Puerto Rico Economic Sector Profiles
The construction sector had begun to see some improvement in its performance due to a number of factors, including the implementation of the first project carried out under the Public-Private Partnership (PPP) legislation approved in 2009. This program calls for the modernization of 95 schools and building five new ones, with a total investment of $756 million. By he end of 2012, nearly half of the schools have been completed. Another project related to the PPP program is the extension of mass transit facilities from Bayamón to Toa Baja with the construction of a Bus Rapid Transit system. The project is mostly completed and will be operational in early 2013. Another projects that had an impact on the construction sector was the completion of Route 66, completed in late September, 2012, linking the East of Puerto Rico with the San Juan Metro Area. These projects have for the most part already had an impact on the construction sector. This is also the case with a very sizeable construction effort of a mixed residential/tourism development in the Dorado sector with an investment in excess of $414 million. It includes a luxury resort, a substantial number of residential units, commercial facilities.
The Government’s strategic projects that include Bahía Urbana, the redevelopment of San Juan’s waterfront, the continuing efforts to complete the Convention Center District, the redevelopment of the former Roosevelt Roads naval base, and the Port of the Americas in Ponce continue to be in a holding pattern at the end of 2012. The Municipality of San Juan’s very ambitious projects announced during 2012, will most likely be postponed due to the Municipality’s fiscal woes and, of course, the election of a ne Mayor.
Bahía Urbana has the “Consulta de Ubicación” permit from the Puerto Rico Planning Board, but initial investment will be limited due to market conditions. Some work has begun on a boardwalk, landscaping and minor improvements. The Roosevelt Roads project has made major progress with respect to dealings with the Navy and the Port of the Americas is now the responsibility of the Municipality of Ponce and a corporation created for its development and management. None of these projects will generate construction activity in the next year or two.
In addition to the absence of major construction projects, the sector faces a number of challenges in the near and mid term. These include the still evolving situation in the banking sector and the impact this, together with stricter regulatory guidelines, has on the availability of financing.
A second challenge relates to the fact that Puerto Rico has been undergoing a demographic transition towards a smaller and older population. During the 2000-2010 decade population fell by close to 83,000 and since April, 2010 the Census Bureaus estimates a loss of an additional 16,000. Out migration has been key with some 300,000 leaving in the last decade and another 35,000 since April, 2010. Since those leaving are younger, the rate of household formation has also fallen and this has a direct consequence on the demand for new housing. A third risk factor is the end of the ARRA program and funds that have injected a substantial amount of capital into the Island’s economy. A Census Bureau report recently made public, estimated that the Census had over counted the population by some 160,000, which is obviously having an impact on the housing market.
Housing sales, that had reflected a downward trend since 2008 reacted positively to the government incentives for housing purchases until de fourth quarter of 2011. The first quarter of 2012 reflected a disappointing drop in sales to 640 new housing units, but there was improvement in the third quarter with sales increasing to 1,036.
New housing sales in calendar 2012 will total some 4,000 units. Mortgage loans fell by 8.6% in 2012. However the recent Housing Demand study that Estudios Técnicos, Inc. prepared for the Puerto Rico Bankers Association suggests that the inventory of housing below $200,000 should be absorbed by year end.
Cement sales, that had begun to show some improvement, have continued to grow but at a more modest pace. During the last three months of calendar 2012 cement sales slowed considerably and total sales for 2012 ended being slightly above sales in 2011. At the end of fiscal 2012 compared to fiscal 2011, sales were around 8.0% greater.
The Government’s State Housing Plan that covers the period 2011-2015 is being implemented through the concerted action of a number of government agencies, municipalities, and the non-profit sector and private sector representatives. The Plan specifies criteria that should guide government decisions concerning housing and these are being applied. One major initiative of the Housing Policy Implementation Committee (HPIC) has been the introduction of major amendments in the construction codes so as to make the permitting process more agile and effective. The new Administration will almost certainly continue with the HPIC given HUD’s interest in the implementation of the State Housing Plan.
Prospects for the industry in 2013 continue to be for very modest growth driven by affordable housing projects, some infrastructure investments, particularly related to new energy sources and some commercial construction. Two major projects in Guaynabo and San Juan by the Sambil and Taubman groups have begun construction. In each case, construction activity will last for two years.