Declines in the economy have pushed unemployment up, and this has impacted on the real estate and construction sector. This is the case for both the local housing sector as well as the market for overseas buyers. Property prices have fallen as mortgage financing for both commercial and residential projects has become much more difficult to obtain.
With the global and local economy in recession, declining demand for space in income producing types of property, including office, retail, industrial, condominiums and hotels has reduced the output from the construction sector.
To assess the effect on contractors in Barbados, BCQS International sent out a questionnaire to a variety of medium and large size companies in the Construction Sector and below is a summary of the answers received.
From the responses, it is evident that 2009 and 2010 were the worst years for most contractors with some upturn in 2011. However, the forecast for 2012 seems varied with some contractors expecting a bad year and others expecting to increase their turnover on 2011.
The majority of the contractors want Government to continue stimulating the construction sector, including reducing VAT to incentivize new build projects.
None of the contractors expect the construction sector to recover until after 2013.
With regards to specific questions regarding material prices, all the contractors felt that costs have gone up and will continue to be affected by fuel prices globally. Labour costs have more or less remained constant since 2009.
The majority of the contractors profit margins have declined with the exception of one contractor who advised they have examined all their operations and increased margins.
In summary, the outlook for the Construction Sector in 2012 does not look as positive as it did in early 2011 and the crisis in the Eurozone countries is not helping to kick start the economy into better growth numbers. However we hope that the recent economic figures, especially the improved employment statistics from the USA, continue and this may kick start the American economy and assist both Barbados and the Caribbean region to enter an era of improved growth.
Here is the detailed list of some of the questions and responses received from the Contractors:-
Q: Compared to 2010, how has your company done in 2011? Assuming there has been a change in your financials, what percentage has there been in your turnover?
- 2011 was strong to start but the last half has been very difficult. As of December 19th 2011, our workload is down by approximately 50% compared to last year.
- Compared with 2010 our company has performed much better. Turnover went up by 17%.
- Drop by over 60% in turnover.
- Turnover increased by 20% when compared to 2010, however, the company registered a loss during the year.
- 16% decrease in turnover for 2011.
- Sales increased by 18%. Contract works decreased by 12%.
- We have experienced a significant decrease in turnover from the preceding years, however, we do anticipate an increase in the upcoming period.
Q: How do your order books look for 2012?
- Our book is empty with no major projects in sight.
- Our year (07/2011 – 06/2012) is going well so far. We have secured 77% of the turnover achieved in the previous year and continue to make efforts to at least meet this figure.
- A little better than 2011.
- Our order book is strong with revenues projected to double during the year.
- 43% roll over to-date.
- Very promising.
- Our turnover is projected to increase by 50% for the coming year, although the percentage is disproportionately high, as a result of previous reductions experienced in the last few years.
Q: When do you see a recovery in the construction sector?
- Not for at least 2-3 years??
- It is difficult to foresee. In my view, it responds to a combination of a shrunk market and an over capacity; thus, the gap between supply and demand seems greater than it may be. The industry needs to purge inefficient players and then supply may level to demand. I don’t believe the industry can get back to 2008 levels unless a rather massive programme to renovate the old stock of hotels and commercial buildings is purposely initiated. I doubt that the condominium sector would strengthen until the current stock is sold – that may take about 5 years.
- Late 2012-2013 – election year.
- No recovery anticipated until 2013-2014.
- The construction sector recovery will start late 2014 to 2015.
- In the year 2013.
- It is difficult to foresee a significant increase in demand in the short term.
Q: How do you perceive construction prices will change in the next 12-24 months and why?
- Raw material prices will keep going up as the cost of fuel keeps rising, which affects shipping and this has a roll-on affect. However if companies in this industry keep pricing jobs as they are now then the client will be lead into a false sense that prices for doing work is lowering which as we know is not the case at all and is going to lead to a number of business closing. Nobody wins in price cutting to win work.
- It depends a lot on the price of oil. With Europe going into recession, the price of oil and certain commodities may remain leveled. Nonetheless, there may be pressure from the unions to raise wages due to rising cost of living.
- May drop a little as companies reduce profit to obtain work.
- Material costs should increase in line with commodity prices on the international market occasioned by demand surpluses.
- Construction prices will continue to increase due to higher oil prices and the downturn in the world economy. I truly don’t think the economy will recover to its normality in the near future, probably not before 2015 to 2016.
