Running out of land - Housing deficit driven by demographics of demand
Published:Sunday | March 11, 2012 | 12:00 AM
Avia Collinder, Business Writer
A major challenge for developers in search of property for low- income homes will be finding land in zones where buyers in the income category - most likely employed in the island's urban centres - are willing to live.
President of the Jamaica Institute of Quantity Surveyors, Shardon Haye, says builders who are hoping to market homes at a cost of J$5.5 million or less will need to find land in the cheapest possible locations and find ways to minimise infrastructural development costs.
"In Kingston, St Andrew and St Catherine such lands are hard to find and yet if you go far beyond the urban centre, the people to whom you are selling might not be attracted," said Haye.
Where such lots can be found, "consider as well that there might be a need to undertake adverse remediation such as blasting of rock or significant drainage issues in such areas, the developer will be challenged in order to make a return," Haye said.
The demographics of the National Housing Trust's (NHT) mortgage portfolio, used here as a proxy for demand, reflects a clustering of housing need in Kingston and St Andrew, St Catherine and Clarendon.
Of 89,898 mortgages held by the trust, some 34,590 are for homes in St Catherine, 14,824 for homes in Kingston and St Andrew and 10,174 for Clarendon.
Outside of this geographical area, the next highest concentration of mortgages is in St James where 9,799 mortgagors exist. Manchester takes a distant fifth place with 3,314 mortgages and with all other parishes falling below this number.
The quantity surveyor spoke in the context of challenges faced by developers who may be considering utilising NHT's developers loans priced at three per cent for low-income homes of minimum size 720 square feet for two-bedroom units, priced at a maximum J$5.5 million; and super studio units of 500 square feet, priced at J$3 million.
The NHT will allow for adjustments to price in inflation of construction materials and labour when the units hit the market. The developer would also have to source the land to be developed.
Repayment of the NHT developer's loan begins two months following completion of the project.
"Looking at the minimum square footage required, considering that the cost of professional fees are fixed, the only variables are cost of land and margin," Haye said.
Assuming that the developer wants to realise returns of 10-15 per cent, the quantity surveyor said the actual construction cost would have to fall below the J$3 million mark. For the 720 square foot minimum size that would average J$4,000 square foot or below in construction costs.
"The developer would have to sharpen his pencil in terms of utilising specific building systems or innovative methods of construction in order to accomplish such costs," said Haye.
"That is the major difficulty. There are newer and cheaper systems, but still the number of units to be built in order to build below $4,000 per square foot is yet another consideration," he said. "If the developer cannot make the 10 to 15 per cent margin he expects, it does not make sense because anything below that, you can put your money on government paper."
The NHT and developers are currently discussing what policy adjustments are required for builders to deliver low-income homes to the market in a way that is profitable for them.