Real estate agents have about one more year to enjoy serious profits in their sector before they see a decline.
This was the bold statement made by UWI lecturer and economist Dr Roger Hosein an Association of Real Estate Agents Trinidad and Tobago seminar last Wednesday.
Speaking on the topic of 'The Economy 2015 and the Impact on Real Estate', Hosein told the gathered realtors that the economy was entering what he termed a "new normal", where consumption could not continue as it had before, largely because of declining energy prices and the necessary resulting adjustments to government spending.
Calling the real estate sector, a "spill over" industry, dependent on a large extent on government fiscal injections, Hosein said that government spending had essentially accustomed the public to consumption patterns that were unsustainable. This included purchases in the real estate sector.
He called on real estate agents to adjust their expectations on what they could hope to earn downwards, possibly from as early as next December. He said that they should begin accomodating those looking for homes in the middle and lower income brackets.
However, he did not think the declines were going to be as sharp at this stage.
The UWI lecturer and economist said that it appeared the demand for real estate in this country was tied to other things beside interest rates.
Asked to explain his statement later, he said,
"What I meant was that there is an inverse relationship between the real estate mortgage loan rate and the amount of real estate mortgage loans made.
At this time given the plateauing of the level of economic activity for the last 6 years, the demand for real estate at present would be linked to perhaps a misconception that the economy may be doing better than it is and also there is a degree of irrational exuberance in pricing."
Irrational exuberanceor something else?
One realtor in the audience, however, sought to challenge Dr. Hosein's conclusions. During an question and answer session, the realtor suggested that the real estate sector was unlikely to be affected even by a serious downturn in the economy. When questioned afterwards, this was the response that they gave.
"My comment is based on the fact that Trinidad is a narco economy and the relative bodies do not address that tentative issue, because of fear...We are one of the only places that is a double entry point and exit point for both coke and marijuana, not just to North America but to Europe and a lot of our monies come into that.
"So the person (Dr Hosein) was making a reference, I think he was trying to tell real estate agents, to make their prices more equitable. But if there is a supply of cash, you could have a $100,000 property and if 5 people are bidding $1,000,000, eventually it will sell for a $1,000,000.
"This is because you have an injection of funds towards low cost items. This will cause the items to have mass inflation because of the injection in funds. That is just general, but because no one wants to step on toes or anything else, nobody says anything about it."