A BVI Beacon Special Report on the 2014 outlook for the territory's construction industry.
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In 14 days, work is set to beginon the Pleasant Valley Bridge inPalestina, which was severelydamaged during the passage ofTropical Storm Otto in 2010.
On Tuesday, governmentinked an $819,848.58 contractwith G-Unit Construction forthe bridge repairs and drainagerehabilitation in the area.
The work is the first majorproject funded by theCaribbean Development Bankloan of $15.6 million approvedby the United Kingdom in2012, said Dr. Drexel Glasgow,government’s chief of infra-structure planning, research anddevelopment.
VI construction industryemerging from recessionBy JASON [email protected]
Building activity tends to stallduring a recession. Funding
dries up, investors get nervous,and contrac-tors idle theirtools. Since2008, that wascertainly thecase across theCar ibbean,i n c l u d i n gmuch of theVirgin Is-
lands. But don’t tell that toJames Hunt.
“I’ve been here four years andI’ve been incredibly busy,” said Mr.Hunt, who manages constructionprojects for the VI office of thefirm BCQS. “All my work is overin the North Sound area.”
Some of the millions of dollarsworth of construction that has
taken place on the northern tip ofVirgin Gorda recently can be at-tributed to one-off events, Mr.Hunt admits. For example, Sir
Richard Branson was forced to re-build his “great house” on NeckerIsland after it was destroyed by alightning strike in 2011.
“But it hasn’t just been that.We’ve had Mosquito Island; we’ve
Thursday, February 27, 2014 | The light that comes from wisdom never goes out.
Government’s debt to the H.Lavity Stoutt Community Col-lege for the tuition assistance pro-gramme has grown since last year,college President Dr. Karl Daw-son said this week.
During last year’s StandingFinance Committee deliberations,then-bursar Ursula Moore toldlegislators that the college was
owed about $4.2 million for theBVI Student Tuition AssistanceProgramme for the period be-tween 2009 and 2012.
Under the programme, VirginIslands nationals — about 80 per-cent of the student body — re-ceive free tuition at the college.
Asked this week about the cur-rent arrears for the programme, Dr.Dawson said he didn’t have theexact figure, but the amount hasincreased in the past year.
These arrears come on top ofarrears from the college’s annual
Government had hoped to progresswith the Paraquita Bay greenhouseswith the help of qualified expertslast year, but after the public tendernotice was released in Novemberno firms submitted any proposals to
operate the facilities, according tothe Ministry of Natural Resourcesand Labour’s recent presentation tothe Standing Finance Committee.
Speaking to the committeeduring its deliberations earlier thisyear, Permanent Secretary RonaldSmith-Berkeley said that threepotential bidders had picked upthe tender documents from theMinistry of Finance, according to
Gov’t’s HLSCC arrears growing
Arrears see page 19
Ministry still waiting ongreenhouse proposals
Greenhouses see page 19
had Oil Nut Bay,” Mr. Hunt said,referring to large villa develop-ments in the area aimed at thesuper-wealthy. “And I really seethat area for the next five, six, sevenyears as having the potential forconstruction to maintain at ahealthy level.”
North Sound may be a rarebright spot, but generally it hasbeen a rough few years for the VIconstruction industry. In its majorsubsectors — villa/resort, local res-idential, commercial and infra-structure — activity slowed and insome cases stalled completely dur-ing the recession. Major challengesremain, but most of the industryobservers interviewed for this arti-cle said they are finally seeinghopeful signs that a recovery inconstruction activity may gathersteam in 2014.
Real estate marketFirst, though, obstacles will
have to be overcome. Due to pre-vious expansion, the real estatemarket is now burdened with ex-cess inventory that dampens en-thusiasm for new builds.
Currently, there are about 200villas priced above $500,000 forsale in the territory, and there’s aglut of more than 90,000 squarefeet of vacant commercial spaceavailable, much of it in RoadTown, according to EdwardChilds, a director at real estate bro-ker Smiths Gore.