- Prices will continue to rise due to increases in fuel costs and raw materials, not necessarily labour cost.
- It is anticipated that construction activity and opportunities will remain subdued over the next 2 years, and it is likely that this factor will continue to exert pressure on construction costs and margins.
Q: Do you have any suggestions that the government could implement to assist the Construction Industry?
- Firstly there needs to be some sort of control on the costing of jobs similar to what they do in Canada so that it makes it fairer for the Client and contractor. The Contractors need some sort of legal leverage on foreign clients who leave the island and refuse to pay their bills. I think jobs can be created and dispersed fairly to avoid any one company from getting all the jobs. The construction industry carries a lot on its shoulders as it pays most of the taxes incurred, it’s probably in the top three for most people employed in the island overall, yet unlike the tourism sector and manufacturing sector we don’t get any incentives and concessions to help us wade these trying times and keep people employed and related business more lucrative.
- Government should lobby foreign investment by creating a hub between multilateral lending institutions and private sector. Entities like the Inter-American Development Bank , European Investment Bank and Caribbean Development Bank could greatly help by opening lending lines to banks that in turn would lend to enterprises to develop:-
- Renovation of Bridgetown commercial stock.
- Renovation / construction of medium size hotels.
- Manufacture (for industrial buildings).
- Increase road tax in order to fund more road works, specially re-surfacing of country roads that relieve traffic off the ABC Highway.
- Make it easier to recover monies for work done but not paid.
- Acceleration of capital projects, together with increase alteration of medium term projects to the small to medium sized construction companies.
- Not at the moment, only to say Government should consider giving duty free status for $15 million and over for commercial and industrial buildings or large residential projects to local building developers.
- More government goods, services and project procurement need to be awarded to the small and medium sized contractors and the necessary facility put in place to effect prompt payment.
- The government has a number of project and initiatives, which presently would appear to be curtailed through financial constraints. Other financing options and procurement routes could be considered.
Q: Do you agree with a fiscal stimulus to help the construction industry? Please give reasons for your answer and what type of incentives you would suggest.
- We need some sort of concessions, whether it be with labour, raw materials and or a reduction in VAT, I am not sure. Remember we pay a large percentage of VAT as we can only claim on material purchase as most sub-contractors are not VAT registered and labour is our highest component.
- There are enough fiscal stimuli available. There should not be measures across the board but project specific. This way, whoever requires it, would have to put together a credible plan. Otherwise, any fiscal stimulus becomes a patch to the profitability of in-efficient firms and to the detriment of the consumer and government.
- Obviously yes as all governments use the construction as an economic regulator.
- Yes, construction accounts for a significant percentage of the country’s GDP. Reduce tax rates / accelerated capital allowances of cost of tools and reduce duties on tools etc.
- Yes I agree with a fiscal stimulus, my reason is that Government have to keep this industry going to help drive the economy and continue to keep the construction workers employed and they will have to get involved in more joint ventures with the private sector.
- Fiscal Stimulus should be provided by Government but not cash injections, but by way of VAT waiver to homeowners building their first home up to a specified limit in cost.
- The Construction sector represents a significant contribution to GDP and is an area where stimulus initiatives can have a near immediate impact on output and employment. Incentives could be in the area of concession to encourage investment in development project and infrastructure. These have been well documented in recent periods.
Q: Assuming 2008 to be a peak of market, how has your turnover been affected since then?
- 2009 – Massive down turn.
2010 – Best year for the company in 10 years of existence.
2011 – The beginning was strong but the last half has been one of the most trying I have ever come across from all points of view and the most noticeable difference is nobody is paying their bills on time if at all.
- 2009 – minus 32% using 2008 as a base.
2010 – minus 30% using 2008 as a base.
2011 – minus 20% using 2008 as a base.
- 2009 – OK.
2010 – Small reduction.
2011 – Massive reduction.
- 2009 – declined by 7%.
2010 – declined by 32%.
2011 – increased by 20%.
- 2009 – 11% increase of 3% over 2008.
2010 – 9% decrease of 2% over 2009.
2011 – 16% increase of 7% over 2010.
- 2009 – Turnover decreased by 10%.
2010 – Turnover decreased by 5%.
2011 – Turnover increased by 13.6%.