Costs and banks causing ‘catatonic’ home market


Tribune Business Editor


High construction and mortgage costs, coupled with the unwillingness of banks to take losses on toxic loans, have resulted in a “catatonic” Bahamian housing market, Tribune Business was told yesterday.

Stephen Wrinkle, a former Bahamian Contractors Association (BCA) president, told this newspaper that “the housing industry has collapsed”, bringing a large portion of the construction industry “to its knees”.

Speaking after Tribune Business revealed the contents of an Inter-American Development Bank (IDB) report, which revealed that annual housing starts and completions had contracted by two-thirds in the decade to 2014, Mr Wrinkle described such data as “conservative”.

And he described as “worrisome” the report’s finding that the pace of home construction was insufficient to match the demand from a growing Bahamian population.

With working and middle class Bahamians unable to find adequate homes, Mr Wrinkle warned that this nation was in danger of “stunting” and “stifling” economic growth and social mobility.

Describing this nation’s residential housing woes as “multi-faceted’, the former BCA president said the construction, banking and real estate industries needed to sit with the Government to hammer out solutions that will get the market moving again.

Outlining the issues that need to be tackled, Mr Wrinkle told Tribune Business: “The cost of building a home, buying the mortgage and sustaining the mortgage are prohibitive, and when you couple that with the cost of catastrophic insurance cover and life insurance cover, the cost of affordability for the average Bahamian is astronomical.”

Mr Wrinkle said the Bahamian economy and individual companies were in no position to support increased affordability through greater salaries, meaning there had to be adjustments on the cost side to make home ownership available to more Bahamians.

The IDB paper, entitled ‘The State of Social Housing in six Caribbean countries’, effectively backed Mr Wrinkle’s assertion, pointing out that per capita incomes in the Bahamas are 8.2 per cent below pre-recession 2007 levels.

“The cost of construction must come down, and the cost of mortgages must come down,” he argued yesterday. “Those are the problems, and there are potential answers and solutions to those problems, but unless and until the relevant parties come to the table and work them out, the industry is going to remain catatonic.”

The Bahamas’ relatively high construction costs were cited as an issue by the IDB report in reference to the Government’s low-cost housing programme, an initiative intended to enable all Bahamians to realise their dream to ‘own a piece of the rock’.

“A major constraint facing the housing sector is the high cost of materials. The ministry is exploring all avenues to keep the cost of home construction in the region of $60,000 to $80,000, as at least 50 percent of applicants are low-income,” the IDB report said.

It referred to internal Government discussions about reducing import duties/Value-Added Tax (VAT) on building materials for use in its housing programme, plus exploring the use of prefabricated houses.

These homes were cited as being “less labour intensive” than traditional construction models, and could be completed in eight weeks rather than the typical three months.

Meanwhile, Mr Wrinkle said Bahamas-based commercial banks needed to follow the lead established by their US counterparts and accept ‘write downs’ on the value of bad mortgage loans to ‘unclog’ the Bahamian housing market.

“They got rid of those toxic assets in the US, took losses, and people got back into the marketplace, refinanced and got the ball rolling again,” Mr Wrinkle said.

“They got those toxic loans off their balance sheets, but our banks don’t want to lose asset value on their loan books.”

The Central Bank of the Bahamas’ monthly economic report for February, released yesterday, revealed that some $666 million in non-performing and past due loans remain on commercial bank balance sheets.

Mr Wrinkle conceded that this understandably made the sector reluctant to lend new mortgages, with qualified buyers also hard to find. Yet he also suggested that the banks themselves were partially responsible as a result of overly-aggressive lending in the run-up to the 2008-2009 recession.

“The banks are not interested in opening up their coffers to the middle and low income market because of problems they’ve had with mortgage collections,” the ex-BCA president said.

“They’ve put their toe in that fire and got burned. That’s not entirely the fault of the consumer. The banks lent them money when they were over-borrowed, and they know it.”

Mr Wrinkle said all these factors had combined to devastating effect for the Bahamian construction industry, especially for small and medium sized contractors who relied on residential housing as their ‘bread and butter’.

