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Masterbuilders wants NHT to cut house prices

Published:Friday | December 19, 2014 | 12:00 AM
Carvel Stewart, president of the Incorporated Masterbuilders Association of Jamaica. - File

Avia Collinder, Business Reporter

President of the Incorporated Masterbuilders Association of Jamaica, Carvel Stewart, is suggesting that the National Housing Trust (NHT) price funds to private developers at a cheaper rate and deliver units below market prices in order to house more of the Trust's contributors.

He observed that "contributions are made to the NHT by both employers and employees, in the main. The contributions are based on the employees' salaries - three per cent from the employer and two per cent from the employee. Additionally, the employers' contributions are non-refundable. This means that up to 60 per cent of the money received by the NHT is non-refundable.

"My proposal for the NHT making housing more affordable is based on the massive non-refundable portion of the contributions. I suspect that the funds given to GOJ (Government of Jamaica) over the years, totalling $60 billion, was derived mainly from this source," he added.

"I am therefore proposing that if such a large amount could have been given to the Government while protecting the refundable contributions, then the prices of NHT-constructed houses should be significantly discounted, beyond anything now being done, if any," he said.

Funding for construction

According to information on the NHT's website, under its interim finance programme, the Trust will provide developers with funding for up to 100 per cent of construction costs for their development at concessionary interest rates. The NHT's construction loan interest rates are five per cent per annum for housing solutions with base selling prices equal to or less than the Trust's recommended selling prices, or nine per cent per annum for housing solutions with base selling prices exceeding recommended selling prices.

However, Stewart believe that the NHT can do much better.

He said the system of grants to support home purchases should be widened. "Those that are constructed by others should be purchased by contributors with the support of a grant from the NHT, consistent with the discount on the NHT-built homes."

Addressing concerns that further discounts by the NHT would translate to a subsidy to private developers, which might not be passed on to homeowners, Stewart said "NHT financing will generally enable a reduction in cost to the private developers. This should translate to reduced selling prices."

He noted that currently, development loans to private-sector entities are available at three lending rates. "To my knowledge, there was a three per cent loan that would have financed construction of a standard two-bedroom unit on a developed lot. The house would have to be sold at a price fixed by the NHT. This generally failed as the price set was unprofitable."

A sharp decline in mortgage volume seen in the June quarter has been attributed to economic conditions which might be curtailing debt-financed home purchases.

On August 19, the Planning Institute of Jamaica (PlOJ) reported declines in the number of housing starts, down 46.6 per cent; housing completions, down 42.5 per cent; and mortgage volume down 55.4 per cent. The value of mortgages were also down 24 per cent, from $9.9 billion in June 2013 to $7.46 billion in the current period.

For the June 2014 quarter, there were only 2,821 mortgages issued, compared to 6,330 for the similar period last year.

James Stewart, director of the Economic Planning and Research Division at the PIOJ, said the decline in the value of mortgages was felt across the board. At the NHT, which dominates the market, mortgage values dropped 17 per cent, while at other providers - commercial banks, other banks, building societies and the Jamaica Mortgage Bank - values "on average fell more sharply".

The NHT did not respond to requests for comment on loan pricing, discounting measures and the current take-up of scheme houses.

A report in November before Parliament's Public Administration and Appropriations Committee (PAAC) showed that the NHT had only written 4,753 loans between April 2009 and March 2014, representing 27 per cent of demand captured in a review of effective demand. Some 17,339 Jamaicans were seeking homes during the period.

Acting managing director of the NHT, Martin Miller, told the PAAC that approximately 75 per cent of persons contributing to the Trust were not benefiting. He said there are currently 444,000 contributors and that there are 101,000 mortgages.