International Property Markets Scorecard. Venezuela Market Conditions Complete Survey July 2014

Transcription

1 International Property Markets Scorecard Venezuela Market Conditions Complete Survey July 2014

2 Contents Scorecard Background & Information... 3 Scorecard Methodology Property Rights Legal Protection Registries Formal Ownership In-Country Assessment Information Access to Credit Banks Other Sources Credit Bureau In-Country Assessment Information Effective Governance Democratic Representation Lack of Corruption Efficient Administration In-Country Assessment Information Rational Dispute Resolution Rule of Law Commercial Dispute Resolution In-Country Assessment Financial Transparency Market Stability Independent Asset Valuers Data Standards In-Country Assessment Appropriate Regulation Fair Tax Regime Professional Services Capital Markets In-Country Assessment I nternational Property Markets Scorecard Venezuela 2014

3 Scorecard Background & Information The Scorecard reflects the status of the six Core Elements necessary for transparent and efficient property market development. Each Core Element includes three Lead Indicators that are further divided into Sub-Indicators. Colors signify the strength of institutions that support market development very strong, strong and weak. No color indicates that institutions are very weak. Gray indicates more information is needed for an objective determination. Acknowledgement The International Property Markets Scorecard Project is the latest development in the continued cooperative work between the Center for International Private Enterprise (CIPE) and the International Real Property Foundation (IRPF). The Scorecard derives from the work of an academic panel led by Richard Green, PhD., Director of the University of California s Lusk Center for Real Estate and the University of Denver, Burns School of Real Estate and Construction Management s Global Real Estate Project under the direction of Dr. Mark Lee Levine. Thomas Feola, a graduate student at Georgetown University, contributed greatly to this report. For Education Purposes Only While great care has been taken to provide accurate and current information, neither the Center for International Private Enterprise, the International Real Property Foundation nor its editors, staff or contractors assume responsibility for the accuracy of the data contained herein. Further, the general principles and conclusions presented in the text are subject to significant market fluctuations over time as well as local, state, and federal laws and regulations, court cases, and any revisions of the same. This publication is distributed for education purposes with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. Copyright 2011 by the Center for International Private Enterprise and the International Real Property Foundation This work can be licensed under the Creative Commons Attribution Noncommercial Share Alike 3.0 United States License. To view a copy of this license, visit or send a letter to Creative Commons, 171 Second Street, Suite 300, San Francisco, California, 94105, USA. 3 I nternational Property Markets Scorecard Venezuela 2014

4 Scorecard Methodology The International Property Markets Scorecard Methodology is a systems analysis tool to measure the strength of institutional support for transparent, rational and effective property markets. It provides stakeholders with a visual representation of the status of the core elements necessary for sustainable property markets that help to distribute power and economic opportunity. Quantitative and qualitative measures are taken from established international economic development organizations and paired with on-the-ground assessments of market participants. The purpose of the Scorecard is to bring about an awareness of the interconnections between the microeconomic factors necessary for development and provide advocates, policymakers, and development groups with clear, actionable goals for continuous improvement. Property markets are inherently local and can vary widely from one city to another, even from one block to the next. The Scorecard is meant to measure how policy decisions and levels of implementation affect property markets. It is not meant to provide specific guidance, measures or predictions of individual property performance and is only completely valid in the cities where field assessments have occurred. 4 I nternational Property Markets Scorecard Venezuela 2014

5 1. Property Rights Goal Property rights that are legally protected, secure, recorded in a single, accurate, widely accessible electronic registry and that lead to high levels of formal ownership for all citizens 5 I nternational Property Markets Scorecard Venezuela 2014

6 1.1 Legal Protection (Very Weak) Core Question: Does an effective and sufficient legal framework exist to protect property rights for all citizens? Legal Framework (Very Weak) While the idea of private property does exist in Venezuela, the government has the right, based on its own judgment, to dispose or take control of property. Since the re-election of Hugo Chavez (2006), the government has constantly revoked private real estate rights Are property rights clearly defined and protected by law? Ranked 148 out of 148; Score of 1.61 out of 7; Trend Government corruption and political influence have had a negative impact on property rights. Security of Tenure (Very Weak) Can citizens challenge the legality of government takings? Ranked 148 out of 148; Score 1.47 out of 7; Trend Corrupt courts and the government under Nicolas Maduro has virtually eliminated the ability for citizens to challenge the government. Chavez was known for claiming that land is, by nature, the property of everyon. Source: Global Competitiveness Report World Economic Forum Bundle of Rights (Very Weak) Survey Question SQ1 What is the bundle of rights (group of rights such as occupancy, use and the right to sell or lease) associated with both residential and commercial property ownership? While it is possible to obtain land and title, the Venezuelan government under Hugo Chavez and his successor places extreme restrictions on who gets title. The government has also stretched its power in seizing land without the proper methods or compensation. 6 I nternational Property Markets Scorecard Venezuela 2014

