Published Thursday 4th December, 2008
As previously published, Nidco’s recent high-impact
advertisements have been informing the public that the rapid rail
project and the coastal water taxi are taking place “As part of a
holistic plan to ease traffic congestion and create a more modern,
efficient transportation network.” We stated our questions and asked for
a response or copy of that plan. Neither Nidco nor the Minister of Works
and Transport have responded.
On November 30, we filed applications under the Freedom of
Information Act to both Nidco and the Ministry of Works and Transport.
We are requesting the holistic plan as well as the contract for the
We will use all the proper means at our disposal to obtain
these important documents, as is our right. We will also keep our
readers informed as to the progress of those applications.
This week, we move to
the question on the minds of many of our readers; are property prices
There is no doubt
that in most of the parts of the property market, prices are falling. We
are referring both to prices actually obtained in sales and rentals, as
well as asking prices. Asking prices are taking longer to come down,
since vendors, as a group, are choosing to believe that they can still
catch a purchaser if they hold on.
points here: firstly, we do not hold the view that a lowering of prices
is the same as a “bad” or a “poor” market (more on that later) and
secondly, we will ignore the activities of those at the very upper and
lower ends of the price range. We are concerned with the properties with
which most people would be involved.
To understand the
shape and consequence of this lowering level of demand, we need to
examine the various elements of the market:
The supply of both commercial space and new homes is now outstripping
the level of demand and that can be seen by stalling or falling rental
rates and sale prices in wide parts of the country. In both
Port-of-Spain and San Fernando, the State has constructed a vast
quantity of high-quality offices and that increased supply has already
started to exert a downward pressure on rental levels.
Even with the Prime Minister’s announcement on November 30
that the Government would be suspending its development programme, the
Housing Development Corporation is known to have a large inventory of
completed houses to be released to purchasers at reduced mortgage rates.
It is difficult to be sure, given the poor quality of information, but
the delay in releasing these might be awaiting the completion of the new
housing allocation policy.
household budget: In terms of the residential market, we need to
consider that the two largest elements of the typical household budget
are food and shelter. With food prices rising by an estimated 70 per
cent in the last two years or so, there is now real strain on the budget
of those families on fixed incomes. That drastic increase in food prices
has left less money to spend on the other major item, housing. That has
led to an inevitable and widespread reduction of real estate prices.
Interest rates: There has been a steady increase in interest rates over
the last three years or so as part of the Central Bank’s anti-inflation
strategy. In relation to our contention that housing is one of the two
largest elements of the typical household budget, the impact of these
measures has been to significantly increase mortgage payments. A deeper
discussion of the effectiveness of these anti-inflationary policies in
wider terms is beyond the scope of this column.
Apart from the typical household we have been discussing so
far, these increases in interest rates have also increased costs for
property-owners in other situations. That would include those who have
used the equity in their property to obtain finance at a reasonable
The property developers have also felt the impact of these
interest rate increases sharply since they rely heavily on finance to
carry out their operations (more on this below).
bankers: Most property transactions are financed by banks and it is
therefore important to consider their position in all this. Apart from
passing on to their borrowers the interest rate increases discussed
above, banks have also taken other steps to guard against the risk of
the market declining. These have included bigger discounts on amounts
advanced on valuation figures and less monies advanced on projects.
developers: Property developers have felt the impact of both the
interest-rate increase and the more cautious terms being advanced by
The property development industry has learned significant
lessons in the management of financial risk from the last boom and
crash, for example, the importance of getting purchasers to finance the
cost of development via staged payments and the benefits of pre-leasing
their commercial projects.
Some of the very large developers have even financed their
projects via overseas lenders at significantly lower interest rates.
Notwithstanding that most of our property developers learnt these
lessons, the significant reduction in effective demand and the more
expensive financing terms of local lenders has led to the shelving of
several major developments.
agents: The real estate agents have been hit hard by the downturn in
prices and market activity. It will be difficult to get any sympathy
from a public long grown fed-up of continually rising property prices.
Remember that that
public also habitually blamed those prices on the real estate agents, so
little sympathy is to be had. It needs to be said that the agents have
not done themselves any favours with their unrealistic public statements
on the strength and health of the property market.
More than one firm of
real estate agents have now closed down due to the lack of sales and we
have all known of the slowdown for the last year at least, although I
have been speaking in those terms for at least 18 months now. We need to
take a sober moment to reflect on the meaning of responsibility. It is
easy sport to blame whoever is in government for the problems which
One of the key
players being mentioned in the blame game now unfolding in the US and
the UK is the rating agencies. These are the financial analysis
companies which attach risk ratings to companies and financial
instruments. They are now being accused of contributing to the scale of
the disaster by inaccurate and misleading reporting on fundamentally
risky investment products.
When we consider our
own real estate market, there is cause for pause since it is not
possible to mislead the players, professionals or bankers by ambiguous
statements. After all, we all knew that the market had slowed down and
that was the main topic of discussion whenever we spoke.
So who is left?
Who can one have
possibly been trying to mislead?
The only person left
is the novice: the first-time home owner or investor. Our spokespeople
need to be more responsible and conscientious in their public
statements, if we are to move to a higher level of civilisation.
market sentiment has shifted and prospective purchasers are waiting to
see how far prices will decline before proceeding to purchase.
Afra Raymond is a chartered surveyor and a director of Raymond & Pierre
Ltd. Feedback can be sent to firstname.lastname@example.org.