SANTO DOMINGO.- Economist Alejandro Arredondo stated that the construction sector faced very challenging times during the first half of 2023, although he predicts that the second half will be more dynamic due to the measures taken by the authorities.
He emphasized that an intangible element that must be highlighted despite the difficult situation that the sector has had to go through both in the private and public sectors, has been the confidence that real estate investors have had in the government.
He cited among the factors adopted by the Central Bank the Monetary Policy Interest Rate, which has fallen from 8.5% to 7.75%; the release of resources from the legal reserve for mortgage loans and developers for new housing projects; in addition to the reduction in freight prices, which he believes will impact ceramics, faucets, and electrical materials.
To the above, Arredondo added the dynamism in the increase of construction permits through the Single Window of the Ministry of Housing, Habitat and Buildings (MIVHED) and the increase in capital spending by the government, which, he said, is ultimately the great driver of the construction sector.
“However, there are still “obstacles” to overcome. It is well known that between 40% and 50% of the materials in the total cost of a home, the so-called gray construction materials, such as steel (rebar and electro-welded fences, etc.), cement, concrete, blocks, have not decreased; on the contrary, since pre-pandemic prices they have increased between 50% and 70%,” the economist stated.
He said that the decreases that occurred at the time were very minimal, which he attributes to the type of oligopolistic market and trade barriers preventing other competitors from entering.
Arredondo highlighted that the construction sector has a high impact on the national economy, in terms of job creation and related activities.
He explained that during 2022, the sector had to make a hard landing, with its growth rate falling to 0.6%, the worst performance in the economy, due to two factors:
-The increases in interest rates of Monetary Policy implemented by the Central Bank to control inflation, which translate into increases in mortgage loan installments.
-Increases in imported construction materials due to increases in freight costs and the Russia-Ukraine war.
He explained that in the first quarter of this year 2023, the situation of the sector was worse because it had a negative growth of 3.5%.
“This collapse in the growth of the construction sector was due to the approximately 12% increase in the cost of housing, the continuous increases since November 2021 of the Monetary Policy Rates (active interest rates) reaching 8.5%, by the Central Bank to contain inflation,” Arredondo stated.
He said that to address the decline in the sector, the monetary authorities (Monetary Board and Central Bank) authorized the use of legal reserves for loans for the construction and acquisition of low-cost housing (which currently has a value of up to RD$4.8 million), for an amount of RD$21,424.4 million, a measure which “greatly improved the conditions of access to the acquisition of a home, in addition to representing a great relief for the sector.”.
Interest rates will fall
According to Alejandro Arredondo's projection, interest rates will tend to decrease in the coming months and "we will see competitive interest rates, which have in fact been promoted, as in the case of Banco de Reservas.".
