," on 
February 24 Caracas Mayor Juan Barreto issued expropriation 
decrees for 32 residential buildings (in addition to the 13 
decreed in Jan 2006).  Barreto also decreed the additional 
expropriation of 63 single-owner residential buildings whose 
tenants have rented the properties for over 10 years.  His 
justification for the expropriation was that the owners had 
been able to recover their original investment many times 
over and mandated that tenants would "negotiate" the property 
sale directly with the landlords.  Sucre told EconOff that 
privately, the Minister of Housing disagreed with Barreto's 
approach, and believes expropriations are counter-productive. 
 Sucre added that he speculated Barreto was getting the "ok" 
from higher-ups. 
 
¶8. (SBU)  Urban expropriations aren't just residential -- on 
February 12, Mayor Barreto expropriated a newly-constructed 
marketplace pavilion for use by informal vendors.  Shortly 
thereafter, on March 6, the Tupamaros, a Chavista armed urban 
group, gave an ultimatum to a supermarket owner to vacate his 
store so that the facility could be used to set up a Mercal 
(government-funded supermarket) for the "good of the 
Venezuelan people."  These residential and marketplace 
expropriations have not prompted waves of squatters, as was 
the case in January (see Ref A). 
 
¶9. (SBU)  On February 26, an official from Mayor Juan 
Barreto's office declared that "in XXI century socialism, 
housing is not a for-profit business."  Interestingly, the 
2005 Housing Law specifically called for the "substitution of 
the traditional private sector," implying that the BRV would 
now take on housing construction instead of private 
developers.  Experts agree that the BRV has neither the 
managerial expertise nor the resources to replace the private 
sector and address the nation's 1.68 million unit housing 
deficit.  (Note: on the optimistic assumption of a USD 
35,000/unit investment, it would take USD 58.8 billion to 
overcome the deficit -- an amount well beyond the BRV's 
reach.  Housing expenditures accounted for USD 2.4 billion in 
the USD 40.5 billion 2006 national budget.  End Note.) 
 
¶10. (SBU)  In February 2006, MINVIH announced "Plan Caracas," 
a strategy to urbanize de-populated areas in the capital. 
The Plan identifies 380 hectares of available land for 
construction of 17,565 homes at a cost of nearly USD 940 
 
CARACAS 00000808  003 OF 003 
 
 
million, with final home prices ranging from USD 
35,000-55,000 (Note: After subsidies and low-interest loans, 
this price range is feasible for middle-lower class 
Venezuelans.  End Note.)  According to MINVIH, 40 percent of 
the land identified in the plan is privately-owned, and the 
BRV hopes to negotiate with owners before resorting to 
expropriation (Note: for now, this doesn't include the golf 
courses Barreto threatened to expropriate in January 2006.) 
Figueroa also proposed taxing "idle properties" to nudge them 
into the market.  Separately, Chavez himself has recently 
proposed allocating housing funds directly to the municipal 
level community councils (Septel). 
 
---------------------------------- 
Looking to Cuba, Iran, and Uruguay 
---------------------------------- 
 
¶11. (SBU)  The Housing Minister announced on March 16 that 
the BRV would buy 1,500 metric tons of cement from Cuba, and 
traveled there March 17 to oversee the first shipment.  In 
January 2006, the BRV announced plans to create a joint 
cement company with Iran and in Feb 2006 signed a 10,000 unit 
housing contract with them.  Although Chavez announced that 
there is a cement shortage, according to a prominent economic 
contact, CEMEX Venezuela (a multinational cement company) is 
exporting 70 percent of its production for a lower price than 
it could sell it for in Venezuela in large part because they 
are facing payment delays from local buyers.  After President 
Tavare Vasquez' official visit on March 14-15, Chavez also 
agreed to purchase 12,000 pre-fabricated Uruguayan mobile 
homes. 
 
------- 
Comment 
------- 
 
¶12. (SBU)  Venezuela's housing deficit is huge - and closing 
the gap would require expenditures larger than the central 
government budget.  Taking into account that even the most 
simple housing complexes take 1-1.5 years to complete, no 
amount of investment will deliver immediate results.  The 
housing problem remains a thorn in the BRV's side, and 
blaming the private sector while pursuing a policy of direct 
BRV investment (awarding contracts, soft loans, etc), and 
selected expropriations has been the strategy so far. 
However, internal disagreement (between the Minister of 
Housing and the Mayor, for example) hints at a continuing 
uncoordinated and improvised urban expropriation policy. 
Even though expropriations and price controls deter 
badly-needed investment in the sector, the populist rewards 
of such policies are more important to Chavez than addressing 
the root of the housing problem itself.  So far, most 
house-hunters blame private-sector "profiteers" for their 
woes.  End Comment. 
BROWNFIELD