How Construction Costs Affect Property Values
What has become clear is that there is a great variance across the region in terms of construction costs and subsequent rental and sales values. A pattern emerges generally in that the higher a country’s GDP per head, the higher the construction cost, and in turn the higher the rental or sales value upon completion.
An exception to this rule is the Turks and Caicos Islands, where the GDP is amongst the lowest, whereas construction costs are generally amongst the highest. Relying on the accuracy of the figures, this suggests a wide gulf between the country’s lowest and highest earners and indicates that a high-income minority are involved in the development and subsequent sales and rental of domestic, hotel and commercial property. Of all the types of construction, office buildings show the greatest variance in terms of cost per square foot, although high quality residential properties also vary greatly region to region. Whilst labour and materials cost are a major factor, this may also be dependent on levels of finishes and millwork chosen by the individual client.
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Commercial developments in the Cayman Islands are noticeably higher as a comparable percentage to other construction costs. This is due to client-driven demand for greater hurricane protection following Hurricane Ivan in 2004, which has called for stricter building standards for such buildings and therefore increased construction cost.
Our findings demonstrate individual vagaries regarding specific building materials. For example, sand is found to be expensive in the BVI, while this is true of paint in the Turks and Caicos Islands. Such items would suggest that the suppliers of these items have little business competition so therefore do not have to be competitive in a market which would otherwise demand commercially priced materials. Raw materials such as aggregate and sand are a lot cheaper as a percentage in Jamaica against other building materials which points to the fact that these raw materials can be produced on island, whilst other finishing materials need to be imported. In Trinidad, the same is true of similar products, as well as steel. Those smaller islands which manufacture little or no raw or finishing building materials need to import all their goods, which in turn attracts greater costs in the form of shipping, brokerage and duty. Luxury items (some finishes, specialist millwork, appliances) are taxed heavily in most jurisdictions, the cost against which filters directly through to the consumers of the construction market.
Labour costs demonstrate a significant variance, country to country. For example, a labourer in the BVI can expect to earn six times as much as a labourer in Jamaica, whilst a plumber in Barbados earns half that of a plumber in Cayman. Equipment costs are generally more in line on a country by country basis than other construction elements.
In countries such as the Turks and Caicos Islands or the Bahamas, construction costs can vary island to island, with more remote islands attracting higher costs due to transportation of labour, plant and material and accommodation for labour. Even where the country consists of a sole island, such as St. Lucia, costs can vary depending on geographic location, accessibility of the site and proximity to ports.
Natural disasters such as hurricanes or earthquakes can have an immediate effect on construction prices, even if the disaster did not occur in that particular jurisdiction, such as during the highly active hurricane season of 2005 where building materials such as plywood and roof finishing materials increased in price and therefore directly affected neighbouring countries relying on the same supply chain. World economics also plays a leading role, for example the price of oil falling from $150 per barrel to $50 per barrel in a matter of months over the last two quarters of 2008.
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2009 saw an overall reduction is construction costs, partly due to reduced commodity prices. Another main factor was due to the competition for work which forced contractors to take a more commercial approach in their pricing of bid documents. Reduced profit allowances and minimised Labour Day rates made contractors more likely to win work and therefore better positioned to keep a positive cash flow.
As to 2010, we continue to monitor the situation as a whole. The BVI is focusing its efforts on building a heritage-based tourism product, so restoration projects such as the Coppermine on Virgin Gorda and the Callwood Distillery and the Lower Estates Sugar Works on Tortola are underway.
Tourism has flourished in recent years in St Maarten, yet the Marriott and Hyatt hotel projects have stalled due to the economic condition. St Lucia’s construction industry has suffered in 2009 leaving many projects on the drawing board; however, the report sees a return of confidence with a government holding high expectations.
The same can be said for Barbados which is looking at a number of promising projects in the future, including the Four Seasons Development & Marina at St Peters Bay.
Although the economic downturn has affected the public and private sectors in Trinidad, construction continues, perhaps due to the government’s Vision 2020 development plan which the report says allows for a steady flow of construction throughout.
Curaçao suffered less than most due to the geographic diversity of its tourism product attracting visitors from South America and Europe and not relying so heavily on the US market. Two major hotel developments, namely the Renaissance Hotel and retail mall and cinema and the 350 room Hyatt Hotel, have supported the construction industry there.
Located in the Bahamas, Barbados, the British Virgin Islands, the Cayman Islands, St Lucia and Turks and Caicos, BCQS International provides the Caribbean construction industry with cost and value expertise, having been a part of the property industry for over forty years.
