Economic Update

22 Feb, 2018

Trinidad and Tobago has launched two programmes to incentivise new residential housing projects, with the aim of addressing a national housing shortfall and boosting activity in the construction sector.

The Housing Construction Incentive Programme, first announced in the 2018 budget and enacted on January 1, provides grants of up to TT$100,000 ($14,800), or plots of land in lieu of payment, to developers who construct government-approved housing units and sell them to people on the Housing Development Corporation (HDC) waiting list.

As a further incentive, the income derived from the sale of houses under the programme will be exempt from tax.

The programme targets the development of projects in the middle and upper-middle price range of the property market. In order to qualify for the incentives, contractors must follow design, specification and price guidelines set by the government, with the standards and oversight of the programme to be provided by a ministerial committee.

Scheme to assist first-time homeowners

The programme builds on an earlier incentive aimed at assisting people construct their own homes.

Unveiled in November, the Aided Self-Help Housing Programme offers subsidised mortgages with interest rates of 2% and 5% from T&T Mortgage Finance to eligible citizens with land approved for residential use. It also subsidises pre-approved house plans, and provides a list of registered building contractors, technical assistance and oversight for the construction of homes.            

Citizens without land are also eligible. Successful applicants are given the right to buy a fully developed lot from the government at 30% of market value, and receive the same benefits and support as landowners taking part in the scheme. The government is offering 1000 blocks of fully serviced land as part of the initiative.

To qualify, all applicants must be first-time homeowners and have a total household income than does not exceed TT$25,000 ($3700) per month.

Private sector engagement to offset funding shortfalls

Efforts to incentivise housing construction follow years of demand outweighing supply, and come amid reduced government spending and increased costs for public housing developments.

The fall in national energy revenue and subsequent slowing of the economy in recent years has caused state spending on key programmes to be scaled back. Total government expenditure is projected to be TT$50.5bn ($7.5bn) in 2018, down from TT$62.8 ($9.3bn) in 2014.

The shortage of funds for public projects has been exacerbated by a sharp rise in construction costs. According to 2018 budget papers, the average cost of building a housing unit through the HDC has more than tripled from TT$300,000 ($44,400) in 2015 to TT$1m ($148,000).

These factors have contributed to difficulty meeting housing assistance requirements. There are more than 150,000 applications for public housing, according to the HDC; however, current limitations mean the state only has the capacity to oversee the construction of 2000 units annually, a figure that falls well short of the waiting list.

The government hopes that by encouraging the private sector to take part in mid-range housing development through incentives programmes, it will allow the HDC to dedicate its resources solely to lower income brackets, and focus on providing affordable rental dwellings and low-cost homes built on a rent-to-own basis.

According to budget estimates, the TT$100,000 ($14,800) incentive payment to developers could save the state up to TT$400,000 ($59,200) per unit, as the private sector will primarily foot the costs associated with constructing housing units. At present, the government estimates that once housing blocks are sold, it is left with an average deficit of TT$500,000 ($74,000) per unit.

Liquidity and implementation pose challenges for developers

It is hoped the stimulus programmes will also generate activity in the broader construction industry, increasing demand for building supplies and skilled labour; however, concerns remain over the success and impact of the strategies.

Construction sector GDP is estimated to have declined by 4.8% last year, the third consecutive year of contraction, according to the Ministry of Finance, due to the broader economic downturn and problems implementing public sector investment programmes.

Although the IMF expects real GDP to expand by 1.9% this year, an improvement on 2017’s 3.2% contraction, the relatively modest pace of growth could limit the impact of housing initiatives on the sector.

Liquidity is another issue of concern for the industry, and ensuring adequate cash flow will be important for private developers undertaking housing projects as part of the incentive programmes.

Despite some lingering concerns, the initiatives have led to a more positive near-term outlook.

“With a raft of new government projects picking up steam, we should see the construction sector improve towards the latter half of 2018 and into 2019,” Imtiyaz Adam, managing director of local firm Adam’s Project Management, told OBG.