Government spending, tradi-tionally a big driver of construc-tion, has markedly slowed amidausterity policies. And while Na-tional Democratic Party leadershave long been touting theplanned expansion of the TerranceB. Lettsome International Airportand the extension of Road Har-bour’s cruise ship pier as havingtremendous potential to stimulategrowth, it remains uncertain whenwork on either project will start.
Nevertheless, optimism aboutthe world economy’s prospects isincreasing, and this confidencemay eventually benefit VI builders,developers and others who dependon the sector to make a living, Mr.Childs said.
During recent winters, itseemed that recovery was immi-nent because central banks inEurope and the United States
pumped money into theireconomies to get consumersspending again, he said. How-ever, when the stimulus effortsstopped, so did buying and in-vestment activity.
“I always said that the one yearthat I see good sentiments left over
from the previous high season andnot flattening out in the summerseason, I’ll finally believe that weare getting through the worst. Andthat, I believe, has happened,” Mr.Childs said.
Dion Stoutt, the managing di-rector of ADC Construction and
president of the Contractors Asso-ciation of the VI, holds a similarview about the potential for thesector’s recovery in 2014.
“There are a lot of things thatare on the table, around the cor-ner, but we’re still not fully there,”he said.
Development applications re-ceived by the VI Planning Authorityback up that view, according toVIPA Chairman Louis Potter. Theauthority usually receives about 300applications annually, and actualconstruction occurs each year onabout 200 of those projects, Mr. Pot-
ter said. Though home-building andcommercial applications have been“relatively slow” in coming in, headded, his conversations with devel-opers lead him to believe there maysoon be a “surge” in activity, espe-cially if government infrastructureprojects get going.
“At this stage there needs to bethat second burst of energy,” he said.
Recession’s effectsIf the pace of activity picks up,
it will be welcome news for con-tractors, many of whom have hadto cut into their profits to keep
their firms afloat.“To me, ultimately what’s hap-
pened is you’ve got less work andthe same number of contractors, soyou’ve got more competition in themarket now,” said Ben Butler, a di-rector with BCQS.
His colleague, Mr. Hunt, said that
the bids developers are receiving thesedays reflect that perspective.
“Historically, overhead was 13,14, 15 percent. We’re now gettingpercentages a lot lower than thaton some projects,” he said. “I thinkthat’s a reflection that people wantto win the work.”
Steve Fox, an architect with theVI office of OBM International,has seen a similar trend as archi-tecture firms across the region cutrates to win work.
“It’s hard to pull yourself out ofthat once you’re in it,” he said.“People have been expecting feesto be reduced.”
Firms took hits and stayed inbusiness, but the trend is not sus-tainable, said Mr. Stoutt, the Con-tractors Association president.
“When you start doing that, itcan spell trouble for any industry,”he said. “You weren’t able to growyour business, and I don’t thinkanybody is in business just to standput, barely pay your bills. You al-ways want to make your businessbigger and better.”
Changing designIn addition to lower bids, some
clients have changed their buildingdesigns, eschewing solar panelsand other environmentally sustain-able features that carry a higherupfront cost, according to Mr. Fox.
“People’s focus on those issuesjust went off the map altogether,”the architect said. “It wasn’t a con-sideration. It was just a survival sit-uation where people just wanted tobuild whatever they could possiblymanage to build.”
Those who could still affordto build also became more risk-averse, paying closer attention toreducing their liability and re-viewing the risk that contractorswould go bankrupt, according toMr. Hunt.
“There’s lower margins, morepressure on the contractor. He’s gotto watch his cash flow; he’s got tomaintain his position all the waythrough. That puts the client in acertain amount of risk,” he said.“How do you respond to that? Youspeak to your lawyer.”
Delayed effectsThe recession affected different
parts of the sector at different times.Erick Oeseburg, the owner of Pool-works BVI, said demand for thehigh-end “vanishing-edge” pools hiscompany designs and installs didn’twane until 2011 because the moneyto pay his company had previouslybeen allocated.
“2009 was our best year ever:That’s because of the nature ofprojects here,” he said. “Peoplehave to plan years ahead. The
Affordable housingIn recent years, government has un-
veiled or pledged to develop three initia-
tives that aim to make home ownership
more affordable. In September 2011 the VI
Party-led government amended the Cus-
toms Management and Duties Act to ex-
empt first-time homebuyers and certain
types of investors from import duties on
building materials.
