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Construction On Hold: Industry Struggling With Slow Permits Process


August 15, 2002
Copyright © 2002 CARIBBEAN BUSINESS. All Rights Reserved.

One of the sectors of the local economy that has been hit the hardest this past year is the construction industry.

The uncertainty regarding the validity of construction permits that have been issued, with many of them being challenged in court; the slow pace of the government’s permits certification process, and the numerous bids for government infrastructure projects that have not been awarded are the main issues raised by the construction industry sources interviewed by CARIBBEAN BUSINESS.

"There’s uncertainty among those who provide construction financing over the validity of legally issued permits. These are no longer a guaranty. It’s important that this issue be resolved as soon as possible. This does a lot of harm to developers, to construction companies, and to our economy," said Jose Gonzalez Nolla, president of the local chapter of the Associated General Contractors of America (AGC).

The consensus among those questioned is that the recent downturn in the stock market and the accounting scandals have worried investors and have stagnated the economy, which is expected to recover by first quarter 2003, at the earliest.

"I do not agree that the U.S. economic recession has ended. The stock market’s sharp downturn and erratic ups and downs have investors very concerned and the economy stagnant," Miguel Sabater, president & CEO of Bird Construction Co. told CARIBBEAN BUSINESS. "Historically, our economy follows three or four quarters behind the stateside’s."

Jose Basora, vice president of American Builders Corp., is more optimistic. He expects a recovery in the local economy by first quarter 2003, but warns about his clients’ current lack of confidence. "I see confidence still on hold and not much spending among clients," he said. "As for investors, I see no confidence. They are not spending."

Developer Joel Katz, who is also president of the Governor’s Construction Industry Advisory Council and vice president of the Puerto Rico Home Builders Association, agreed with Basora on a recovery by January 2003. Katz described current consumer confidence as uncertain and investor confidence as shaky.

This year’s growth projections for both revenue and net profits, he said, are flat, although he noted that consumers are starting to spend more.

Costa Serena, Katz’s oft-discussed $240 million, 710-unit tourism project in Piñones, has been at a standstill for the past several months, waiting the green light from the government’s permits-approval agencies to start construction. The young developer is currently working on three projects in Carolina—two walk-up-type apartment projects at Plaza Escorial and a single-family subdivision project near the municipality’s judicial center.

The president of PFZ Properties said his work force was not reduced this year. In fact, just recently, he started to hire more personnel.

Basora said the government’s delays in getting out its infrastructure projects didn’t affect the firm’s operations this year because "luckily, our base has been mainly private projects."

In turn, Sabater stated that the slowdown in government construction projects has reduced the company’s revenue this year. Bird Construction had to trim its work force because of the inability to start new projects (because of the permits delay), some of which had already been negotiated.

Sabater categorized consumer confidence as apprehensive. Nevertheless, he senses a willingness to embark on capital investments in housing and commercial projects. Unfortunately, these have been delayed in the permits process.

Sabater projected that Bird Construction’s growth for the remainder of the year won’t surpass last year’s, though profits luckily have remained constant. Basora, meanwhile, offered no growth projections for the year, but he did predict a 3% increase in net profits.

Bird Construction’s president and CEO noted that the company selectively increased its advertising and marketing efforts this year compared with last. However, Sabater didn’t provide specifics. He expects the local construction industry to pick up at the end of this year.

"The government should make sure that the technical, administrative, and managerial personnel responsible for the permits process in all pertinent agencies have the necessary resources and the authority to be able to process these in an expeditious and responsible manner," said Sabater. "If they do, they will be able to move the hundreds of permits requests in their hands."

Katz suggested the government should concentrate mainly on infrastructure, construction, and tourism. He described the local economy’s general outlook for the next six months as difficult. Nonetheless, he is confident that 2003 will be a good year.

Gonzalez Nolla said AGC members are alert and hopeful that the numerous government infrastructure projects would be awarded and that construction could start within 60 days.

"The Highway and Transportation Authority has an aggressive plan whereby it will invest nearly $300 million in projects," said Gonzalez Nolla. "The Housing Authority has announced it will put out a substantial number of projects before December. So will the Public Buildings Authority."

Gonzalez Nolla is certain that once these projects are awarded, construction activity will speed up, helping the local economy. The question is, When will they be awarded?

This Caribbean Business article appears courtesy of Casiano Communications.
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