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Tuesday, 10 July 2012
Status of the Jamaican Construction and Real Estate Industries to 2011
Topic: Strategic Planning

 

 

 

In 2008, Dean Burrowes recorded his analysis of the global recession in “The Jamaican Construction and Real Estate Industry and the Impact of the Global Economic Crisis”.  He noted that bankruptcy of major U.S. financial houses reduced liquidity in the local banking sector “drying up funds available for construction projects”.  Some developers scaled back or suspended projects under construction, fearing local job losses would impede sale of the completed buildings.  Then developers with projects in-the-pipeline then took a “wait-and-see posture until economic prospects improve(d)”.

               Economic data from the Statistical Institute of Jamaica for the period 2002 - 2011 confirms that the rate of growths in the construction and real estate industries did decline from 2008 – 2010, with construction being the worse affected.  The low rate of growths experienced in 2011 indicate that the real estate industry should return to pre-recession levels this year, but restoration of the construction industry may not materialize before 2014.

Table 1:  GDP, Value-Added by Industry at Constant (2007) Prices and Rates of Growth

 

Total GDP

Construction

Real Estate

Year

Value

Growth

Value

Growth

Value

Growth

2003

718,990

3.7%

54,162

5.0%

73,333

2.2%

2004

728,508

1.3%

58,784

8.5%

74,792

2.0%

2005

735,019

9.0%

63,435

7.9%

75,823

1.4%

2006

756,133

2.9%

61,078

-3.7%

77,237

1.9%

2007

766,972

1.4%

63,829

4.5%

79,827

3.4%

2008

760,892

-0.8%

58,992

-7.6%

80,980

1.4%

2009

737,442

-3.1%

55,873

-5.3%

79,968

-1.2%

2010

726,840

-1.4%

55,314

-1.0%

78,998

-1.2%

2011

737,804

1.5%

55,650

0.6%

79,394

0.5%

Source: Statistical Institute of Jamaica

     

* GDP and Value- Added at constant (2007) prices, J$ 'million

 

               From 2003 – 2011, Jamaica’s construction industry represented approximately 8% of its gross domestic product (GDP).  During this period, the industry showed negative growth in 2006 and from 2008 -2010.  In 2006, a major problem with the quality of locally-produced cement literally shut down the industry until alternative supplies could be imported.  The -3.7% growth in 2006 was followed by 4.5% growth in 2007.  So, the industry recovered from one crisis only to be thrown into another.  The pre-recession value added in 2007 was J$ 63.8 billion, only J$0.4 billion more than that of 2005, at constant (2007) prices.  So, the pre-recession value added is only slightly higher than that of 2005.

               In 2010, the value added at constant (2007) prices was J$55.6 billion, approximately 13% lower than 2007.  Growth in 2011 was only 0.6%, below the 1.5% GDP growth that year.  Previously, positive growth exceeded GDP growth and typically ranged from 0.9 – 3.4%.  If the industry growth can equal GDP growth this year and return to superior growth rates in subsequent years, the industry should regain pre-recession value added in two years, and as stated before this would only be marginally higher than that existing nearly a decade earlier.

               In contrast, the real estate industry represented 10% of GDP up to 2007, but has been 11% of GDP since 2008.  Its growth rate fell in 2008 and was -1.2% in 2009 and 2010, exceeding the GDP growth rate for the respective years.  In 2007, its value added was J$79.8 billion and fell by 1.0% to $79.0 billion in 2010.  It had a 0.5% growth rate in 2011, uncharacteristically lower than the GDP growth.  But typical growth rates range from 1.4 – 3.4%, so this industry should return to pre-recession levels this year.

Table 2:  Loans by Commercial Banks for Land Purchase and Construction

Year:

2006

2007

2008

2009

2010

2011

Loans

8,045

8,997

12,902

19,909

21,962

18,488

Value-Added

56,317

63,829

69,792

72,405

79,255

83,843

% Loan

14.3%

14.1%

18.5%

27.5%

27.7%

22.1%

Source: Bank of Jamaica

         

** Value-added at current prices, J$ 'million

     

 

               Interestingly, economic data from the Bank of Jamaica for loans by commercial banks for land purchase and construction does not confirm Burrowes’ observation that banks reduced funding for construction projects.  In 2007, commercial banks provided loans amounting to 14.1% of the value added by the construction industry.  This actually rose during the recession to a high of 27.7% at current prices in 2010, subsequently falling to 22.1% in 2011.  It is therefore likely that developers unilaterally suspended, scaled back and took a “wait-and-see posture” while awaiting improvement of the economy.  Loans from commercial banks should therefore not retard the construction industry’s return to pre-recession levels; and baring diminished confidence of developers, this should be achieved in 2014.


Posted by phcjam at 5:43 PM EDT
Updated: Friday, 31 August 2012 6:00 PM EDT

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