7 Source: An Essential Human Right: Property Rights in China and Venezuela 2013, CIPE Development Housing in Venezuela, Embassy of the Bolivarian Republic of Venezuela to the UK and Ireland %20Housing.pdf 1.2 Registries (Weak) Core Question: Does a reliable property registry exist including cadastral, title and mortgage lien information? No, the registry for real estate is in Cuba, a result of the Government s relationship. This makes it quite difficult to conduct proper real estate transactions or to identify owners. Source: Mercel Carvallo 2012, Private Property is at Risk in Venezuela Cadastral Information (Strong) Survey Questions SQ 2 Is cadastral information (information about the dimensions and location of land parcels) accessible to the public? Yes, though it is a new concept and in the beginning stages. SQ 3 Is zoning/permitted use information included and are regulations respected and enforced? Yes but laws are sometimes vague. However, it seems that zoning is quite regulated, particularly when it comes to environmental issues. SQ 4 Are Geographic Information Systems (GIS) including Global Positioning Satellite (GPS) information used to create and update the registry? Yes, but the majority of GIS and GPS systems are in the beginning stages of development. Several industries and firms are also not always open to sharing specific information as well. Source: Organization of American States, Support to the Cadastres of the Americas 7 I nternational Property Markets Scorecard Venezuela 2014

8 Water in the Bolivarian Republic of Venezuela, Embassy of the Bolivarian Republic of Venezuela to the United States The Imataca Zoning Plan: A New Precedent for Zoning and Management in Forest Reserves?, All That Glitters Is Not Gold l--11-en help utfZz-8-00&a=d&cl=CL1.1&d=HASH9e4c32caab66acce952fbc.8.4 Building Geographic Information Systems from the Ground Up 2004, California Polytechnic State University Title Registry (Strong) Ranked 95 out of 189; Trend What is the number of procedures required to register the transfer of a property from one owner to another? What is the duration of time in calendar days that it would take to complete the transfer? What is the total cost of the transfer including all fees, taxes, etc. expressed as a percentage of the value of the property? 2.5% Source: Doing Business 2014 Registering Property, World Bank 8 I nternational Property Markets Scorecard Venezuela 2014

9 1.2.3 Mortgage Registry (Very Weak) The mortgage registry market in Venezuela is a very new concept and little to no information is available. Furthermore, electronic versions are unavailable and title insurance is not an option. Survey Questions SQ 5 The mandatory use of notaries or similar officials slows down and adds cost to the process. Does a notary need to be involved in the registration process? Yes, several departments at the registry require review and receipts of documents. Staff at the registry is inclined to use discretion (jurisprudencia) in dealing with cases and may ask the clients two times for extra documents, thus delaying this procedure, (Doing Business, 2014). SQ 6 Is information in the registry available electronically? No. Information is not secured and is not online. SQ 7 Title insurance is indemnity insurance against financial loss from defects in title and from the invalidity or unenforceability of mortgage liens. Is title insurance available to lenders? No, title insurance is not an option in Venezuela. Source: Doing Business 2014, Economy Profile: Venezuela /Rendered/PDF/830070Venezuela0VEN0Box B00PUBLIC0.pdf Global Property Guide, Venezuela Latin Lawyer, The Business Law Resource for Latin America 2013, Venezuela Mercel Carvallo 2012, Private Property is at Risk in Venezuela 9 I nternational Property Markets Scorecard Venezuela 2014

