Business

Construction sector left to 'wait and see' in 2013

BY JULIAN RICHARDSON Assistant business co-ordinator richardsonj@jamaicaobserver.com

Wednesday, January 02, 2013    

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BUSINESSES face an uncertain future in a construction industry that continued to be severely impacted by the harsh economic climate in 2012.

Inflation, weak purchasing power and bureaucracy define the challenges of the construction sector, which declined by over four per cent during the first three quarters of 2012, according to data from the Planning Institute of Jamaica (PIOJ).

It's a new norm in an industry that has recorded annual growth only once (2011) over the last five years as it struggles to cope with the global financial meltdown.

The daunting statistics for construction in 2012 included a slowing in activity among both residential and non-residential projects — housing starts were down 57 per cent in the third quarter — compared to the previous year, when the industry primarily benefited from higher levels of activity on road improvement works under the Jamaica Development Infrastructure Programme (JDIP), the Palisadoes Shoreline Protection Programme, and the South Coast leg of Highway 2000.

With little business, contractors just tried to "weather out the year" with the hope that there would be an uptick in 2013, said Michael Archer, past president of the Incorporated Masterbuilders' Association of Jamaica (IMAJ).

"Towards the end of the year there was a little hope as it related to the JDIP project, but for most contractors this hasn't been a good year," Archer said.

The former IMAJ president does not anticipate "any great increase in building activity" until the macroeconomic climate — including uncertainties about an International Monetary Fund (IMF) agreement and instability in the foreign exchange market — is settled, but said there are several projects on stream that offer some amount of optimism.

"There are quite a few projects that are being spoken about in the new year, primarily the Housing Agency of Jamaica, National Housing Trust (NHT) and National Water Commission, that give hope that there will be some uptick in the second quarter," he said.

Some developers who had projects struggled in a soft market in 2012, with consumers feeling the pressures of the sluggish economy.

"Obviously the sales are not there and the worldwide trend is not helping," said Leo Taddeo, chairman of New Era Homes.

New Era in 2012 completed 32 two and three-bedroom luxury condo-residences in Drax Hall, St Ann, but has so far sold only nine of the units which fetch roughly US$500,000 ($46.2 million) each. The development company also finished a total of 264 units over two blocks on its Caymanas Country Club Estates project in St Catherine, but sales of those properties are also moving slowly, said the company chairman.

"It's a very soft market and people who have money are holding on to what they have," Taddeo said.

To make matters worse, delays in obtaining approval from relevant agencies continued to be a major challenge during the course of the year, said the New Era boss.

"The approval process is still very slow," said Taddeo, adding, "They tell you three months but it's more like three years."

Taddeo told the Business Observer that his company would take a "wait-and-see" approach with regards to its core business while concentrating on other revenue streams.

"We don't know what the future holds; we will plan day by day as we look at the trends," Taddeo said.

"We are manufacturing blocks and doing other things rather than building houses right now," he disclosed.

However, Phillip Gore, the owner and executive chairman of Gore Developments, said his company managed to hold its own in 2012, benefiting from the same amount of sales it did the year before.

"We had a good year, it was no worse than last year," said Gore.

Gore Developments is currently undertaking two projects — New Harbour Village II, a project in Old Harbour, St Catherine, comprised of approximately 1,400 two-bedroom and one-bathroom houses at $7.6 million each; and Florence Hall, which has about 760 two-bedroom and two-bathroom units at $8.5 million each in Falmouth, Trelawny. The company is halfway finished with the New Harbour development and is currently on the final third phase of construction at Florence Hall, said Gore.

Efficiencies and a loyal customer base, including a large portion from overseas, are a couple of the factors Gore attributed to his company's relatively solid performance under difficult conditions.

"About 25 per cent of our sales are from Jamaicans who live overseas," Gore told the Business Observer.

"We also have people who invest with us — buy houses in each project we do, because they know they can get a very good return on their money," he continued. "Our efficiency allows us to offer good value."

But Gore acknowledged that macroeconomic factors have fuelled a level of uncertainty across the industry, even for his business. He said one of the main challenges to be faced by his company in 2013 is inflation. Caribbean Cement Company recently announced price increases by an average 16.5 per cent, having already implemented a 9.2 per cent price increase in June.

"This won't be very good for the building industry or for us in our market, because we cater to the middle-income to low middle-income markets, which are very price sensitive," said Gore.

Part of the mission of the National Housing Trust (NHT) is to provide housing solutions at prices that contributors can afford, which the trust said continued to be a major challenge in 2012. According to the NHT, among the measures taken last year to alleviate the problem was a collaboration with Food for the Poor to design and launch a basic housing unit affordable to low-income contributors, with construction of the first batch of units to begin shortly in Trelawny. The trust said it also approved 480 home grants of $1.2 million each to low-income contributors.

NHT, the largest provider of mortgages in Jamaica, disbursed 6,614 loans from January to November 2012. It completed three major developments during the year: 140 serviced lots at Creighton Hall, St Thomas; 258 serviced lots at Perth in Manchester; and Longville Park Phase III, a mix of 918 serviced lots, studio, one and two-bedroom units. In addition, it started construction work on 63 serviced lots at Nashville in St Mary, 226 solutions at Hellshire Phase 4 in St Catherine, and 48 apartments at Majesty Gardens.

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