Trinidad and Tobago's real estate sector is guaranteed more than enough opportunities due to pent-up demand for housing

The broadly defined real estate sector of Trinidad and Tobago is dominated by three aspects. First, land is scarce, and perhaps of equal importance is that the perception of scarcity is ever-present. Trinidad has an area of around 4800 sq km and most of the country’s population of 1.34m is concentrated on the western side of the island, from Chaguaramas to Point Fortin and inland as far as Arima. By contrast, Tobago is around 300 sq km and is home to about 61,000 people. Second, past booms in energy prices have often rendered housing unaffordable for many people. This is because in a country where the energy sector accounts for around 42% of GDP but only 3.3% of employment, the benefits of a sharp improvement in the country’s terms of trade do not flow naturally to many households. Research from the Inter-American Development Bank (IDB) pointed to the fact that during the 1970s the government’s response was to increase the supply of housing. However, to the extent that this helped to boost economic activity, it might have exacerbated the problem. Lastly, the government and its agencies play a key role in real estate development, the provision of housing, real estate management and mortgage finance.

Meeting Needs

After the slump in energy prices in the 1980s, government priorities switched to providing subsidies to lower-income households. According to the IDB, nominal family incomes did not rise much from 1992 to 2005, with an annual growth rate of 2.7%, well below nominal GDP growth and the increase in housing prices (353%). When energy prices began to rise again from the early 2000s, many households benefitted from the wealth effect, as home ownership at the beginning of the period was already high at 77%.

In the meantime, demand for mortgages remained fairly low. Despite this, the quality of housing increased substantially, especially for low-income families. Since the mid-2000s, the government has focused on intervention in the mortgage market. This intervention has taken three forms: the provision of mortgage finance at below-market rates to low-income households; the creation of a public sector institution to develop a secondary market for mortgages; and pressure on private sector banks to increase mortgage finance. Total lending to the private sector rose by 5.8% year-on-year in November 2014, while loans to consumers saw a 7.1% rise. However, mortgage lending increased by 11.7% in November 2014, up from 10% a year earlier, according to data published by the Central Bank of T&T (CBTT).

Ministry & Agencies

The Ministry of Housing and Urban Development (MHUD) is the government agency that oversees formulation and execution of policies related to housing and real estate development. The ministry is also responsible for a number of agencies. The Sugar Industry Labour Welfare Committee (SILWC) works with former workers within the sugar industry who took advantage of Voluntary Separation of Employment Programme redundancy payments. SILWC has issued leases for farming to former workers of Caroni, which was the main producing company for sugar and other crops and closed in 2003. SILWC assists the farmers with infrastructure works and upgrades of settlements on the properties that it administers. The Land Settlement Agency began operations in 1999, with a mandate to assist squatters who are living on state-owned land and applied to have their situations regularised before October 27, 2000. It has received 23,000 applications for its Certificates of Comfort. Recent estimates suggest there are 250,000 squatters living on state-owned land. The Environmental Management Authority is the statutory body that is charged with protecting and enhancing the environment.

Meanwhile, the Community-based Environmental Protection and Enhancement Programme (CEPEP) is overseen by an incorporated entity, the CEPEP Company Limited (CCL), which was set up in 2008. CEPEP began operations in 2002. Its responsibilities include: assisting local communities to improve the conditions of the physical environment (e.g. through landscaping programmes); increasing employment opportunities for unskilled and semi-skilled people; and creating opportunities for small businesses. When it started, CCL worked with 106 contracting companies in 34 districts designated as Environmental Work Areas. In July 2014 CCL issued tenders for auditing services for its accounts for the year from September 2012 to September 2013. In the year to September 2011, CCL received and disbursed just under TT$311m ($47.96m).

Key Player

The MHUD is also responsible for the Urban Development Corporation of T&T (UDeCOTT). This is a project development and management agency established in 1994 with four objectives: development of Port of Spain as a business and financial centre; regeneration of San Fernando as the country’s energy centre; promotion of 13 major centres identified in the National Physical Development Plan; and construction management for large-scale key security and health assets. It describes itself as “the government’s primary developer of choice”. As of early 2015, UDeCOTT identified more 50 projects with which it is, or has been, involved. These include several police stations, the San Fernando Teaching Hospital, hospitals at Arima and Point Fortin, the Government Campus Plaza as well as the Couva Children's Hospital.