“The housing industry has collapsed, no doubt about it,” he told Tribune Business. “I think they [the IDB] might be a little generous, a little conservative with those figures.

“Our industry is on its knees with absolutely no change in sight, which is a really worrisome position. Everyone knows where we’re at; the problem is no one knows where we’re going.

“It’s nothing short of catastrophic. It’s an extremely dismal picture with no resolution in sight, and no positive input.”

The IDB study revealed that between 2005 and 2014, residential housing starts and completions in the Bahamas declined by 67 per cent and 68.2 per cent, respectively.

And the annual rate of residential construction permit issuance over the same decade fell by more than half or 63.1 per cent, from 2,846 in 2005 to 1,049 in 2014. The value of these permits also fell, from $402 million to $318 million, a decline of 20.9 per cent.

The number of new construction permits issued in 2014 is less than 50 per cent of the 2,378 average new home builds rate cited in a 2000 report as necessary to meet new household formation, reduce overcrowding and replace old dwellings.

Current housing production levels are below those set out in the housing needs estimates,” the report said.

Mr Wrinkle said the inability to meet the housing needs of an expanding population, as highlighted by the IDB report, would hamper the ability of low and middle income Bahamians to upgrade to hew homes and improve their lot in life.

He added that it would also force Bahamians to increasingly rely on rental accommodation, some of which is inadequate.

“Everything is stymied, everything is stifled,” Mr Wrinkle said of the consequences. “We’re stifling the growth of the economy, stunting social growth.

“Housing controls the economy. It’s said over and over again in every country: If you don’t have a housing market, you don’t have an economy.”


Well_mudda_take_sic 7 years, 8 months ago

Mr. Wrinkle fails to understand that it always the residential mortgage lender who gets left holding the proverbial empty bag. After all, the contractor gets his heavily padded costs paid up front (even if it means cutting corners in the quality of construction); the real estate agent or broker creams off his exorbitant commission up front; the lawyer gets his handsome fee paid up front at time of closing; the insurance company gets paid its premium up front usually; the utility companies get their security deposits paid up front; the government gets it stamp duty and VAT paid up front (and there may be real property tax to pay too); etc., etc., etc. JEEPERS TO GEEZ, WHO IN THEIR RIGHT MIND WOULD WANT TO BE A RESIDENTIAL MORTGAGE LENDER?!!!


John 7 years, 8 months ago

With working and middle class Bahamians unable to find adequate homes, Mr Wrinkle warned that this nation was in danger of “stunting” and “stifling” economic growth and social mobility.

The fact is there is a very large inventory of repossessed homes on the Bahamian market. While because of the stringent requirements, many persons shopping for houses cannot meet these requirements, there is a large number of home seekers who have adapted the 'wait and see mode, or even the, "that mortgage thing ain't for me," attitude. Either they have had experiences where they have already lost homes to banks or they saw what other people, family and friends , have gone through with their mortgages. Some have lost their homes and other mortgaged properties after paying the banks for many, many years. And the mortgage relief promised by the government never reached them. In some parts of the USA, like Detroit, Michigan, entire blocks of homes are empty and are falling into disrepair. The owners have left after not being to meet their mortgages and after finding out that the property was not worth a fraction of the mortgage they were trying to pay off to the bank. So they left. Some moved in with family, some rented apartments and some found it wiser to move to a new house and a new more affordable mortgage. The recession has caused many Bahamians to move in with family. Some have relocated to the family islands and many want to distance themselves from what they consider to be hostile banks and their lending practices. And with another recession looming (at least talks of it) no one wants a bank anchor around their financial necks.