10 1.3 Formal Ownership (Weak) Core Question: Do citizens understand and trust property rights institutions and avoid the informal sector? While property rights exist on paper, the Venezuelan government can virtually ignore private land rights on a case-by-case basis. So, while property rights are clear to the citizens, they obviously do not trust those rights since the government clearly has control and no boundaries. In short, the CRBV clearly establishes the principle of private property and defines the cases in which the government can ignore it and dispossess an individual or a company of their assets, (PanAmPost, 2013). Survey Questions Land (Weak) SQ 8 What is the status of land ownership? Some private land ownership is allowed, and it is part of Venezuelan law (Article 115 of the Constitution of the Bolivarian Republic of Venezuela, December 15, 1999). The law states The right of ownership is guaranteed. Everyone has the right to use, occupy, enjoy, and dispose of their private property, (PanAmPost, 2013). However, while land ownership is allowed, most uses are heavily controlled by the government. The government has almost exclusive rights to revoke land ownership rights at its own discretion. Source: PanAm Post 2013, Opinion Home Ownership (Very Strong) SQ 9 What is the percentage of formal home ownership? 83% is the percentage of formal home ownership. Source: Housing Finance Information Network 10 I nternational Property Markets Scorecard Venezuela 2014

11 Informal Sector (Strong) What is the percentage of services firms that report competing with unregistered or informal firms? Only 29.8% of firms are competing against unregistered or informal firms. Source: Enterprise Surveys 2010, Venezuela In-Country Assessment Information Field Question (FQ) 1 Even if legal provisions exist, what is the actual status of property rights and ownership for small businesses? FQ 2 Are standard leases used for commercial space? If not, what is a typical arrangement for rental? FQ 3 What are the processes for government expropriation of property especially notice and due process for owners? Are those laws followed or do expropriations happen by collusion between officials and connected elites? FQ 4 Are businesses owners compensated fairly when their property is taken for public use? FQ 5 What protections do businesses have who lease space from arbitrary eviction by owners? FQ 6 What is the actual experience of transferring a property, accessing the registry and dealing with registry officials? FQ 7 How large is the presence of informal markets for goods, i.e. itinerate vendors? 11 I nternational Property Markets Scorecard Venezuela 2014

12 2. Access to Credit Goal An efficient, transparent financial sector that provides a broad range of citizens with access to multiple forms of competitive credit so that they can start businesses, build wealth, and purchase property 12 I nternational Property Markets Scorecard Venezuela 2014

13 2.1 Banks (Weak) Core Question: Are traditional banking services robust and extensive enough to serve the needs of the population to help them build wealth and purchase property? Banks are available to the public, but once again the Venezuelan government has oversight to close banks and or reorder them for various reasons. Venezuela does have a requirement to extend credit to small businesses and farmers at low interest rates, (The Globe and Mail, 2009). Source: Venezuela s Bank Sector Key Facts 2009, The Globe and Mail Access (Very Weak) How easy is it to obtain a bank loan? Ranked 112 out of 148; Score of 2.34 out of 7; Trend Soundness (Weak) How sound are the country s banks? Ranked 87 out of 148; Score of 4.71 out of 7; Trend Source: The Global Competitiveness Report , World Economic Forum Microlending (Very Weak) There are only a handful of microlending institutions operating in Venezuela according to Mix Market Reports. Source: Mix Market , Cross Market Analysis-Venezuela Microfinance allows citizens without traditional creditworthiness to build a credit history. How many microfinance institutions are operating in the country? The exact number is unknown. It is a very small market. 13 I nternational Property Markets Scorecard Venezuela 2014

14 What is the number of active borrowers per institution? Source: BanGente 44,874 MiBanco Venezuela N/A Microfinance Information Exchange, Venezuela Client Protection in Venezuela, Center for Financial Inclusion Other Sources (Very Weak) Core Question: Are entrepreneurs free to raise capital outside the banking system including venture capital and/or by issuing stock in a well-regulated stock exchange? The Venezuelan Stock Exchange is extremely small, and less than 20 firms are listed. The transactions in an average day are smaller than the value of a motorbike, (Al Jazeera, 2014). Source: Socialist Venezuela: World s Top Stock Market 2014, Al Jazeera Financial Freedom (Very Weak) How much control does the government exert over financial services? Venezuela earned a score of 20 for financial freedom in the Heritage Foundation Index of Economic Freedom indicating heavy government control. Source: Index of Economic Freedom 2014, Heritage Foundation Venture Capital (Very Weak) How easy is it for entrepreneurs to find venture capital? Ranked 117 out of 148; Score I nternational Property Markets Scorecard Venezuela 2014