In 2011 the company came under fire and was fined by the T&T Securities and Exchange Commission (TTSEC), the financial markets regulator, for delays in the publication of its 2008 annual report and 2009 interim report. UDeCOTT’s 2007 annual report was published on its website as late as mid-September 2014, and revealed total assets of TT$6.05bn ($932.91m). PwC, which audited the accounts, noted in December 2013 that they were unable to provide an audit opinion for four reasons: UDeCOTT management failed to account for a March 2010 report by a Commission of Enquiry; the firm’s records were found to be incomplete for events “occurring between the date of the consolidated financial statements and the date of [the] auditors’ report”; the auditors doubted that UDeCOTT could be assumed to be a going concern; and PwC found that if the international accounting standard for leases had been applied, UDeCOTT’s assets and contributed capital would have been reduced by TT$585m ($90.2m).

Other Sector Agencies

There are three other public sector-controlled development companies over which the ministry does not have line control. One is the National Insurance Property Development Company (NIPDEC), which is a subsidiary of the National Insurance Board of T&T (NIBTT), the central institution in the country’s social security system. NIPDEC was set up in 1977 and serves the various ministries and agencies of the government. Its core business is real estate development, including upscale housing projects. It also operates car parks in Port of Spain and elsewhere, and two warehouses in Chaguaramas. NIPDEC is, additionally, a leading provider of procurement services for the public sector. It also has a contract from the Ministry of National Security for the transport of prisoners. NIPDEC uses tailored financial solutions for its clients, including build-own-lease-transfer structures.

Offering Service

Another firm is Port Lisas Industrial Port Development Corporation (PLIPDECO), which is listed on the T&T Stock Exchange; the company is 51% owned by the government. PLIPDECO was set up in 1966 and operates the Port of Point Lisas, the country’s second-largest port, which has six general cargo and container berths. Port Lisas handles containers, lumber, steel and bulk commodities. PLIPDECO is also the owner and landlord of the 860-ha Point Lisas Industrial Estate, which has tenants that include a mix of methanol, ammonia and urea plants, steelworks and smaller light manufacturing and services companies. At the end of 2014, PLIPDECO’s assets totalled TT$2.26bn ($348.49m). Turnover and profit for the year amounted to TT$273m ($42.09m) and TT$115.17bn ($17.76bn), respectively.

Lastly, the Evolving Technologies and Enterprise Development Company (e-Teck) is the non-energy industrial real estate development arm of the Ministry of Trade, Industry, Investment and Communications following the revision of its strategy in 2011. It currently runs 17 industrial parks across the two islands and collects rents from 319 tenants. Among other development projects, e-Teck declared the Tamana InTech Park open for business in June 2014 and expects the completion of the park’s ICT infrastructure by mid-2015. The park covers over 12,000 sq metres, divided in 21 lots.

First Homes

In addition, the MHUD oversees the Housing Development Corporation (HDC), which was created by its Act No. 24 of 2005. The HDC is the key provider of first homes for low- and middle-income families. Some 75% of the available housing is reserved for the public through a random selection system. Another 10% is reserved for members of the police, fire, prisons and defence services, while the remainder is reserved for special emergency cases, those with physical disabilities and senior citizens.

In his September 2014 statement about the 2015 budget, the finance and economy minister, Larry Howai, noted that the HDC had 160,000 outstanding applications for housing. He also noted that 1000 new homes had recently been completed in Egypt Village, Princes Town, Union Hall and Victoria Keys. Meanwhile, 3000 new units were under construction. Howai added that high-rise apartment buildings in Pleasantville, Laventille, Morvant and Gasparillo would be refurbished and retro-fitted during the 2015 fiscal year. The government is also lending money to eligible low-income families under the Neighbourhood Upgrading Programme, which is being funded by a $40m loan from the IDB. Meanwhile, the government is regularising conditions for squatters at 30 sites, and providing land at subsidised rates to low-income households at 10 other sites. The process of issuing leases to former employees of Caroni is ongoing, with 1700 leases, out of 8800, having been distributed and sold on the open market.

Mortgage Finance

Finance is available through T&T Mortgage Finance Company (TTMF). The lender is 51% owned by NIBTT and the government has a 49% stake. It serves customers through its head office in Port of Spain, along with branches in Tobago, San Fernando, Chaguanas and Arima. TTMF will lend at a variable rate of 2% to customers whose monthly income is TT$10,000 ($1542) or less and where the value of the property does not exceed TT$850,000 ($131,070). TTMF also offered fixed-rate loans of 5% for the first five years for families with a monthly income of TT$10,000-30,000 ($1542-4626) for properties valued up to TT$1.2m ($185,040). It also has a mortgage cover programme – insurance that guarantees the repayment of the loan in the event of the original mortgagor dying – in collaboration with Cuna Caribbean Insurance. Over the course of 2013 TTMF’s loan portfolio rose from TT$2.99bn ($461.06m) to TT$3.17bn ($488.81m). TTMF has two main sources of finance: one is the issuance of long-term bonds and the other is sale of mortgages in the secondary market.