bogart 7 years, 8 months ago

How ironical, and extremely disappointing that the contractor has not mentioned that the cost of mortgages and building have not INCLUDED THE WUTLESS LOW LIFE CONTRACTORS who many many persons are victims of and we all know someone who complain of tieffing, lie thru dey teet, swing innocent women, who somehow manage to claim to be CONTRACTORS, who may not even pay their NIB and workers NIB, who stiff their workers pay, who can't lay blocks, who are just wutless incompetent but somehow pose as Contractors an can build your dream house you have saved up from many asues to pay downpayments etc. Who regulates these "CONTRACTORS' and certifies them as Contractors? Do they just set up a company as a Contractor? Does anyone disbar them if there are complaints? Furthermore there is no Consumer Protection Agency where many, many, many ripped off customers can go to get justice after they have been left broke. Costs have risen because of these contractors who are jacking up the costs of construction an different prices like building the identical model house for different prices because one house is in the ghetto and the other house is in a rich people neighbourhood. Where is the legislation and laws to protect hundreds perhaps thousands of consumers who have been ripped off by Contractors? Do you know the suffering and misery of you and your children of being ripped off? living in a home without anything on the floor? living with walls all cracking up? living in a incomplete home and the bank telling you they didn't hire the contractor and you have to go sue him and you broke and still have to pay bank interest and loan and the bank understand all dis and they were giving out stage payments from your loan to pay the Contractor. When you at work expecting the bank and contractor and Bank Approved Appraiser who the bank ask you to choose one from their list to do their examination etc and things go wrong, so why you paying these fees and the bank interest to protect your money you have to pay back? You have to, cause the bank will put you and your children out and sell your house and charge you for their lawyers to do so. Where is the Consumer Protection for the customer left broke and suffering?


bogart 7 years, 8 months ago

On the matter of the housing being down its simple Economics 101. Many banks offered bonuses of cash prizes, SUV's etc to loan officers to meet mortgage targets. Bankers have targets to meet to give out loans so as to get good staff reports. Many banks used to advertise financing up to 95% for house and lot package. Remember those days. In other words banks exceeded their normal lending guidelines to expose themselves and customers to mere risk covered by an Indemnity Insurance policy. These loans were marginal as they were based on the customer spending for all loans up to 45% of their income and getting by on the rest. Many loan applications were not as detailed or as difficult as they are today confirming this and banks got what was available from those customers from the small pool on the market. Costs go up, customers fail to repay AND banks publish huge lists advertising houses for sale. BUSINESSES in the Bahamas put up as collateral for business loans HOUSES, LAND as a very common form of COLLATERAL for the bank to hold. AS THE BANKS MASS ADVERTISE HOUSES FOR SALE there is a glut, prices drop. COLLATERAL HELD FOR BUSINESS IS REDUCED AND THE PRUDENT BANKER REDUCES AMOUNT OF OVERDARFT AND WRKING CAPITAL TO BUSINESSES, inventory cannot be bought , salaries decline, workers laid off compounding/EXACERBATING the problem. WHY WOULD BANKS MASS ADVERTISE THESE HOMES IS LIKE SHOOTING THEMSELVES IN THE FOOT. The equilibrium point for SUPPLY AND DEMAND SHIFTS LOWER AS MORE HOMES WILL BE SOLD AT EVEN LOWER PRICES to a market with customers who cannot qualify for even cheap houses. THE POSSIBILITY OF HOMES BEING UNDERWATER INCREASES IN THAT CUSTOMERS MAY ACTUALLY BE REPAYING MORTGAGE LOANS AS THE VALUES OF THEIR HOMES DROP, ASSISTED BY BANKS WHO ADVERTISE MORE HOMES IN THEIR COMMUNITIES FOR SALE BY REPOSSESSION!!!!!!!!!!!!Banks face even worse losses and less dividends to shareholders. . Banks seems they follow instructions from some overseas people because surely locals don't want to create a bigger economic problem. It is more puzzling that the country's own bank owned by the government and the people of the Bahamas has just put out such a list with pages of homes for sale last week! Banks should try to extend loans up to 45 years and lower interest. Work with your customers, your salaries are being paid by them, why would you stop your salaries instead of restructuring your customers loans and getting something. They will be assured of getting a monthly payment. Loans can be reshaped years later as the customers finances improve. Some developments are Directors and Senior Bank officials are now enacting legal protections against them being sued. See local shareholder pamphlets on shareholders meetings. Smart lawyers are getting in the customer protection business - See Spicer case in Abaco. Consumer PROTECTION is needed.


DiverBelow 7 years, 7 months ago

Banking & Finance has NEVER been an industry with much Common Sense, only Greed & Opportunism. Now the Insurance Companies are adding financing to their portfolios.


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