Real Estate & Construction
View from the Roof
By TBY | Dominican Republic | Aug 31, 2014
Over the past decade, private sector construction has fluctuated markedly in terms of area built. The National Bureau of Statistics indicates that private sector construction area had fallen sharply from a peak of 3.1 million sqm in 2008 to a low of 1.9 million sqm in 2009, before recovering somewhat to 2.2 million sqm in 2012. Jorge Aguayo, Director General of Industrias Aguayo observed in a TBY interview said that, “The government is picking up the pace again in terms of public works. We have a positive outlook in terms of construction projects. By way of a caveat he added, however, that, “I am not confident about the private construction sector, as the monetary policy in place is too restrictive, causing interest rates to go up, and limiting the growth of private construction.”
The first quarter growth print for 2013 had not been encouraging either, as the economy expanded by the narrowest margin (0.3%) since 2004, according to the central bank, down from 3.8% YoY. Moreover, construction expenditure declined 2.9% for the quarter, in the wake of tax amendments that lifted value-added tax to 18% from 16%, curbing internal demand. Gross fixed capital formation as a percentage of GDP in January 2012 registered at 16.26%, markedly down from 19.39% a decade before, but stable since 2010.
A FOUNDATION OF FINANCIAL AWARENESS
According to Fitch Ratings research, construction sector performance in both the short and medium term is contingent upon the “Dominican state’s capacity to invest in infrastructure and the implementation of public policies to encourage private investment in the sector.” The agency, in its Dominican Republic report, underlines that over the past decade the construction sector has been acutely sensitive to economic cycles, not least the economic downturn in its chief trading partner, the US—according to US trade portal export.gov, the country accounts for 43.6% of overall Dominican Republic imports. Momentum has been registered in the facilitating of microcredit to promote greater financial awareness in a nation where 50% of the economy is unregistered and many remain unbanked. In 2012 the government enacted the Law for the Development of the Mortgage Market and the Creation of Trust (No. 189-11) to stimulate the property market, and in turn, the construction and materials sectors. The law also enabled the growth of real estate investment trusts (REITs), thus heralding new financial instruments.
Being the most visited nation in the Caribbean, it is natural for tourism to have been deemed a strategic industry by President Medina. Indeed, much of the infrastructure work being carried out in the Dominican Republic is geared toward boosting tourism numbers, and better nationwide connectivity once they arrive. According to Caribbean Journal, the Dominican Republic leads the region in terms of hotel room construction. There were a reported 2,475 rooms under construction from January to June 2013, slightly ahead of the Bahamas, with 2,271 rooms in the pipeline, but far ahead of Puerto Rico with 709 rooms. Dominican Today reported in May of 2014 that Spanish businessman Juan José Hidalgo, Chairman and CEO of Globalia group, was upping his interests in the Dominican Republic by investing in the construction of 3,500 additional hotel rooms.
INFRASTRUCTURE, HOUSING, SUSTAINABILITY
The nation’s housing shortage has motivated cement and rebar manufacturers to front new projects and, again, increase public awareness of, and access to, mortgages and microcredit. The government is acutely aware, too, that the tourism industry and urbanization require coordinated and sustainable planning and implementation. A firm step was taken in February of 2014 with a memorandum of understanding (MoU) co-signed by US Ambassador James Brewster and Roberto Salcedo the Mayor of the National District (Ayuntamiento del Distrito Nacional) to curb the vulnerability to climate change of core infrastructure like housing, water, sanitation and waste management, and energy assets. The capital, Santo Domingo, accordingly became one of just five cities in the world selected for participation in the Climate Resilient Infrastructure Services (CRIS) project of the United States Agency for International Development (USAID). The conclusions to be drawn and policy drafted ultimately stand to benefit the wider nation. Technical assistance for the one-year scheme was valued at around $600,000.
The National District’s working group is an interdepartmental platform to enable a multi-dimensional assessment of the built environment and its strengths and weaknesses. Among other entities it features the Dominican Federation of Municipalities (FEDOMU), the Water and Sanitation Corporation of Santo Domingo (CAASD), the Dominican Institute for Integral Development (IDDI), and the National Meteorology Office (ONAMET). The project initially addresses the conditions of Ward 3. Despite being home to the republic’s greatest concentration of people, existing infrastructure remains at high risk of natural disaster such as flooding, erosion, and landslides, which could be exacerbated by climate change.
Meanwhile, Dominican Today in April of 2014 again confirmed the administration’s championing of sustainable construction. In that month the Environment Ministry, amid voiced concerns over the potential long-term impact on the Yasica River, froze the extraction of sand and construction aggregates from its bed.
CEMENT THE DEAL
The Dominican Republic has six main cement manufacturers, namely Cementos Colón, Cementos Cibao, CEMEX, Domicem, Cementos Andino, and Santo Domingo, which have invested over $1 billion into their capacity over recent decades. The Dominican Association of Cement Producers (ADOCEM) was established by the above-mentioned entities to regulate the sector, foster best practices, and promote sectoral development. In road building, as well as architecture, ADOCEM promotes the usage of cement as a durable alternative to asphalt, and this may well become the trend going forward. Association data for 2012 indicates overall installed capacity of 6.1 million tons per annum with domestic consumption of 2.6 million tons of cement, down 6% YoY, whereby supply exceeded demand by 57%. Thus, the nation is a net cement exporter, with annual export-destined production having breached the 1 million ton mark. The export print for 2012 of 1.4 million tons was up by 36% YoY. Current installed capacity is estimated at being sufficient for the next 15 to 20 years.
According to Central Bank data, the overall construction industry rose 14.6% YoY in January-March 2014, mainly resulting from a greater volume of school and road building projects. Bank data reveals that rebar production rose by a healthy 11.9% YoY in 1Q2014, on the back of construction sector dynamism. Production posted at 113,900 tons, compared to 101,800 tons a year earlier, while for the full year the print was at 404,100 tons for the whole of 2013. In March of 2014, the Dominican Republic introduced an anti-dumping duty on rebar imports from Spain.
The intentions are sound, and now the government will need to engage in and promote sustainable construction to make sure the country can continue to reap its just rewards from visiting tourists, while the citizen, too, has a built environment that stands the test of time.
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