What Hugo Chavez’s Death Could Mean For Investors In Venezuela…And Panama

Hugo Chavez’s death could mean that Venezuela is again an interesting investment haven; it could also have negative consequences for the condo investment in Panama City.

By now, you’ve heard that Hugo Chavez is dead. Venezuela has scheduled elections to choose its new president in April. The question in the air now is: What does this mean for Venezuela? Could Venezuela become a new land of opportunity…or will the new guy, whoever he turns out to be, continue with Chavez’s approach to how to run a country (meaning it’d continue being a place too risky for personal investment)?

I’m watching, along with the rest of the world. Maybe we’ll be writing in 6 or 12 months about the best place to buy a beachfront condo in Venezuela. (This country’s coastline, by the way, is long and studded with stunningly beautifully and right now seriously under-valued white-sand beaches. If it were possible to buy a piece of one and feel confident that your ownership rights would be respected, I’d be at the front of the line.)

One question I haven’t heard addressed, though, is what affect Chavez’s death might have on Panama. While no more Hugo Chavez could transform Venezuela into a land of opportunity, it could have a reverse consequence in Panama, especially Panama City.

Panama City’s real estate market has benefitted greatly over the last 10 years from El Commandante’s attacks on the wealthy in Venezuela. Fearful that any wealth they managed to amass was a target for their self-appointed President For Life, Venezuelans have long seen Panama City condos as a safety net. Shop for an apartment to rent, and you’ll encounter Venezuelan landlords. Most people I know in Panama City who rent are renting from Venezuelan landlords. The first apartment we rented when we moved to Panama City was owned by a Venezuelan, as was the first office we rented.

During the boom days in this market, from 2003 through 2008, Venezuelans came in great numbers, using their credit cards to pay US$5,000 at a time for pre-construction apartments. Even after the global real estate crisis hit, the Venezuelan buyers continued buying. They helped to keep the apartment market in Panama City vibrant when American buyers became noticeably thinner on the ground.

Today, Panama City’s condo market is stable, with prices down about 20% to 25% from their highs. Without the Venezuelan buyers, I’d say that values could have fallen at least another 10% to 15% over the past five years, though, of course, we’ll never know.

However, we may now see what happens to the Panama City condo market when the Venezuelans pull out. If prospects back home become more encouraging, it seems sensible to assume that Venezuelans will prefer to invest at least some of their money in their own country’s renaissance.

That said, I don’t see the many, many Venezuelan owners in Panama selling just to sell. Many are getting decent returns from their rentals, and, even if they see a chance in the landscape in Venezuela short term, uncertainty over longer-term prospects likely will linger. I can imagine them selling in Panama and repatriating their capital only if they believe their capital will be safe back home over the long haul. That’s not a probable scenario.

Even if a new government comes out pro-investor, the country has another big issue to address–the big percentage of the population that lives in poverty and the safety concerns that that equates to. Eleven-cents-a-gallon gasoline (the price when I was in the country in 2004) doesn’t resolve social and economic disparity (something that Chavez never seemed to get).

It’s an interesting situation that I’m looking forward to watching play out. I’m reaching out to the few expats I know who are still active in the country to get their thoughts. Now is the time to be putting boots on the ground. Unfortunately, I won’t be able to get down there before the election.

Lief Simon