• But new permits value up over $100m in Q3

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamian Contractors Association’s (BCA) president has voiced fears that construction’s “bread and butter” will be undermined if the declining trend in mortgage loan approvals persists.

Leonard Sands, speaking ahead of yesterday’s release that showed the value of new construction permits issued during the 2023 third quarter rose by more than $100m year-over-year, said increased resistance” among banks and other lenders to financing new residential home construction represents a growing threat to the “livelihoods” of many contractors.

Emphasising that he was not seeking to be alarmist, he nevertheless told Tribune Business that the trends in the latest Central Bank lending conditions survey - showing mortgage loan approvals have slumped to their lowest level in four-and-a-half years - would inevitably lead to reduced work for the many Bahamian contractors whose main source of income is residential construction.

“We long have had the concern that The Bahamas is becoming a jurisdiction whose customer base is continuing to decline because the risk identifier caused the lending institutions here to not be so eager to finance construction projects,” Mr Sands explained.

“The spin-off of this increased resistance to finance construction projects means you’re going to have a slow down in construction related to residential projects. On the flip side we are seeing the foreign direct investment led second home market enjoy an enormous uptick.”

But, with most Bahamian contractors “depending on the residential building sector for their livelihoods”, the BCA president warned that a continued fall in mortgage loan approvals will ultimately lead to a situation “where it’s not sustainable for all players”.

Mr Sands added: “It goes into an area where it certainly becomes difficult for some contractors to maintain their business operations from residential work. It don’t want to sound frightening, or be alarmist, but it’s very concerning...

“It’s something we have to watch and, in 2024, I believe the clearing banks have to become more creative with their customer base in The Bahamas. For far too long I’ve felt they’ve set the bar too high for their customer base to get financing. They have to look at that.

“If this continues we’re not going to see a lot of construction companies be viable and they will go out of business. That’s the bread and butter. The bread and butter is residential construction, and if they’re not going to lend money to finance the purchase or construction of homes that’s going to be very, very impactful if we see that continue to go in the direction it’s going in now.”

The Central Bank’s full Lending Conditions Survey for the 2023 first half revealed that less than one third - or fewer than one of every three - out of a total 1,104 applicants were approved for a mortgage loan during the six months to end-June. And almost one in four applications was rejected because borrowers have a 50 percent debt service ratio.

Survey data showed that the 32.2 percent mortgage approval ratio is the lowest since the 2019 first half, which represented a period prior to both Hurricane Dorian and the COVID-19 pandemic. While the economic fall-out from COVID is likely at least partially responsible, the Central Bank has since relaxed its lending guidelines by allowing its licensees to extend credit worth up to 50 percent of a borrower’s income.

Previous guidelines have set this limit at 40-45 percent, but the regulator’s lending survey reveals that the reason more than one-third - or one in every three - of mortgage loan applications was rejected during the 2023 first half was because potential borrowers were still breaching the more generous 50 percent debt service ratio.

Using the Central Bank’s statistics, just 356 of the total 1,104 mortgage applications submitted during the 2023 first half were approved by its commercial bank licensees. This means that two-thirds, or 748, were rejected. Of that 748, some 33.6 percent or 251 were declined because the applicants’ debt service ratios would breach the 50 percent benchmark.

That 251 is equivalent to 22.7 percent of all 1,104 mortgage applications, which means close to one in every four submissions was dismissed because the potential borrowers/homeowners are already too heavily indebted.

However, the Bahamas National Statistical Institute (BNSI) yesterday provided better news, at least in the short-term, by revealing that the value of newly-issued construction permits increased by 76.3 percent year-over-year during the 2023 third quarter.

Drawing on data from the Ministry of Works, Grand Bahama Port Authority (GBPA), Family Island administrators and local government, the Institute said: “The all-Bahamas number of new construction permits issued in the third quarter 2023 (465) was higher than in the 2022 third quarter 2022 (424) by 41 projects or 10 percent.

“The value of permits issued over this period also increased from $135m in 2022 to $238m in 2023. The categories that contributed to these increases in value were the private/residential sector, which grew by approximately $47m or 48 percent; the commercial/industrial sector by approximately $54m or 164 percent and the public sector by approximately $1.7m or 37 percent.”

However, new construction starts and completions fell year-over-year in the 2023 third quarter compared to 2022. “The number of new construction starts all-Bahamas decreased by 21 projects when comparing the third quarter 2022 (133) and third quarter 2023 (112).

“During this same period, the value of construction starts All Bahamas also decreased by approximately $13m or 15 percent. This decrease in value was led by the private/residential sector with approximately $26m or 39 percent and the commercial/industrial sector with approximately $14m or 85 percent. Conversely, there was an increase in the public sector of $27m.”

As for completions, the Institute added: “The all-Bahamas number of construction completions in the third quarter 2023 (123) showed a decrease of 42 projects when compared with the same period in 2022 (165).

“The value of construction completions also decreased by approximately $116m or 70 percent. This was led by decreases in the private/residential sector of approximately $4m or 10 percent and the commercial/industrial sector of approximately $118m or 92 percent. In the public sector compared to zero recorded completions for the 2022 period, there were two projects valued at approximately $6m.”