More than $110,000 in exemptions
was handed out under the programme
during the first nine and a half months of
2013, Customs Commissioner Wade Smith
told legislators during this year’s Standing
Finance Committee deliberations.
The National Democratic Party-led
government has made similar efforts to-
wards improving housing affordability.
A “land bank” to offer buyers sub-
sidised land costs is in the works but hasn’t
yet been formed due to a lack of funds,
Deputy Premier Dr. Kedrick Pickering said
in an October interview. However, a Virgin
Gorda Lands Committee to distribute
Crown lands near North Sound recently has
started meeting and should make initial
distribution recommendations by March,
Dr. Pickering said in December.
Additionally, Premier Dr. Orlando
Smith said in January that the 2014
budget would include a $300,000 alloca-
tion to the Ministry of Health and Social
Development to start an “embryonic” so-
cial housing programme.
Page 24 | Thursday, February 27, 2014 | The BVI Beacon The BVI Beacon | Thursday, February 27, 2014 | Page 25Special Report Special Report
Construction: VI developers, lenders optimistic that industry is emerging from recessionContinued from page 1
VIRGIN ISLANDS BUILDING COSTS AMONG REGION’S HIGHEST
Construction see page 26
The cost to build most types of structures in the Virgin Islands routinely tops costs across the Caribbean, accord-
ing to the BCQS Market Trend Report 2012. VI construction industry observers attribute this to a small labour
pool, a high cost of living, import duties, and shipping costs for building materials, among other factors.
Graphic: TODD VANSICKLE
homeowners finally got done andsaid, ‘We bought a piece of land inthe BVI, and finally after 11 yearswe have a complete functioninghouse.’”
Mr. Stoutt’s contracting firm,by contrast, felt the effects almostimmediately after the 2008 col-lapse of the US investment bankLehman Brothers, which, in turn,had a chilling effect on financingcommercial buildings.
“A lot of things were on thetable,” he said. “You were biddinga lot of projects, but when they gotthe prices it disappeared.”
Mr. Fox said OBMI didn’tbegin to seriously feel the effectsof the recession until 2010. Thefirm saw a “mini-rebound” in2011 driven mainly by clients whowere wealthy enough to withstandthe recession’s effects, but theamount of work later dipped, onlyto rebound again in 2013.
“At the moment, and it’s beenlike this for years now, it’s been hardto predict into the future for morethan four months,” Mr. Fox said.
North SoundThe future of development in
North Sound is a lot easier to pre-dict. This year the pace continuesto be frenzied, with work contin-uing at Oil Nut Bay and Mos-quito Island.
At ONB, eight of the planned88 villas have been completed, andconstruction on seven others willprogress this year, according toEmily Oakes, the development’sdirector of marketing. About half ofthe development’s total lots havebeen marketed for sale, she added:Of those, 23 have been sold.
Other main components ofONB’s infrastructure — includinga nature centre, children’s club,two tennis courts and two cisternsdesigned to hold 360,000 gallonsof water — will be complete byMarch 15, Ms. Oakes said. Workon ONB’s “marina village” andmarina is scheduled follow.
At Mosquito Island, which SirRichard purchased in 2007 for $20million with plans to build a $75million “eco-resort,” work on theproject’s core infrastructure is pro-gressing. This year, the island’s firstvilla, which will be owned by SirRichard, will be completed, accord-ing to Charlotte Tidball, a spokes-woman for the development. It willbe followed by ten other privately
Special Report
Construction from page 25
Construction see page 27
Timely and relevant statistics about the state of the Virgin Islands’ construction
industry are hard to come by. Despite a National Democratic Party campaign
pledge to provide better data about the number of new housing starts in the
territory, statistics available from the Town and Country Planning Department
are vague and current only to 2012. Totals of planning applications — there
were 511 filed in 2009 and only 434 in 2012— are broken down into sub-
categories, such as residential, resort, commercial or government. How-
ever, some statistics gathered from a variety of sources paint a picture of
a construction industry that has stagnated up to 2012 and is yet to return
to rapid growth.
