While construction costs in the Cayman Islands and the Caribbean have risen slightly overall in 2011, property and development consultants are forecasting costs to decrease up to 2015, according to BCQS International’s 2011 Market Trend Report.
According to the report, the two main factors behind the projected cost decrease are a decline in commodity indexes and raw materials, and “the natural balancing of the market in terms of demand for new construction”.
Cayman’s construction market more or less aligns with regional trends, but the jurisdiction arguably has greater potential than its larger neighbours to shake off the doldrums upon the commencement of major developments in the works, said BCQS Managing Director Liam Day, who is based in Cayman.
“There are nuances in all the jurisdictions. Generally we’re still in a down cycle obviously. There is some light at the end of the tunnel in the form of some new projects that have been announced,” he said.
Differing impacts of projects
The report highlights a big project already well under way in the Bahamas, the Baha Mar Cable Beach redevelopment, made possible by financing from the Export-Import Bank of China and labour from China State Construction Engineering Corporation. Similarly, the Jamaican government has contracted with China Harbour Engineering Company (the same China government-owned company with which the Cayman government is in discussions about building cruise berthing in George Town) to construct and improve infrastructure throughout the country.
Major government-enabled projects in Cayman – such as the Dart Group’s developments, Cayman Enterprise City or Dr. Shetty’s medical tourism hospital – could have a more dramatic impact on the local construction market, due to the relatively small size of the territory and its skill pool, Mr. Day said.
Additionally, Chinese-led projects in general “tend to not have much of an impact on the local economy”, he said.
He said a usual stipulation of securing financing for a project from the Chinese government is that Chinese construction companies perform the bulk of the work. “None of the money circulates in the local economy,” he said.
“All of the money goes straight back to China. I’m not criticising that model. That’s the reality of it,” Mr. Day said.
Many large infrastructure projects in the region are being financed and undertaken by the Chinese, he said, because governments, including Cayman’s, are in similarly precarious financial positions.
“Lots of governments are challenged with aging infrastructure. Their only option is to go the Chinese route,” he said.
Cost of building in Cayman
Out of the 10 Caribbean jurisdictions featured in BCQS’ market report, construction costs are highest in Turks and Caicos, followed closely by Barbados and Cayman. Construction costs in Cayman are particularly high in the commercial sector, as opposed to residential or hotel. By a significant margin, Cayman has the highest commercial construction costs in the Caribbean, and Cayman’s commercial rental rates are second only to the Bahamas.
Costs in that sector are high in Cayman generally because of requirements of offshore financial firms, and lessons learned from Hurricane Ivan’s devastation in 2004.
“Typically the reason for that in Cayman is because of the nature of the business that’s here,” Mr. Day said. “Buildings tend to be of a higher specification.”
After Hurricane Ivan, buildings are being designed and constructed to withstand even the most powerful storms and significant flooding, driving costs up.
“I think we’re building better-quality buildings here,” Mr. Day said.
“While other jurisdictions have been hit by storms, they didn’t go through what we went through,” he said.
Turks and Caicos, Jamaica
Identified as the most expensive place to build in the Caribbean, Turks and Caicos is looking to become a little less pricey. According to the BCQS report, the Turks and Caicos government has instituted a reduction in stamp duty for property transactions with the aim of mitigating the effects of the recession.
The jurisdiction with the lowest construction costs in the Caribbean is Trinidad and Tobago, followed by Curacao and Jamaica.
However, the Jamaican government has increased its value-added tax and import duty, and put a 17 per cent levy on unionised labour, according to the report.
“It is yet to be seen whether this will be a positive change, but what it does do is raise the cost of construction in one of the hitherto lowest cost Caribbean construction environments,” according to the report.