One of the most significant dynamics of the global financial crisis has been its speed.  In a globalized, technology based world, the reaction to the downturn was swift.  All of the talk about economic decoupling turned out to be exaggerated and the bad news spread like the proverbial wildfire.  They say the financial markets lead us into the recession and lead us out.  Let’s hope so because the equity markets are 60% up since March.

Of course over-exuberant developers backed by unchecked bank lending were the prime initial cause of the downturn, followed by a contraction of the real economy.  The latter has affected the real estate market in a big way in Barbados.  The banking sector has played its part.  Which is the chicken and which is the egg; reduced capacity for lending or reduced demand.  Ultimately the banks lead the curve.  Development loans of seventy percent “loan to value” have become fifty per cent “loan to cost”.  Interest rate cuts have not filtered through as cheaper loans because credit committees have priced in higher risk.  In many cases USD loans of LIBOR plus 3% have become LIBOR plus 5%. One of the major banks which was most aggressive in the market place Kaupthing Singer Friedlander is no longer in business, a casualty of the Iceland meltdown (excuse the pun). The result of these changes has been an almost total shutdown in development lending.

Coupled with reduced demand in Barbados and all its major source markets, many developers have rightly become cautious.  Few will tell you that they have put their projects on ice but neither can they tell you when they will start.  Those that have continued to develop have suffered. Even the outstanding ones have suffered from shrinking demand.  The brave have suffered, the meek have been proved right, in the short term.

If the financial markets are the bell weather indicators of a change in the wind, now is the time to get going.  Predictions are of a better winter that last and 2010/11 is the hot bet for full recovery.  Building contractors are hungry for work, and the speculators who get into the market early and bring their product to market in the next 12 to 24 months should prosper.

The government should play a more active role in getting the banks back into action as lenders, and may choose to be a guarantor of key tourism projects, so as to stimulate growth.  There is also a need for development lending institutions stimulated by government to drive foreign currency generating developments.

Barbados very much remains a market leader in residential development as the country ticks all the boxes.  We have a safe investor friendly environment and the country enjoys a fierce loyalty from its traditional clientele in Britain.  So the way forward looks bright.

About the Author

Terry Hanton
Terry Hanton - Managing Director, Property Consultancy Services Inc

Terry Hanton is a Chartered Accountant who specialises in consultancy services to the real estate and hospitality sectors. He is also a member and accredited valuer of the Barbados Estate Agents & Valuers Association (BEAVA), and previously held the position of Vice-President of this Organisation. Terry has over 10 years of experience in conducting valuations for residential and commercial properties. From 1984 to 1996, he was the Finance Director of St. James Beach Hotels Plc., a Barbados based hotel group which was listed on the London and Barbados exchanges.In addition to his role at Property Consultancy Services Inc., he is the Director of Sales of Altman Real Estate, which has allowed him to maintain an intimate knowledge of the real estate market.From 1998 to 2008 he was Project Director of the Sugar Hill Development which is a resort community located in Barbados, owned by David Lloyd and a syndicate of investors. The project is a tennis community consisting of 100 homes on 52 acres. The investors are nonexecutive, and Mr. Hanton was responsible for executing the project in its entirety. He is also a past Director of Needhams Point Holdings Ltd. as well as of several property development companies.He has conducted feasibility studies, market research projects and business valuations and has also provided project management, and property investment advice and financial and accounting services to a broad range of clients.