$3m(2)
$1m(15)
26 homes sold
$2-3m(9)
2007
2008
2009
2010
2011
2012
29 homes sold
15 homes sold
20 homes sold
15 homes sold
9 homes sold
$3m(3)
$1m(15)
$2-3m(11)
$1m(11)
$2-3m(4)
$1m(16)
$2-3m(4)
$1m(11)
$2-3m(4)
$3m(2)
$1m(5)
$2-3m(2)
Page 26 | Thursday, February 27, 2014 | The BVI Beacon
Graphic: TODD VANSICKLE
The BVI Beacon | Thursday, February 27, 2014 | Page 27Special Report
owned villas, to be finished by 2020,Ms. Tidball added.
Additionally, roads are beingcut and infrastructure prepared atnearby Blunder Bay, a 10-villacommunity that will be accessibleonly by boat. The project is “fullyfunded” and is receiving a lot of in-terest in part because of its locationon scarce waterfront land in thearea, according to Ashburn Harri-gan, one of the property’s develop-ers. He added that he expects thearea’s popularity to grow.
“I know what the NorthSound is, what it is capable of, andwhat it can become,” Mr. Harri-gan said.
All of the activity in the areaand the lack of work elsewherehas led Tortola-based contractorsto become willing to make thecommute to North Sound, ac-cording to Mr. Hunt, the BCQSproject manager.
“We’ve now got Tortola con-tractors bidding on the majorityof the projects we do on VirginGorda,” he said. “That’s just a signof the times. People are willing tofollow the work.”
‘Exclusive’ neighbourhoodProperty values on villa plots in
the “exclusive” North Sound neigh-bourhood have held up in part be-cause most of the other good landhas been taken, according to ChrisSmith, a broker with ColdwellBanker.
“If you look at Virgin Gorda,for example, the prime stuff is OilNut Bay and now Blunder Bay,where you’re talking about a cou-ple of million bucks an acre min-imum,” he said. “After that youhave Nail Bay on Virgin Gorda,and that’s about it. You have noth-ing else for an expat buyer: very,very little.”
Mr. Childs, of Smiths Gore,said that he expects the unsoldvilla inventory to hamper demandfor new builds across the VI forsome time, even when taking intoaccount that 50 to 100 owners ofthe 200 listed properties aren’t ina particular rush to sell. He addedthat in 2008 — a year that re-flected contracts signed at theheight of the market in 2007 —29 villas were sold for more than$500,000. By 2012 that numberhad fallen to nine villas sold.
“Even if 20 get sold eachyear, that’s still 10 years’ inven-tory,” he said, adding, “It ’s still
way more supply than demand,and that’s the situation. But Ithink what we’ll see is the well-located, good house that is cor-rectly priced will sell.”
Villas on the lower end of theprice spectrum are now seeinginquiries, he said, and buyersseeking villas that cost $3 millionor more are usually wealthyenough to have comfortablyweathered the recession. But it’sthe middle market that “virtuallydisappeared” during the reces-sion, he explained.
As Americans see the values oftheir primary homes increase andfeel better about their economicprospects, interest in buying secondhomes in the VI could increase, ac-cording to Sjoerd Koster, head ofbanking for the VI branch of VPBank. Given the long lead time toselect a property and obtain an alienlandholder’s licence, however, im-
proved consumer sentiment todaycould take two or three years to bereflected in improved building sta-tistics, he added.
“It doesn’t immediately meanyou’ll have people building orbuying here,” Mr. Koster said.
But Mr. Smith added that thesize of the villa inventory isn’t theonly consideration. Successful for-eign couples in their 40s or 50s, heexplained, have been the VI’s typ-ical villa-buying clientele: Theyoften bought land to buy theirdream villa, which they kept forseveral decades.
“Meanwhile, the house is 30years old; it needs renovatingcompletely. That’s our inventory,”he said.
Apart from villas, he added,the outlook for developing large-scale hotels and resorts is unclear.
