Ashford Meikle, Staff ReporterA YEAR ago developers and other professionals in the construction industry were pessimistic about the future of the industry. There were predictions that imminent, crippling increases in the industry would stymie building development and increase prices, especially in the housing sector. The professionals and experts pointed to the following reasons:
AD HOC BUDGET
Displaying a lack of confidence in the Budget, the market responded, resulting in a rapid devaluation in the Jamaican dollar. Caught off guard, the industry went into rapid decline. One developer noted that his budget was priced at US$1 to $50. Thus the depreciation of the dollar by 20 per cent essentially meant that if you were planning to purchase a house for $7 million, you would now have to budget for almost $8.5 million.
TAXES
The Minister of Finance, Dr. Omar Davies, imposed a 12.5 per cent General Consumption Tax on construction materials. Cement, pre-mixed concrete, marl, sand, gravel, top soil, steel reinforced bars and steel wire were all brought in to the tax net. These costs had to be passed onto the consumer. Cumulatively, with the 20 per cent depreciation of the dollar, the house for $7 million would actually cost $9.275 million a 32.5 per cent increase.
CROUCHING TIGER, HIDDEN DRAGON
With one-fifth of the total world population, China's economy is one of the fastest growing worldwide. It grew by 9.1 per cent last year. Bruce Bicknell, managing director of Tankweld, Jamaica's largest steel importer is only too well aware of this. He points out that during the three-year period, 2001-2004, China's steel consumption constituted three quarters of the world's total consumption increase. In fact, it is estimated if its present consumption pattern continues, China will account for 31 per cent of total world steel consumption.
Naturally, this increased demand by China for steel and other raw materials resulted in demand outstripping supply. Smaller economies, like Jamaica's, suffered. Literally, the country was out-priced and, as Mr. Bicknell notes, it is far more lucrative for steel suppliers to supply the Chinese market. It is instructive to note that our local steel suppliers had to turn to alternative, non-traditional sources such as Brazil to satisfy local demand.
INFLATION
Inevitably, with China's voracious appetite for raw materials outstripping supply, prices have gone up. In the first quarter of last year, for example, Tankweld's wholesale price for one metric tonne was $22,000. In January this went up to $30,000; four months later the price stands at $44,000. Hence, in little over a year the price has doubled. But steel constitutes approximately 5-6 per cent of total construction costs on a project. Inevitably, the other raw materials increased as well. For example, building blocks moved from $27 each in March 2003 to $33.75 in April 2004 for six-inch blocks.
The United States sneezed, we caught a cold. Simply put, each time the US dollar loses against the euro, we have to pay more for steel and other raw materials and construction equipment. It takes more US dollars to purchase the same amount of raw
materials; naturally this cost is passed on to the consumers.
In spite of these challenges, some amount of stability seems to have returned to the industry. Mr. Bicknell told Sunday Business that "there has not been a fall off in demand, the volume is still there." He said that despite the increases people, for the most part, are not putting their plans on hold. While Mr. Bicknell's analysis may hold true, one up and coming developer told Sunday Business that he had to scrap his plans to embark on a mini townhouse development because of the dramatic increases last year. He points out that 18 months ago when the Jamaican dollar traded at 47 to US$1 it cost about $1,800 - $2,000 per square foot to construct. Today, that figure hovers around $3,000 - $3,500.
Yet, persons in the industry are cautiously upbeat, acknowledging that the Budget brought no new significant taxes which could potentially derail new and existing developments. While conceding that the Budget contained very few incentives for the construction industry, it can be argued that the apparent seriousness signalled by the Government to stabilise the economy and promote growth has the added incentive of allowing the industry players to plan more effectively and execute their projects in a more timely schedule. The obvious benefit of this is the advantage to the consumer: better pricing.
RENEWED FAITH
This renewed faith in the economy has led to a revival of business in the industry evidenced by the construction boom that is taking place. This upshot is perhaps visible nowhere else than in the residential market. Several housing solutions have taken off. In St. Catherine, New Era Homes has embarked on a $4 billion housing development at Bernard Lodge (see last week's Financial Gleaner's exclusive interview with Chairman of New Era Homes, Leo Taddeo). In the Corporate Area much of the construction is taking place in the sought-after Kingston 6 and 8 areas, specifically Norbrook, Cherry Gardens. Indeed, real estate agents agree that there is a shortage of homes in the $10 million $30 million region. Most of the housing solutions being offered in this upscale range are centred on gated communities townhouses and apartments. There is another factor affecting this general shift towards communal living in Kingston: space.
Like most urban areas of the world, there is very limited space in Kingston. What this has meant is that developers have no choice but to construct vertically. And it makes sense: a typical lot size of approximately one third of an acre in Havendale, Constant Spring Gardens or Eastwood Park Gardens could be transformed into 16 one-bedroom apartments of approximately 500 square feet. The space constraint in Kingston has meant that developers have moved outside both the Kingston Metropolitan Transport Region (KMTR) and the Greater Metropolitan Area (which would include Portmore) to as far as Clarendon. Yet Kingston continues to have its fair share of construction.
Tony Walker Construction Realty Ltd. has embarked on an ambitious 74 detached development, and a number of properties off Red Hills Road and in Meadowbrook and Eastwood Park Gardens have been transformed into small apartment complexes.