15 Equity Investors (Very Weak) How easy is it to raise money by issuing shares on the stock market? Ranked 145 out of 148; Score of Source: The Global Competitiveness Report , World Economic Forum Credit Bureau (Weak) Core Question: Is comprehensive credit information available through public and private credit bureaus? Overall ranking: 130; Trend. Coverage (Very Strong) There is no public credit registry available. There is a private registry but it lacks information and does not distribute information to retailers, utility companies or financial institutions. So while information is available via private credit registries, only a small percentage of adults are in the system and it lacks the capability of a full force credit system What is the depth of information available in credit bureaus? Score: of 5 out of 6 (6 is the strongest and 1 is the weakest). Public (Very Weak) What is the extent of public credit registry coverage? There is no public credit registry in Venezuela, only private registries. Private (Weak) What is the extent of private credit registry coverage? 16.7% of adults are covered by private bureaus. Source: Doing Business 2014 Getting Credit, World Bank credit 15 I nternational Property Markets Scorecard Venezuela 2014

16 In-Country Assessment Information FQ 8 How available are mortgage loans for purchasing commercial property (office, retail, industrial and logistics), who is the typical user and what are the prevailing trends? FQ 9 What are the interest rates, term and loan-to-value ratios? FQ10 FQ11 FQ12 FQ13 In addition to microloans, to what extent are microenterprises (5 or fewer employees) active in the country? Approximately what percentage are formally registered firms? What services other than loans such as insurance, funds transfers, and business development training are available from microfinance organizations for formal businesses? What professional financial services are available outside state owned banks including insurance, credit cards and investment management? What has been the appreciation (or depreciation) rate for commercial property over the last several years? FQ14 How available is seed money or angel investors for the start up of small businesses? FQ15 FQ16 Do small businesses have access to credit information about potential customers? Can businesses gain access to information about them contained in credit bureaus and correct inaccuracies? 16 I nternational Property Markets Scorecard Venezuela 2014

17 3. Effective Governance Goal A popularly elected government free of corruption and functioning efficiently and transparently enough to guarantee economic freedom to individuals and support equitable property markets 17 I nternational Property Markets Scorecard Venezuela 2014

18 3.1 Democratic Representation (Very Weak) Core Question: Does the country have free and open elections for the leadership and can citizens engage in free enterprise? Venezuela does hold free elections but free enterprise is not recognized. Economic activity is strictly regulated and the government mostly controls economic decisions Voice & Accountability (Very Weak) Are citizens able to elect their government and do they enjoy freedom of expression, association and a free media? Percentile Rank 22.27; Trend Citizens do have the right to free elections but free speech is not a right (therefore media is heavily controlled), and could potentially have an extreme impact on elections Are citizens free to form political and civic organizations free of state interference and surveillance? Ranked 97 out 167; Score 5.88 out of 10; While elections are free, restrictions on the media have created quite an impact on political and civic organizations. Source: Worldwide Governance Indicators 2012, World Bank Freedom of the Press 2013, Freedom House %20Infographic.pdf The Economist Intelligence Unit, Democracy Index pdf&mode=wp&campaignid=Democracy I nternational Property Markets Scorecard Venezuela 2014

19 3.1.2 Public Information (Very Weak) Overall Rating: 59 out of Are there regulations governing conflicts of interest in the executive and legislative branches of government? The Conflicts of Interest Safeguards & Checks and Balances for the Legislative Branch has a score of 54 (Very Weak) and The Conflicts of Interest Safeguards & Checks and Balances for the Executive Branch has a score of 52 (Very Weak) Can citizens access legislative processes and documents? Yes, though Venezuela scored 60 out of 100. Citizens can request and be granted government information. However there is no guarantee that information will be provided or of high quality. Source: Global Integrity Report Market Intervention (Very Weak) Overall Ranking of 175 out of 178; Trend To what extent does the government intervene in the private sector including state owned industries? Score 51.8 out of 100 with a higher score indicating less intervention; Trend To what extent does the government control prices? Score 49.7 out of 100 with a higher score indicating less control; Trend Source: Index of Economic Freedom 2014 Heritage Foundation 19 I nternational Property Markets Scorecard Venezuela 2014

20 3.2 Lack of Corruption (Very Weak) Core Question: Is the public sector transparent and free of corruption? Transparency (Very Weak) Venezuela is very corrupt and has been for hundreds of years, dating back to the 1800 s. Venezuela continues to rank as one of the most corrupt countries in Latin America What is the perceived level of corruption in the country? Ranked 160 out of 177; Score 20 out of 100; Trend Source: Corruption Perception Index 2013, Transparency International Integrity Mechanisms (Very Weak) A National Integrity System is a framework where the principle institutions that contribute to integrity, transparency and accountability in a society can address corruption in a systematic way. Does a National Integrity System exist? No effective anti-corruption program exists to address corruption in a systematic way. Venezuela has suffered great turmoil over the last several months and has been asked by Transparency International to uphold the right of access to information and the freedom to protest amid increasing violence and information blackouts in recent days, (Transparency International 2014). The lack of independent institutions able to monitor the government s activities, allowing it to be held accountable, makes the country extremely vulnerable to corruption, (Transparency International, 2014). There is no oversight in Venezuela to hold those committing corruption accountable. Source: Transparency International Calls on the Venezuelan Government to Respect Access to Information and Freedom of Movement 2014, Transparency International zuelan_government_to_respect_ac 20 I nternational Property Markets Scorecard Venezuela 2014

