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Construction On Hold: Industry Struggling With Slow Permits Process
BY JOSE L. CARMONA
August 15, 2002
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 governments 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.
"Theres uncertainty among those who provide construction financing over the validity of legally issued permits. These are no longer a guaranty. Its 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 markets 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 statesides."
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 Governors 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 years growth projections for both revenue and net profits, he said, are flat, although he noted that consumers are starting to spend more.
Costa Serena, Katzs 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 governments permits-approval agencies to start construction. The young developer is currently working on three projects in Carolinatwo walk-up-type apartment projects at Plaza Escorial and a single-family subdivision project near the municipalitys 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 governments delays in getting out its infrastructure projects didnt affect the firms 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 companys 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 Constructions growth for the remainder of the year wont surpass last years, 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 Constructions president and CEO noted that the company selectively increased its advertising and marketing efforts this year compared with last. However, Sabater didnt 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 economys 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.