Building castles in the sky

Jun 19, 2023 Features / Columnists, Peeping Tom

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Peeping tom…

Kaieteur News – A mini-financial crisis is in the making. The massive investments in real estate and property construction which are taking place within Guyana are being done with the expectation of windfall returns for investors. People are investing in real estate and in constructing buildings in the hope of making a financial killing.

Also driving the property construction boom is the false idea that there will be a large demand for high-income rentals. As such, the bourgeois class, both local and foreign, are investing billions of dollars in buying up real estate and erecting massive mansions and apartment complexes which they hope to then rent to persons from the oil and gas and related sectors.

Guyanese are being sold pipe dreams about the country becoming the next Dubai. This is pure fantasy. Instead of Dubai we might become the next Damascus.

These real estate and property developers are in for the shock of their lives. The oil companies had long signaled that the local oil industry is capital intensive and that only a limited number of locals would be directly employed in the industry. The oil companies’ highly-skilled employees from overseas stay at hotels when they come for short stints and most of the top employees who are based in Guyana already have secured rentals.

Those who are hoping for million dollar monthly rentals will have a rude awakening. When they complete building their mini-mansions and apartments, they will find it difficult to secure tenants. Some investors are already ruining their investments. A check of the real estate ads will reveal that the market is already saturated.

A large number of Guyanese are taking loans and building apartments, hoping to cash-in on what they believe and perceive to be an emerging high-income market for rentals. Those investments are going to end up in problems.

Too many persons are buying into the idea that the oil money will create fantastic riches. It will not. First, relatively very little resources are coming Guyana’s way and the government is being forced to borrow and to back these loans with future revenues.

Those Guyanese who are overextending themselves, including taking loans to construct buildings in the hope that these can attract high rentals are being deluded by the false impressions being foisted upon the nation by the political directorate.

The same pipe dreams which the politicians are selling to the nation today were sold in 2007 as Cricket World Cup approached. Then, people were told that the hosting of the matches in Guyana would transform tourism and that thousands of tourists would descend upon Guyana after the cricket. Citizens were sold the idea that the hosting of the Super 8 segment of the 2007 tournament would bring so much international exposure that tourism was going to take off in Guyana.

Persons invested in buildings and the upgrading of hotels. However, the tourism boom never happened. Ordinary Guyanese were encouraged to upgrade their homes – and many did – to international bread and breakfast standards – since persons coming for the cricket would be looking for such places to utilize on a short-term basis.

Those investments went down the drain. The bread and breakfast industry flopped even before it flipped.

One hotel which had hoped to capitalize on the hosting of CWC merely enjoyed 75% occupancy during the tournament even though there were some 16,000 arrivals during the week matches were held and 40,000 in the month preceding the matches. Most of these persons stayed with relatives.

The government even brought in 20 BMWS to transport dignitaries. After the dignitaries left, the vehicles were left stranded and unused and had to be sold on the open market.

The great take-off never happened. In fact between 2007 and 2014, economic growth slowed considerably. In 2008, 2009 and 2010, real GDP growth was half of what it was in 2007. The dream of economic take-off became a fantasy.

All those Guyanese who are therefore investing in real estate and property-construction should take stock of reality. Their investments are based on assumptions which need to be re-examined. Unfortunately, after some would have sunk tens of millions in building apartment buildings and other properties, there is no way to reverse this process. Guyana therefore is likely to have a lot of unoccupied and unprofitable investments.

Guyana’s oil industry is offshore and much of the opportunities are related to servicing this offshore industry. Where are tenants going to come from to occupy the high-end apartments that are being constructed?

The building boom which is being experienced in Guyana is going to collapse. And a great many people are going to end up losing tons of money.

Disclaimer: The opinions expressed in this column are those of the author. They do not purport to reflect the opinions or views of Kaieteur News.

 

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