21 Extralegal Payments (Very Strong) How often do companies report that officials and/or companies expect additional payments to expedite services or gain business? Bribery depth percentage in Venezuela is 5.5%, which is less than the average of Latin American countries. However, 23.6% of firms in Venezuela are expected to give gifts to public officials to get things done. Source: Enterprise Surveys, World Bank, Efficient Administration (Weak) Core Question: Are quality services and qualified civil servants available to the public through the efficient use of public money? Civil servants are not always reliable and are usually controlled by the government. New public service comprises exclusively members of the government party or those who support its policies, (Brewer-Carias, Page ). Source: Dismantling Democracy in Venezuela, The Chavez Authoritarian Experiment by Allan R. Brewer-Carias, 2010) Size of Government (Weak) What is the size of government relative to GDP? Total government spending in Venezuela is 40% of GDP while public debt levels continue to rise, reaching close to 60% of GDP, (Heritage.org). Source: Index of Economic Freedom 2014, Heritage Foundation Civil Service (Strong) What is the quality of the civil service? Score 51 out of 100; Trend. Source: Global Integrity Report 2009 & I nternational Property Markets Scorecard Venezuela 2014

22 Government Effectiveness (Very Weak) What is the overall effectiveness of the government? Percentile ranking 12.92; Trend The Venezuelan government has lacked effectiveness for several years. In recent months several anti-government protests have occurred. The country has experienced record high inflation and lack of basic goods. Source: Governance Matters 2012 World Bank Source: Venezuela Country Brief, Austrian Government Department of Foreign Affairs and Trade In-Country Assessment Information FQ17 What is the actual experience of small businesses in dealing with the government, particularly the number and complexity of required procedures and the prevalence of extra payments to facilitate services such as licenses or permits? 22 I nternational Property Markets Scorecard Venezuela 2014

23 4. Rational Dispute Resolution Goal An efficient institutional framework that balances the rights of the public, owners, lenders and borrowers in the event of a dispute or loan default 23 I nternational Property Markets Scorecard Venezuela 2014

24 4.1 Rule of Law (Very Weak) Core Question: Do all market participants abide by the rule of law and have confidence in the courts and the ability of police to control crime? Venezuela has had difficulty in recent years implementing fair and impartial judges since Individual judges may face reprisals if they rule against government interests, (Human Rights Watch, 2012). Therefore, market participants have little confidence in the courts and police. Additionally, under Hugo Chavez the National Assembly granted the president unthinkable power to impose penalties for crime. As of November 2011 Chavez had adopted over 20 legislative decrees, including one reinstating crimes previously derogated by the legislature. The Supreme Court upheld the constitutionality of this decree, which criminalized several banking practices, arguing that economic crimes are crimes against humanity and could not be decriminalized, (Human Rights Watch, 2012). Source: Human Rights Watch 2012, World Report Venezuela Impartiality (Very Weak) What is the confidence level of the strength and impartiality of the police, courts and contract enforcement? Source: Percentile Ranking 0.95; Trend In recent years and months, the Venezuelan people have protested extreme conditions and have been met with abusive police force that employs deadly tactics to subdue dissent. Worldwide Governance Indicators 2012, World Bank Venezuela: Political spiral of violence a threat to rule of law 2014, Amnesty International 24 I nternational Property Markets Scorecard Venezuela 2014

25 Judiciary (Weak) Can members of the judiciary be held accountable for their actions? Score 60 out of 100. Courts, in the past, have made decisions based on political criteria and to protect the government. Source: Global Integrity Report Costs of Crime (Very Weak) What are the business costs of crime and violence? Ranked 146 out of 148; Score 2.1 out of 5 (1 being the most problematic). Source: The Global Competitiveness Report , World Economic Forum Enforcement of Contracts (Weak) Core Question: Are systems in place for timely and efficient enforcement of contracts? Systems are in place but take an extremely long time and are quite costly. Dispute resolution is extremely difficult when it comes to contracts in Venezuela. Source: Doing Business 2014, Enforcing Contracts: Venezuela Judicial Enforcement (Strong) Overall rank: 92 out of 189; Trend What is the number of procedures involved in resolving a commercial dispute? I nternational Property Markets Scorecard Venezuela 2014

