One of the most significant dynamics of the global financial crisis has been its speed.Â In a globalized, technology based world, the reaction to the downturn was swift.Â All of the talk about economic decoupling turned out to be exaggerated and the bad news spread like the proverbial wildfire.Â They say the financial markets lead us into the recession and lead us out.Â 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.Â The latter has affected the real estate market in a big way in Barbados.Â The banking sector has played its part.Â Which is the chicken and which is the egg; reduced capacity for lending or reduced demand.Â Ultimately the banks lead the curve.Â Development loans of seventy percent “loan to valueâ€ have become fifty per cent “loan to costâ€.Â Interest rate cuts have not filtered through as cheaper loans because credit committees have priced in higher risk.Â 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.Â Few will tell you that they have put their projects on ice but neither can they tell you when they will start.Â Those that have continued to develop have suffered. Even the outstanding ones have suffered from shrinking demand.Â 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.Â Predictions are of a better winter that last and 2010/11 is the hot bet for full recovery.Â 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.Â 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.Â We have a safe investor friendly environment and the country enjoys a fierce loyalty from its traditional clientele in Britain.Â So the way forward looks bright.