THE once-booming construction sector declined for a fifth-consecutive quarter between April and June of this year, with industry players citing rising interest rates implemented to fight inflation as the chief reason for the contraction.

The Planning Institute of Jamaica (PIOJ), in its report on the preliminary estimates of gross domestic product (GDP) performance, last week said that real value added in construction during the April-June quarter of this year declined by approximately 3.3 per cent.

“I think the challenges which now beset the industry have a lot to do with what is happening in the financial sector more than anything else, and that is what I believe is causing the level of slowdown we are now seeing,” Keon Hinds, CEO of Kinetic Concrete and Engineering Services, told the Jamaica Observer when quizzed on the matter.

“Higher levels of interest rates have certainly been influencing what is happening in the industry… developers will now tell you that the units are not moving as fast as they used to and that there are also now slower payments coming in from clients,” he continued.

Hinds however said that while there was now a tapering off of pandemic gains, the industry — despite the challenges faced by both buyers and developers — remains intact, with the hope that when interest rates start to fall, activities in the sector will pick up.

“The reality now is that it isn’t a case of less work being done in the sector but more of an issue with persons being unable to afford what it is they really want since rising rates have significantly pushed up the prices, forcing them to downsize or even rendering many unable to finance what they truly need.

“What this has in turn meant for us as developers is that we have to now reduce previous projections on the sale price for units in order to keep the market going and to ensure that we don’t allow the industry to come to a standstill. This has in turn led to the market transitioning into one more for buyers than sellers as buyers now have the opportunity to negotiate for more, which sometimes also cuts into the developer’s margin,” Hind said.

For the past president of Incorporated Master Builders Association (IMAJ) Carvel Stewart, he too believes that the reduced activities seen across the sector were also closely linked to market resistance driven by higher prices and reduced spending power.

Stewart said the industry, which largely operates in a cyclical manner, is now in a down period from which he believes activities will pick up, especially as rates begin to trend downwards along with prices.

“I [therefore] do not think the reduction in activities seen now is necessarily an indication of a doom and gloom for the industry as, despite the current slowdown, within the next couple of years we are anticipating some movement as the environment becomes more stable,” Stewart told the Business Observer.

The assessments from Hinds and Stewart come in the wake of director general of the PIOJ Dr Wayne Henry’s review which said the downturn the sector is seeing is largely influenced by reduced activities in the ‘other construction’ and ‘building construction’ components.

The decline in the other construction component, he said, was due to reduced capital expenditure on civil engineering activities which saw reduced spending by entities such as National Works Agency (NWA), whose expenditures went down almost 53 per cent to $2.4 billion, due mostly to lower spending on the Southern Coastal Highway Improvement Project (SCHIP); and the Port Authority of Jamaica (PAJ) whose disbursements fell by over 89 per cent.

“The building construction component is estimated to have contracted, reflecting a decline in housing starts by the National Housing Trust (NHT) of 21 per cent,” Henry stated while also pointing to preliminary data on the sale of construction inputs which, up to the period, is believed to have also declined some 8 per cent in real terms.

Data contained in the PIOJ’s 2022 Economic and Social Survey of Jamaica (ESSJ) indicated that last year some 5945 building applications were received by municipal corporations across eight of the 10 development categories. Most of the applications, or about 89 per cent of them, it said were for residential development, followed by commercial development.

“All development categories registered decreases except commercial, resort, mixed-use and cellular tower,” ESSJ data noted.

In the context of what was largely considered to be a real estate boom marked by an influx of high-rise buildings and various real estate projects being undertaken across the country, the sector which delivered consistent growth, expanding within the range of 3.5 per cent on the bottom end to as much as 17.4 per cent (as seen by its 2021 second quarter performance), has since the second quarter of last year been contracting.

Following its first two quarters of contraction in 2020 — the start of the novel coronavirus pandemic — the industry in subsequent quarters, up to the first quarter of 2022, recorded positive outturns ranging from a low of 3.5 per cent to a high of 17.4 per cent over the seven subsequent quarters. This fed into record cement sales accompanied by a number of infrastructural, residential, and commercial projects islandwide.

Fast-forward to 2023 and what can be seen is a widespread reduction in activities as developers slow down building efforts, citing challenges which they believe have more to do with a weakening of previous demand and owing to issues in the financial environment, and in the wake of high interest rates and above-normal inflation.