26 What is the time between the filing of a lawsuit and resolution in judicial enforcements? 610 days What is the cost of judicial enforcements as a percentage of debt value? 43.7% Source: Doing Business Summary Proceedings (Weak) SQ 10 Summary proceedings are alternative dispute resolution processes where creditors can apply for a direct court order in property disputes. What is the time between notice of intent to foreclose and loan collection in summary proceedings if available to lenders? Judicial sales are available in Venezuela and are the most common type of foreclosure in the country. All parties related to case are notified and a trial occurs. SQ 11 What is the cost of summary proceeding if available to lenders as a percentage of property value? Costs are unknown, but the results of the foreclosure process pay off the mortgage first and then other lien holders Power-of-Sale (Weak) SQ 12 Power-of-sale agreements give creditors the power to sell properties after notice to the borrower without court intervention. What is the time between notice of intent to sell and loan collection for power-of-sale agreements if available to lenders? Power-of-sale is available but rarely used. It is not available everywhere in Venezuela, but is faster than a judicial sale. SQ 13 What is the cost of power-of-sale agreements if available to lenders as a percentage of property value? Unknown. Source: Venezuela Foreclosure Attorney, Lawyers Attorney Guide 26 I nternational Property Markets Scorecard Venezuela 2014

27 4.3 Commercial Dispute Resolution (Weak) Core Question: Can commercial disputes be resolved efficiently and fairly without exorbitant expense and delay? Commercial disputes in Venezuela are often slow and inefficient. Delay s are often and corruption is not unheard of. Source: Investment Climate Statement-Venezuela, US Department of State Survey Questions Commercial Courts (Weak) SQ 14 Do specialized commercial courts exist for the handling of property disputes and foreclosures? Venezuela has a legal system in place to help resolve foreign investment issues. Unfortunately the system is slow and has been accused of corruption. However, noninternational property disputes are private legal matters. Source: Expropriations, What s Next Venezuela? Source: Investment Climate Statement-Venezuela, US Department of State Source: Property Disputes, Embassy of the United States-Venezuela Alternative Dispute Resolution (Weak) SQ 15 Are alternative dispute resolution mechanisms in place including commercial arbitration, private mediation and community based processes? Yes, arbitration is available and can be legally binding without judicial approval. Source: Investment Climate Statement-Venezuela, US Department of State 27 I nternational Property Markets Scorecard Venezuela 2014

28 Commercial Treaties (Weak) SQ 16 What bilateral, regional and international commercial treaties exist concerning business between countries? Source: Venezuela has been a member of the World Trade Organization since The country is a member of groups in negotiations with G-20, G-33, NAMA-11 and has partial preferential agreements with 12 other countries. Overall, Venezuela is weak in terms of bilateral, regional and international commercial treaties. World Trade Organization 2014, Venezuela MercaTrade 2011, Trade Agreements Venezuela In-Country Assessment FQ18 To what extent do small businesses trust public institutions to support contract enforcement? 28 I nternational Property Markets Scorecard Venezuela 2014

29 5. Financial Transparency Goal A well developed and transparent financial system that includes strong supporting institutions and highly trained and ethical professionals that contribute to effective financial intermediation and deep and broad access to capital and financial services 29 I nternational Property Markets Scorecard Venezuela 2014

30 5.1 Market Stability (Weak) Core Question: Are market risks sufficiently transparent and diversified so that efficient capital allocation can occur? Venezuela lacks the transparency to allow efficient capital allocation. Financial Reporting (Weak) What is the strength of the country s auditing and reporting standards? Ranked 97 out of 147; Score of 4.22 out of 7. Financial Services (Weak) Does the financial sector provide a wide variety of financial services to businesses? Ranked 123 out of 147; Score of 3.66 out of 7 Source: The Global Competitiveness Report , World Economic Forum Insolvency Process (Very Weak) Ranked 165 out of 189; Trend Bankruptcy proceedings in Venezuela are very outdated and take an extremely long time to complete What is the average time to complete bankruptcy proceedings? 4.0 Years What is the cost of bankruptcy proceedings as a percentage of the estate? 38% What is the recovery rate of bankruptcy proceedings? 6.5 cents on the dollar. Source: Doing Business 2014, Economy Profile: Venezuela 30 I nternational Property Markets Scorecard Venezuela 2014

