Developers avoid 3% NHT loans

Low-cost housing hurts bottom lines

Avia Collinder, Business Writer

Take-up of the interim financing offered to developers by National Housing Trust (NHT) has resulted in J$2.6 billion in loans so far this fiscal year.

The state agency said, however, that the demand since April 2011 has been for the most expensive loans available to private developers, now priced at nine per cent, but none for cheaper loans priced as low as three per cent.

Qualifying for cheap NHT loans commits developers to selling units at low prices off which they do not make as much money, say critics of NHT's policy.

Demand is centred instead on loans for housing that is marketed at selling prices above the NHT's recommended price. The lending rate on those funds were recently cut from 12 per cent to nine per cent.

The poor pattern of take-up for the construction of cheaper units has persisted for several years, especially for the three per cent category which aims to delivers studio units at J$3.5 million or less, and two-bedroom units at a cost J$5.5 million or less.

"In September 2009, we reduced interest rates under this programme in the hope that more developers would have accessed the facility. However, this has not been happening in any significant way," said NHT on its website.

Development timeline Unfeasible

Edwin Wint, president of the La Maison Property Services Limited and immediate past president of the Realtors Association of Jamaica, says the two-year development timeline affects the feasibility of such projects.

"It appears that the conditions governing this scheme are not finding favour with the development market. For example, planning a housing development today means delivery would be in 18-24 months and the price limit today at J$5.5m for a housing project for two years' time seems untenable," said Wint.

"Typically, there is interest rate, inflation and exchange-rate implications for pricing at present value rates for a future development."

The development timeline, said the realtor, puts the developer's pricing under severe pressure if he is to provide "decent accommodation" in a scheme.

"They (NHT) had best review their limit and conditions in line with market," Wint said.

In mid-January 2012, the trust provided businesses with Continued from C1

information which showed that as of December 2011, the total loans under the interim finance programme was approximately $2.56 billion on the most expensive loans available.

But no developer has so far come forward within this fiscal year for the money priced at eight per cent and at three per cent, which is allotted for cheaper units.

The trust would not comment on the policy issue, but it has been marketing developer funds robustly, and in November executed the cut in rates to entice home builders.

Industry sources says NHT's low priced loans are being ignored because the structure of the offer allows developers little scope to generate desired profit margins.

Mitchell defends NHT

Howard Mitchell, the former chairman of NHT, is pushing back at the critics in defence of the housing agency. The development timeline, he argues, is not static.

"Yes and no is the answer to the charge that the NHT could be more flexible," he told Sunday Business.

"I accept that if you take the point of departure to be when you start the project - with all planning permits involved - it could be two years. But, with the building systems now being used, houses can be delivered in three months. There are houses which are being built in three days," said Mitchell, who gave up the chair of the NHT last October after four years.

"It has to do with critical path planning by the companies involved in building developments. I do acknowledge that inflation can have an impact and it could be included in the contract. But, if we do not set benchmarks, how will they be achieved? A fact to be considered is that it is not NHT which says that houses must be built for J$5.5 million. It is the market which says we can't afford more," he said.

NHT is a top financier of residential real estate projects and accounts for about half the total housing starts on an annual basis.

Mitchell insists that pricing is swayed more by the market and what it can afford.

"The NHT is trying to serve the market, which is why we reduced the rate below cost. We can provide measures for inflation. It is to be noted that some developers are responding and the results of this will be seen soon," he said.

Attempts at comment from the Jamaican Institute of Quantity Surveyors on the issue were not successful up to press time.

Rate adjustments by NHT since November include loans for housing solutions sold above the NHT's recommended price, from 12 per cent to at nine per cent; and loans for solutions sold at a price equal to or less than NHT's recommended selling price, from eight per cent to five per cent.

From fiscal years 2003 to 2010, the NHT provided loans valued at J$8.5 billion to private and public sector developers to construct just over 5,400 solutions in 24 developments through its interim finance programme.

For the period April 2010 to March 2011, it also financed eight additional projects. The total Interim finance loan disbursement for the 2010-11 was approximately J$1.56 billion.

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