EVEN as the Jamaican construction industry enjoys a boom, real estate developers and financiers are concerned that this demand and supply of properties could soon wane as inflation and global supply chain challenges drive up input cost.

With this in mind, some stakeholders are taking a cautious approach to new development projects as they weigh current costs to build against the price the market is willing to pay. This was one of the focal points of a recent MoneyMasters Limited webinar, under the theme ‘The Construction Industry Amid Current Challenges: Improving Efficiency for 2022’.

“As it relates to the climate of the industry, the demand is high, the boom is still present, especially from different segments of the market. I don’t forecast that COVID will have a great impact on low- and middle-income developments. Primarily, once NHT (National Housing Trust) stays intact and the banks continue on the trend of providing mortgages, then we should still see the demand — persons being willing and also able due to the facilities of mortgage being more accessible,” Orlando Valentine, proprietor of Odlan Development, commented.

He added that the high end of the market still seems to be “lucrative” given the number of apartment complex developments in the Corporate Area. However, he said this market segment will now need to consider having to adjust to the impact of the pandemic — the rising cost of raw material such as cement and steel and lumber as well as increase in shipping costs.

While Valentine is optimistic that “the projection is still good and we will have a vibrant sector”, he is still cautioning other developers to have a budget and stick as close to it as possible.

“[As a developer], you do a bill of quantity and usually [it] should be able to stand for itself for a period of time. What we have been experiencing is grave increase and some of the challenges of pre-sales and committing to sale price and units early into the development can come back and haunt you, especially if you’re being delayed due to scarcity of material,” he stated.

Like Valentine, branch manager for Victoria Mutual Building Society (VMBS) Half-Way-Tree Ricardo Ellis attested to the growth in the construction industry, calling it a “developers’ market”. To clarify, he said that with interest rates as “attractive” as they are now, the lending market would facilitate a move so “a negotiation than just a dictation” between developers and financiers.

At the same time, he said the financial institution has seen an increase in both mortgage financing and funding of real estate projects. Currently, VMBS is lending developers up to 70 per cent of estimates for projects.

“But we must appeal to developers that, from where I sit, we see where persons start the developments and they don’t know where the financing is coming from. From me to developer: You need to identify your financier before you start the project,” Ellis asserted.

“Because a lot of times we see projects coming in for financing after they have spent six months in and they’ve started the project. They’re stuck, they hit a wall and they need monies. And that is when they approached the institution and then it causes a mad rush, because time is of the essence with material cost and so forth,” he continued.

Against this backdrop, the VMBS branch manager emphasised that developers need to work out a budget detailing before approaching financial institutions for support. Moreover, given the competitive market for loans, Ellis is also encouraging developers to shop around, comparing the interest rates and terms and conditions on loans.

Commenting on how to sustain the boom in the construction industry, he said that once there is real demand for housing solutions being met by supply, the activity will continue. Ellis, however, highlighted the need to provide “affordable homes”.

“So it is important that the housing is affordable so you’d have more persons being able to access these mortgages,” he underscored.

President and CEO of MoneyMasters Limited Claudette Crooks, for her part, noted that in considering the sustainability of the current construction boom, she took into account the impact that inflation and rising interest rates will have on mortgages.

Notwithstanding the increase in Treasury bill rates both in Jamaica and the United States, she pointed out that banks and building societies “historically …take very long to respond.

“So we hope that the economists can bring inflation under control. And with that, we’re not seeing a lot of increases in interest rate from a mortgage perspective to retailers in the Jamaica landscape,” Crooks added.

Pointing to a fluctuation in input costs, the CEO urged developers to strike while the iron is hot. In 2021, the price of lumber rose by 27.23 per cent, falling slightly between November and December. Crooks said, though, that the price has peaked again. Steel, on the other hand, has declined by 2.47 per cent year-on-year.

“For our developers at MoneyMasters, we are saying to them, listen, time is of the essence. You have some variables now; they are favourable. Let’s push the development. Let’s come in ahead of time and let’s always come in within or below budget,” Crooks stated.

Still, she believes that developers can be more creative in meeting the needs of the market while balancing rising input costs. To this end, she is urging players in the industry to increase collaboration among themselves.

Crooks further argued that collaboration could result in lower input costs through bulk purchases and, by extension, higher returns on investment.

“Certainly as financiers we want to see that. Why? Because we want our developers to be making a very attractive return on their investment. For us at MoneyMasters, we are all about return on investment. We do not want our developers to be barely making a five per cent return after all of that hard work. We must ensure that our developers have the structures in place to ensure that their return is very attractive,” she said.