31 5.2 Independent Asset Valuers (Strong) Core Question: Do trained, independent and ethical asset valuers exist for all types of assets? All valuers must be certified and their certification number also must be present on the appraisals they conduct, leaving a paper trail, and thus deterring them from conducting unethical practices. Source: Interview with Vilma Diaz (Brokerage Service Director) of CBRE Venezuela, July 21, Survey Questions Standards (Weak) SQ 17 How easy is it to find a valuer who implements International Valuation Standards? Weak, but getting stronger. Venezuela just recently adopted International Accounting Standards and International Financial Reporting Standards and all companies must abide. However, inflation has been an extremely large issue. Source: Santander Trade, Venezuela Source: Deloitte-IAS Plus, Financial Reporting Framework in Venezuela Training (Very Strong) SQ 18 What is the level of training of valuers? In order to become a valuer in Venezuela, a person must have a college degree in engineering, architecture or urban planning. Only following that degree can the person study and obtain their certification. The certification is provided by SOITAVE. Source: Interview with Vilma Diaz (Brokerage Service Director) of CBRE Venezuela, July 9, I nternational Property Markets Scorecard Venezuela 2014

32 Ethics (Strong) SQ 19 Are opinions offered by valuers free of influence from parties to the transaction? Yes, and all appraisers are held accountable for their opinions. Source: Interview with Vilma Diaz (Brokerage Service Director) of CBRE Venezuela, July 21, Data Standards (Very Weak) Core Question: Is accurate property information available electronically in formats that are consistent with international standards? Venezuela lacks reliable and real time property information online. There are some non-reliable sites that offer property information, but none are comparable to high international standards. Source: International Property Listings, Viviun Source: Venezuela Real Estate Listings, Point 2 Homes Survey Questions Sales & Operating Data (Very Weak) SQ 20 A multiple listing service is an electronic exchange system where brokers and agents can widely share contracted real estate listings of properties that are for sale. Do multiple listing type services exist? No reliable sites exist like the private MRIS (Metropolitan Regional Information Systems) that offer real time information to brokers and their clients on home sales and for sale units. Additionally, no public site offers substantial real estate listings. Some nonreliable international websites do have limited listings, but none of which can be relied on for accurate and up-to-date information. Source: International Property Listings, Viviun Source: Venezuela Real Estate Listings, Point 2 Homes 32 I nternational Property Markets Scorecard Venezuela 2014

33 SQ 21 Do resources exist for obtaining building income and expense estimates? Information on particular buildings needs to be gathered through ownership contacts and property managers or operators. No public records exist for such information. The availability of operating expenses and data in the market is very much closed book. Source: Interview with Vilma Diaz (Brokerage Service Director) of CBRE Venezuela, July 21, Interchange Formats (Weak) SQ 22 Do electronic data interchange formats conform to international standards (ebxml electronic business using extensive markup language)? Electronic Data Exchange has been present in Venezuela since the early 1990s. However, though the technology has been present, the majority of real estate transactions seem to be paper based. Documents must be presented at the registry when purchasing a property. Source: Republica Bolivariana De Venezuela Universidad Catolica, Andres Bello 2005, El Futuro De Edi Electronic Data Exchange En Venezuela Source: Doing Business 2014 Registering Property, World Bank Technical Standards (Weak) SQ 23 Do building codes and office building measurement standards (ANSI/BOMA Z65.1) conform to international standards? Building codes do exist and are enforced, but are not up to international standards. Source: Earthquake Spectra 2004, Earthquake Engineering Research Institute Source: Association of Caribbean States (ACS), Venezuela In-Country Assessment Valuation Profession FQ19 How many independent valuers exist in the market? Can small businesses obtain fair valuations for property they want to buy or sell? 33 I nternational Property Markets Scorecard Venezuela 2014

34 FQ20 FQ21 What are the valuation standards and do they conform to international and regional standards? What valuation methods and techniques are used in the market? Data Availability FQ22 How available is information for commercial properties that are for sale or that have been sold? 34 I nternational Property Markets Scorecard Venezuela 2014

35 6. Appropriate Regulation Goal A comprehensive regulatory regime that is transparent, efficient, simple in its implementation and that leads to accurate reporting of property values and prudent protection from market risks 35 I nternational Property Markets Scorecard Venezuela 2014