The central institution in the secondary mortgage market is Home Mortgage Bank (HMB), which is also owned by NIBTT. HMB buys mortgages from TTMF and private sector lenders. It holds the loans on its own books, or passes them to the Mortgage Participation Fund (MPF). The MPF is a TTSEC regulated mutual fund that enables the public to earn a guaranteed return from a portfolio of mortgages. Interest accrues daily, as in a money market fund. HMB is also an originator of mortgages, targeting middle-income households. In 2014, for instance, HMB provided around TT$123m ($19m) in gross new mortgage loans and purchased roughly TT$263m ($40.6m) of mortgages in the secondary market. Aside from selling mortgages to MPF, HMB raises funds through the sale of taxable and tax-free bonds. Since 1999, HMB has also issued Guaranteed Mortgage Investment Certificates, which are secured or collateralised mortgage obligations that can be structured – in terms of interest and repayment terms – to meet the exact requirements of the investors.

Private Sector

Home Construction Limited (HCL) is the largest private owner of real estate in T&T. It has been owned by CL Financial Group, the holding company that was at the centre of a financial crisis in 2008 but which has since been recapitalised. HCL has several projects under way, including some in and around Trincity, near Piarco International Airport, and the One Woodbrook Place mixed-use project that will offer office, retail and high-end residential space in Woodbrook, Port of Spain. As of early 2015, 400 of the 420 residential units in One Woodbrook Place had been sold, while the offices had not been completed. HCL has traditionally expanded its land bank through purchase of 40.5-ha plots that had previously been owned by sugar planters. HCL is the owner of the only developable land in the west and also owns pockets of land between the east side of Port of Spain and Arima.

Major developers include DA Chin Enterprises, which is one of the firms that has bid for the grant of a lease for the development of 9.3 ha of land in the 27-ha Invaders Bay area. It is the main company of entrepreneur Derek Chin, who also developed the MovieTowne cinemas in Port of Spain, Chaguanas and Tobago. The country’s leading conglomerates, ANSA McAl and Massy, have also been active in real estate.

Legal Framework

There are a number of legislative challenges for the industry, and development of low-cost housing is often not sufficiently profitable to attract private sector developers. According to the local law firm Fitzwilliam Stone Furness-Smith & Morgan, roughly three-quarters of residential real estate is governed by the relatively complex Common Law Title system, which requires that the title for a parcel of land be traceable by the registration of deeds (or other documents) via a public office. The remainder is covered by a more simple system, which is similar to the Torrens title regime used in Australia. Under this second system, the official certificate of title is the sole source of information, and there is no need for a potential buyer of a piece of land to look beyond this record.

Another ongoing problem is that there has not been a coherent national development plan that has the broad support of all, or at least most, major real estate developers and both main political parties. There has been no coordinated push to promote immigration, which would underpin growth in demand for real estate and developers. The current government has strongly supported the Solomon Hochoy Highway extension to Point Fortin, and has scrapped the previous government’s plans for a rapid rail line project in eastern Trinidad, citing prohibitive project costs.

Meanwhile, the construction sector is hampered by the lack of an overarching scheme that guarantees the quality of homes that are built. Mikey Joseph, the president of the T&T Contractors’ Association, told OBG that the construction sector includes 12 local companies that have turnover of TT$25m ($3.85m) and above, 200 firms that bring in TT$5m-25m ($771,000-3.85m) every year and several smaller players that are not registered and do not commit to particular quality standards. When a sub-standard building is damaged as a result of inclement weather or other problems, the owner will probably find it difficult to get compensated. “When these issues go to court, they can take up to 10 years to resolve,” Joseph said. To date, the government has shown little interest in setting up a national scheme to ensure that the quality of builders’ work is covered by some form of insurance.

Outlook

It is unlikely that the latest fall in energy prices will reduce the housing shortages alluded to by Howai in his budget speech. In spite of the best efforts of the government and its agencies, the supply of affordable housing for low- and middle-income families will still be less than the pent-up demand through 2015 and 2016. Meanwhile, demand for housing of all kinds in the west will exceed supply, and central Trinidad will continue to develop faster than the rest of the country. Mortgage lending will also likely continue to grow faster than other kinds of lending.

Strategic planning, in both the public and the private sectors, will be complicated by the political uncertainty arising from the forthcoming election, which is expected to put a damper on the volume of transactions and affect prices somewhat. It is possible that the financial problems of UDeCOTT will receive greater publicity. A merger of TTMF and HMB will continue to be a matter for speculation going forward. However, the decision to combine these two entities or maintain the separation between the two will belong to NIBTT.