President and CEO of MoneyMastersLimited, Claudette Crooks
EVEN as Jamaica’s construction industry is booming, property developers and financiers fear that demand and supply for properties will soon dwindle as inflation and global supply chain challenges increase the cost of inputs.
With this in mind, some stakeholders are taking a cautious approach to new development projects, as they weigh current construction costs 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 âThe Construction Industry Facing Today’s Challenges: Improving Efficiency for 2022â.
âAs for the industry climate, the demand is high, the boom is still present, especially from different market segments. I don’t foresee COVID having a big impact on the evolution of low and middle incomes. Primarily, once the NHT (National Housing Trust) remains intact and banks continue on the trend of providing mortgages, we should still see demand â with people being willing and also able due to mortgage facilities being more accessible,â Orlando Valentine, owner of Odlan Development, commented.
He added that the high end of the market still appears to be ‘lucrative’ given the number of apartment complex developments in the corporate sector. However, he said this market segment will now have to consider adapting to the impact of the pandemic â the rising cost of raw materials such as cement, steel and timber as well as increased fees shipping.
While Valentine is optimistic that “the projection is still good and we’ll have a vibrant industry,” he still cautions other developers to have a budget and stick as close to it as possible.
“[As a developer]you make a bill of quantities and generally [it] should be able to stand on its own for a while. What we’ve seen is a big increase and some of the challenges of pre-sales and commitment on sale price and units early in development can come back and haunt you, especially if you’re delayed due to the scarcity of material,â he said. declared.
Like Valentine, Victoria Mutual Building Society (VMBS) Half-Way-Tree Branch Manager Ricardo Ellis testified to the growth of the construction industry, calling it a âdevelopers marketâ. To clarify, he said that with interest rates as “attractive” as they are now, the loan market would facilitate a move so “negotiation rather than just dictation” between developers and financiers.
At the same time, he said the financial institution has seen an increase in both mortgage financing and real estate project financing. Currently, VMBS lends developers up to 70% of quotes for projects.
âBut we have to appeal to developers so that from where I sit we see where people are starting developments and they don’t know where the funding is coming from. From me to developer: you have to identify your financier before you start the project,â Ellis said.
âBecause a lot of times we see projects coming in for funding after they’ve gone six months and they’ve started the project. They are stuck, they hit a wall and they need money. And that’s when they approached the institution and it caused a mad rush, because time is running out with the material cost and so on. â, he continued.
In this context, the VMBS branch manager pointed out that developers should draw up a detailed budget before contacting financial institutions for help. Additionally, given the competitive loan market, Ellis also encourages developers to shop around, comparing interest rates and loan terms.
Commenting on how to sustain the boom in the construction industry, he said that once real demand for housing solutions is met by supply, activity will continue. Ellis, however, stressed the need to provide “affordable housing”.
“So it’s important that housing is affordable so that more people can access these mortgages,” he said.
President and CEO of MoneyMasters Limited, Claudette Crooks, for her part noted that in looking at the sustainability of the current construction boom, she considered the impact that inflation and rising interest rates interest will have on mortgages.
Despite the increase in Treasury bond rates in both Jamaica and the United States, she pointed out that banks and building societies âhistorically â¦ take a very long time to react.
âSo we hope economists can get inflation under control. And with that, we’re not seeing a lot of interest rate increases from a mortgage perspective for retailers in the Jamaican landscape,â Crooks added.
Pointing to fluctuating input costs, the CEO urged developers to strike while the iron is hot. In 2021, the price of wood increased by 27.23%, falling slightly between November and December. Crooks, however, said the price has peaked again. Steel, on the other hand, was down 2.47% year-on-year.
âFor our developers at MoneyMasters, we tell them, listen, time is running out. You now have variables; they are favorable. Let’s push the development. Let’s arrive ahead of schedule and always stay on budget or under,â Crooks said.
Still, she thinks developers can be more creative in meeting market needs while balancing rising input costs. To this end, she urges industry players to increase collaboration among themselves.
Crooks further argued that the collaboration could lead to lower input costs through bulk purchases and, by extension, higher returns on investment.
âCertainly, as financiers, we want to see that. Why? Because we want our developers to achieve a very attractive return on investment. For us at MoneyMasters, we are first and foremost about return on investment. We don’t want our developers to barely make a 5% return after all that hard work. We have to make sure that our developers have the structures in place to make sure their return is very attractive,â she said.