With all the changes to the global economy, it is vital those planning new developments in Barbados have an informed understanding of the current market situation. While the economy has started to show signs of growth, the after effects of the global economic crisis have resulted in continuing uncertainty for the construction industry in Barbados and the wider Caribbean. This has put enormous pressure on plans requiring funding, which is no longer available on the terms readily obtained 3-5 years ago, if at all. The market has suffered from funding withdrawals, re-appraising of funding risk and even banks and countries becoming insolvent.
As a result, construction has slowed, redundancies have become more common, and tender prices reduced. In order to remain competitive, contractors have had to think of better, cheaper, and more economical ways of delivering their product, which inevitably benefits the consumer. They are also being encouraged to address green initiatives or sustainable construction, which will appeal to a wider audience. Together with a fall in demand, this has affected marginal developments, which cannot progress. Additionally the ready markets of the UK and the US no longer have the liquidity to invest in speculative developments or second homes. The observed negativity in the industry, begs the question; is now the right time to build?
Barbados has historically been more resilient than its neighbours, despite our economy being dependent on the UK, and to a lesser extent Canada and the US. The Barbados Government has made a strong commitment to recovery of the economy, delivering one of the toughest national budgets in years. Tax increases designed to bring in more than US$100 million in revenue have been put in place in an effort to curb increasing public deficit and debt. Business is being encouraged through tax credits for productivity, innovation and sustaining employment. It is hoped this corrective action will kick start the Barbados economy.
In addition, the Government is looking to the construction industry to restore immediate growth, which will be led by both the private and public sector. Key projects starting in early 2011 are Port Ferdinand, The Regent, Four Seasons, Warrens road expansion, BWA mains laying programme, Mangrove Pond extension and numerous NHC housing schemes.
Of course, one upside of the economic downturn is a window of opportunity to achieve better value for money on the importation of building materials for developers. Because Barbados is a relatively small economy, the vast majority of building materials are imported. However, when international economies begin to improve, this opportunity to build at a lower cost will no longer exist.
The UK Government has revised its economic growth forecasts upwards from previous estimates, and this positive revision should come as good news as it will hopefully act as a vote of confidence in the UK market’s ability to trade its way out of having the largest peace-time deficit ever.
The US economy is forecast to gain some momentum by the middle of next year and accelerate during 2012 with real GDP growth averaging 2.5 percent during the second half of 2011, 3.1 percent during the first half of 2012, and 3.4 percent during the balance of that year.
Whilst it could be argued these forecasts are optimistic, the general consensus is we have passed the bottom of the cycle.
Although Barbados has challenges, the market is well placed for the upturn. Barbados is served with very well qualified companies and professionals covering all aspects of the construction process including contractors, architects, quantity surveyors, engineers, land surveyors, realtors, marketing and public relations companies, and attorneys.
By employing the services of these companies, who are experienced and skilled in the construction process and whose personnel are qualified to advise on realistic goals, many potential pitfalls can be avoided by sensible planning and monitoring.
There are, however, a few golden rules that if followed will severely mitigate the risks involved:
- Employ professionals to design and administer the project. Most construction issues or cost over runs arise from inadequate or incomplete documentation.
- Do not underestimate the time necessary to undertake the pre contract process. A properly designed, tendered and documented scheme has a far greater chance of success and being completed on time. Most issues on site can be attributed to issues not properly resolved pre contract.
- Use industry standard forms of procurement and contracts. Bespoke arrangements are more likely to result in disputes.
- Avoid stage payments. These are arbitrary and weighted towards an overly positive cash flow in favour of Contractors.
- Identify and deal with risks early. They will become more difficult and costly to resolve during construction.
All in all, despite the various pitfalls and potential problems, Barbados remains an attractive location to build and develop, encouraged by its stable political and economic climate. More importantly construction prices being achieved now are some 7.5% less than the peak and are unlikely to be bettered in the foreseeable future.