David Vs Goliath

On Wednesday last I delivered a paper at a seminar organised by the Association of Real Estate Agents (AREA) on the theme “the macro-economic environment, the real estate market and issues of access to land and equity.”

I began by quoting the Preamble to the Constitution and stated that as a people we are not aware of what this Preamble says, far less being committed to it. I then gave a brief historical background to the issue of land access in the country and the built-in inequality that occurred as a result of the 1783 Cedula of population.

Although there are many favourable factors that could lead to the creation of a just and equitable society where all citizens have access to land and other resources, we are making a mess of this opportunity. This is an excerpt of my paper.

“Trinidad is particularly fortunate in that the process of land acquisition by the multinational corporations in oil and sugar meant that a very significant number of smaller landholdings — primarily agricultural, but some with oilfields run by small independent producers — were consolidated into a few major owners — Tate and Lyle in sugar; Shell, Texaco and British Petroleum in oil. In time these companies were all nationalised and therefore huge acreages became state owned. We all know about Caroni’s 70,000 plus acres, but what is not as widely known is that Petrotrin has as much as or more land than this.

“If we are to add state lands then in Trinidad the state is by far and away the largest land-owner and therefore can play a key role in ensuring equitable access while at the same time pursuing policies to ensure that land prices are not totally subject to speculative pressure and, critically, ensuring that land use takes into consideration the need for a viable and strong agricultural sector. Further, given that most of the traditional land-owners from the days of the Cedula are no longer interested in agriculture and that many estates have been abandoned, we actually have — maybe “had” is better — a situation where significant land reform could be undertaken without the tremendous struggles and conflict that have characterised efforts in Latin America or southern Africa.

“Rather than grasping this opportunity we are instead pursuing policies that are a mix of the two worst extremes — approach in the private sector where profit maximisation is the only consideration and the misallocation of land or perhaps the allocation according to very narrow political considerations in the state sector to the detriment of issues of patrimony, equity, sustainable development (including agriculture and sustainable communities).

If a process — planned or accidental — continues to alienate property inequitably, then we will not only fall short of our Constitutional covenant, we will also create a society in which some are excluded and marginalised and the result will be a worsening social crisis.”

When I bought my home 20 years ago I paid two-thirds of what a neighbour paid for an identical home three years earlier. Two years after there were houses in the same area that the bank was having difficulty disposing of, the owners having defaulted on their loans. In other words the real estate market soared and then went bust in parallel with the economic boom and bust occasioned by the price of oil.

The market at that time was fuelled by excess liquidity. Interest rates were relatively low, and banks were introducing a variety of lending instruments in order to attract business.

I believe that we are seeing a very similar pattern of expenditure. Loans are being made available and as home-owners can “afford” it, the selling price of homes is escalating. But what happens if incomes remain stagnant or decline? Many mortgages are based on two incomes. If certain sectors of the economy go into decline will there not be the possibility of at least one breadwinner being out of work for long periods? And if so, will today’s mortgages be still affordable? The Central Bank has been increasing interest rates to mop up some of the excess liquidity. If this trend increases will the cost of mortgages become unattainable given the high cost of properties?

An increase of a few percentage points can alter the debt profiles of a household very significantly. It cannot be simply a short-term “maximise our gains now” market.

When people walk away from their homes in a few years because they can’t afford to pay, there will be a string of losers — the banks, the individual home-owner and his/her family and members of AREA will see business dry up and, as property values decline, so will your income.

I believe that we are in a bubble situation and all bubbles do burst sooner or later. I am also concerned about the extent to which certain other distortions are taking pace in the market place.

I refer, firstly to the distortion of the offshore, enclave sector. In the case of real estate we are looking at the expatriate market — homes for foreign managers and professionals who work at the very many multinationals operating in the country. To what extent is the US dollar denominated rent or purchase price real?