“I haven’t particularly seen it.The experience of Scrub, I think,
will have made people nervous,” hesaid, referring to Scrub Island Re-sort’s recent bankruptcy filing. “Ithink a lot depends on the airport.”
Foreign vacationers aside, full-time residents’ demand for housesand affordable apartments re-mains strong even though supplyis limited.
“On the existing availablehome, I don’t think there has ei-ther been a tremendous price dropor an increase in offer,” said Mr.Koster, the banker.
Mr. Butler, the BCQS director,added that he believes a combina-tion of two factors — banks beingmore “bullish” on lending andgovernment initiatives to improveaffordability (See sidebar on page24) — will also help to spurhomebuilding.
Commercial spaceMr. Butler said the demand
for new office and commercialspace is much more limited.Banks are now asking developersto have at least 70 percent of theirbuildings leased before grantingfinancing to build, he said. With90,000 square feet of vacant spaceavailable, that’s a hard sell.
“As a tenant, I’m not going tosign up to a developer based on aplan,” he said. “You’re going tolook at what’s already constructed.So to me the commercial real es-tate market is — well, lookaround: There isn’t really anythinggoing on.”
Complicating matters is theuncertain outlook for the financialservices industry, he added.
“If you’re sat there now as alaw firm, a trust company, you’reprobably going to sit there in yourexisting premises and make dountil you have a better idea ofwhat’s going to happen,” he said.
Mr. Childs said that he’s seentwo trends among companies seek-ing office space. First, they’re look-ing for smaller space, he said,adding that a company that previ-ously sought 5,000 square feet maynow be happy to make do with aslittle as 1,500 square feet.
Additionally, companies thatpreviously preferred to lease “shellfinish” spaces and finish the inte-riors of the offices themselves arenow asking developers to providecompleted spaces.
Mr. Koster added that unlessthere’s a wave of new companiesseeking to relocate to the VI, heexpects that few new office build-ings will be constructed any timesoon. Bankers are willing to fundprojects, he said, but only if they
make financial sense.“There are of course reasons, but
it has to be a good reason,” he said.
Government projectsMany construction industry
stakeholders say the biggest level ofuncertainty involves government-funded infrastructure projects. Sincethe 2011 election, Virgin IslandsParty legislators have openly criticisedPremier Dr. Orlando Smith’s han-dling of the economy, particularly hisinsistence that government should re-duce its spending on petty contractsnow in order to finance major worksin the medium and long term.
In his recent budget address,Dr. Smith pledged that govern-ment would make substantialprogress on its project list this year.The list — 15 projects, includingthe airport expansion, seweragemodernisation, and dock improve-ments — is an ambitious one, call-ing for more than $63.75 million tobe spent in 2014.
But nearly two months intothe new year, the bulk of thosefunds has yet to mobilise. How-ever, the list doesn’t include twolong-awaited infrastructure ini-tiatives: road repairs funded bythe $15.67 million 2012 loanfrom the Caribbean Develop-ment Bank and more than $19million in works to finish prepa-rations on the Biwater project,which is designed to improve theterritory’s water production andwastewater treatment systems.Both of those initiatives areslated to advance this year aswell, officials have said.
For Mr. Stoutt, of the Contrac-tors Association, getting infrastruc-ture projects moving is a must ifofficials want to grow the economy.
“It’s similar to what the USdid when they were in their reces-sion: They went out and builtroads and bridges and all that kindof stuff,” he said.
He added that decades of rapiddevelopment have left the VI gov-ernment with a considerable to-dolist of expensive projects.
“They’ll be over $10, $15, prob-ably over $50 million — all of them,”he said. “And the reason for that isbasically we have to rebuild ourwhole infrastructure as a country.”
Mr. Childs said that such im-provements serve as a signal toboth foreign and domestic in-vestors that the VI is good placeto put their money.
“It’s important,” he said. “Ifyou don’t get the infrastructureright, a lot of the growth from theprivate sector can’t happen.”
Construction from page 26
Photo: TODD VANSICKLE
A worker makes repairs to The BVI Beacon’s office in Road Town.