36 6.1 Fair Tax Regime (Very Weak) Core Question: Do market participants feel the overall tax rate is fair and participate in formal transactions? The tax rate is considered by market participants to be unusually high. Corporate income tax varies between 15% and 34%. Source: Venezuela Tax Guide 2013, PKF International Transfer Tax (Very Strong) What is the total property transfer tax including all duties and payments? The total property transfer tax, including all duties and payments is very strong in Venezuela, 2.5%. Overall Tax (Very Weak) What is the overall tax rate on entrepreneurs? Ranked 187 out of 189; Trend The total tax rate (% profit) is 61.7%. Source: Doing Business 2014 Paying Taxes & Registering Property, World Bank Divestment (Very Weak) Survey Question SQ 24 What is the tax on profits for foreign investors when divesting property? Capital gains tax is roughly 34% for corporations or individuals that are non-residents. Source: PwC , Real Estate Going Global 36 I nternational Property Markets Scorecard Venezuela 2014

37 6.2 Professional Services (Weak) Core Question: Are the professional services necessary for efficient and transparent property markets available and appropriately regulated and supervised? Asset Valuers (Strong) Survey Questions Professional services are a fairly new concept in Venezuela. Not to mention that the real estate industry is highly regulated by the influence of the government. SQ 25 Are property valuers licensed and/or certified by the government? Valuers are certified by SOITAVE (Sociedad De Ingenieria De Tasación En Venezuela). This is part of the Venezuelan Association of Engineering. Source: Interview with Vilma Diaz (Brokerage Service Director) of CBRE Venezuela, July 9, SQ 26 How effective are mechanisms in place to discipline valuers who engage in misconduct? Not too many mechanisms are in place. However, each appraisal must have a certification number adhered to it, deterring valuers from misconduct. Source: Interview with Vilma Diaz (Brokerage Service Director) of CBRE Venezuela, July 21, Brokers & Agents (Weak) Survey Questions SQ 27 Are real estate brokers and agents licensed and/or certified by the government Real estate brokers and agents are licensed through the Venezuelan Real Estate Chamber. Source: Interview with Vilma Diaz (Brokerage Service Director) of CBRE Venezuela, July 9, I nternational Property Markets Scorecard Venezuela 2014

38 SQ 28 How effective are mechanisms in place to discipline brokers or agents who engage in misconduct? Few mechanisms are in place to discipline professionals who engage in misconduct. Source: Interview with Vilma Diaz (Brokerage Service Director) of CBRE Venezuela, July 9, Mortgage Professionals (Weak) Survey Questions SQ 29 Are mortgage professionals licensed and/or certified by the government? No, Mortgage professionals work directly for the banks. Source: Interview with Vilma Diaz (Brokerage Service Director) of CBRE Venezuela, July 28, SQ 30 How effective are mechanisms in place to discipline mortgage professionals who engage in misconduct? Not applicable since they work for banks. 6.3 Capital Markets (Very Weak) Core Question: Are capital markets well-regulated and diversified enough to provide financial resources to private-sector entrepreneurs and innovators? Capital Flows (Very Weak) Venezuelan markets are not transparent and highly discourage Foreign Direct Investment. On top of which, the Venezuelan government lacks regulation in terms of security exchanges How restricted is the flow of capital into and out of the country? Ranked 148 out of 148; Score of 1.66 out of 7 Regulations in Venezuela highly discourage Foreign Direct Investment. Source: Global Competitiveness Report World Economic Forum 38 I nternational Property Markets Scorecard Venezuela 2014

39 Security Exchanges (Very Weak) Is the regulation of securities exchanges transparent, effective and free of influence from government and industry? Ranked 117 out of 148; Score 3.3 out of 7 Source: Global Competitiveness Report World Economic Forum Securitization (Strong) What is the depth of asset-backed securities, mortgage-backed securities, high-yield bonds and highly leveraged loans? Ranked 22 out of 62; Score of 2.1 out of 7. Source: Financial Development Report 2012, World Economic Forum In-Country Assessment Taxation FQ23 What is the level of taxation for small businesses? Are any of those taxes an excessive burden on small businesses? Are any tax discounts provided for small businesses? Professional Services FQ24 What is the experience of small businesses in dealing with professional property market service providers such as real estate agents, brokers and valuers? 39 I nternational Property Markets Scorecard Venezuela 2014