Commercial and residential real estate demand to continue climbing higherWednesday, May 05, 2021
BY DAVID ROSE
THE coronavirus pandemic forced all major businesses to utilise a work-from-home model to protect staff and reduce the spread of the virus. While many employers and employees have found significant benefits from the current work-from-home arrangement, there is currently a consensus to get more members of staff back in office due to the unintended side effects of working from home.
“Work from home has been a major shift. We're confident that work from home is here to stay but not at the level some people think it will. If you look at some of the established studies by Harvard and Forbes, they're seeing a reversal and many companies are sending out instructions for their workforce to return to the office. “They're witnessing the unprecedented chance to look at what long-term work from home has done to their culture, innovation and collaboration. Zoom is wonderful, but there's nothing that gets a deal done like face-to-face contact,” offered vice-president and head of Sygnus's real estate and project finance arm, Sygnus Real Estate Finance Ltd (SRF) David Cummings in an interview with the Jamaica Observer on the commercial real estate space during COVID-19 and when it eases.
Major corporate firms such as NCB Jamaica have stated that work from home will be a permanent feature of their operating model, with the company downsizing some aspects of its property use.
The VM Group has embraced the work-from-home system and will allow staff to work at home on some days with other days spent in the office.
Though there has been some concern about the cost of real estate within the Kingston and St Andrew metropolitan area, Cummings explained that this isn't unusual and is actually a possible side effect of the National Environment and Planning Agency's (NEPA) change to the development orders over the years.
“A lot of where the development will be going is guided by what's known as a development order. Every parish in Jamaica has a development order which tells you what NEPA sees as appropriate for each space. If there's an area that's marked for residential, I can't suddenly go and draw a fancy building saying that I want to build an office building there. The development order has that area as residential only and the covenants on the title probably say “residential only” as well. It tells me what areas are reserved for schools, government buildings, factories, resorts or hotels. You'd have to apply for a change of use to develop something else.
“One of the most significant things that NEPA has been changing is the density. Whereas before the density only allowed you to do a two- or three-storey building, these days the density they're approving allows you to go higher. It's really increased density allowances by NEPA that allows us to do more high-rise buildings. Of course, that brings the question about Kingston's capacity to absorb all this development,” Cummings said.
Construction and real estate loans from banks have been on the rise, as seen with Sagicor Bank's loan book for the sector being up by 9 per cent to $11.01 billion at the end of 2020. There has been a steady increase since the pandemic began for construction-related loans as more people find it to be the best time to expand at the current low interest rates.
“The biggest impact of COVID-19 has probably been on the income levels and capacity of individuals to finance mortgages in the residential space. The big thing to watch is how fast we can achieve herd immunity and the ability to return to stable incomes,” the Sygnus executive said on the way in which the pandemic has disrupted the earning capacity for many.
He continued: “Banks have become stricter on lending to specific sectors during the pandemic. With SRF prepared to support this growth in real estate, the company is gearing up shortly to go public and expand its balance sheet from the US$16 million it got in August 2019. Apart from the company's ability to gain new shareholders, it will also facilitate the opportunity for investors to gain access to SRF and its various solutions such as its upcoming One Belmont project. Sygnus Real Estate Finance aims to become the premier financier of real estate financial solutions in the region. Commercial banks will always do what they do but this market has been underserved because not everybody will be able to access what they [banks] offer. Our confidence in the sector is demonstrated by our One Belmont project, which will break ground very shortly (we already have all the requisite building approvals). We're very confident that when shareholders see the quality projects that we have, the market will be very pleased with what we're doing and the governance mechanisms we have to keep things in check.”
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