Construction sector : a slowdown after robust pickup?

The latest quarterly bulletin from Statistics Mauritius predicts a lower growth rate than last year for the construction sector. Private sector investment is expected to decline. It is public investment that is driving the construction industry. The sector has also faced the adverse impact of bad weather since January. Is it the end of the construction boom?

The latest forecasts from Statistics Mauritius indicate that the GDP growth rate could reach 3.9% this year. However, the construction sector will experience a decline in performance in 2019, compared to 2018. Indeed, the growth rate of this sector is estimated at 8.6% for 2019 against 9.5% in 2018.

The decline can be explained by several reasons. Firstly, some large projects, like the Metro Express and the Côte d’Or Stadium have already reached an advanced stage while others like the Supreme Court Building, the third motorway lane at Riche Terre and the ENT hospital have almost reached completion. There are other projects that are slow to take off. The construction sector has also been impacted by adverse climatic conditions since January this year. However, the most important reason is the low rate of private sector investment. Private sector investment is expected to decline by 0.8% in 2019, after a high growth of 10.4% in 2018. Indeed, it is public investment that dominates the construction sector, with large-scale infrastructure projects. It is expected that public sector investment will expand by 53.8% compared to a growth of 14.7% in 2018. Total investment will increase by 12.6% this year, compared with 11.4% last year.

It must be noted that this figure takes into account the acquisition of new aircraft by our national airline. The construction sector is said to contribute 4.9% to the Gross Domestic Product (GDP) this year, higher than the 4.4% rate last year. But why is the private sector not investing enough? According to economic observers, there are two main reasons why private investors are in a waiting mode. First, they prefer to wait for the presentation of the next budget before making a decision. The budget may announce new tax incentives to boost investment. Secondly, the forthcoming general elections may delay investment plans because investors will wait for the uncertainty period to be over. The idea of a new government means that there may be a new economic orientation, especially in case of change. So, investors tend to remain in waiting mode.

It is highly likely that the construction sector will be given another boost in the forthcoming National Budget with more projects to be announced, such as roads, market fairs, sports complexes and SME parks. Following public outcry after the recent floods, the government has already announced the construction of drains. 

Gerard Uckoor: “SMEs are penalised by procurement criteria”

Gerard Uckoor, president of the Association of Small Contractors, explains that whether there is a slowdown or growth in the construction sector, small and medium-sized businesses do not benefit enough. He believes that contracts are not adequately shared, and that most SMEs only reap crumbs from large projects. He also regrets that certain criteria in public procurement contracts tend to eliminate small and medium contractors.

“When you ask a small contractor to prove if he has undertaken a large-scale project in the past, he is already out of the race. Even if he has the capacity to undertake a project, he cannot meet certain criteria,” explains Gerard Uckoor. Furthermore, to undertake some major works, the contractor must meet certain standards, which increase operation costs, but if he does not have the means to invest to meet those standards, then he cannot bid for certain types of contracts. The president of the association recommends that a system of ‘reserved contracts’ be introduced, as is the case in other countries, so that small and medium-sized contractors can benefit. He feels there should be more equitable sharing in the sector.

Deepak Doolooa: “The sector is more or less stable”

The director of RD Construction, Deepak Doolooa, says he finds the construction sector more or less stable at the moment. He admits that there has been tremendous growth lately, but small businesses can only realise a few projects per year, unlike large companies. However, he fears a slowdown this year, especially with the approach of the general elections, when people prefer to wait before launching new projects or investing. “However, the demand for new homes is still there, as banks are offering housing loans easily,” he says.

Deepak Doolooa further claims that projects for foreign buyers are not all attracting quality residents. For example, there are cheap villas or apartments sold to dubious foreign customers, and it is not known what activities these people do in Mauritius. He further believes that with an investment of only $ 100,000, anyone can have a residence permit in Mauritius, but are we really targeting quality investments with such a low amount? He fears that with the current trend in the real estate sector, Mauritians will no longer be able to afford a plot of land, because of skyrocketing prices and reduction in supply of developable land. 

Yassin Doolaur: “The sector is in full swing”

Yassin Doolaur, Project Manager and Civil Engineer, states that the construction industry is in full swing right now. “There is a real boom that is clearly visible, and all the professionals and service providers in this sector are very busy,” he says. He argues that it is not only the builders and contractors of all grades who are benefitting, but also all those operating along the whole chain: Rental of equipment such as excavators, truck owners, landscaping specialists, notaries, land and quantity surveyors, consultants, architects, electricians, plumbers, carpenters, tile layers, metal and aluminum workshops, painters, pool builders, furniture suppliers, hardware stores, interior decorators, among others.

“I believe the positive trend will last until the end of 2020 or mid-2021 because there are a lot of residential projects under progress. Even the PDS sector is very active,” says the engineer. “There is a great demand from Mauritian customers for affordable homes, which means that such projects are multiplying,” says Yassin Doolaur. He cites the example of the Mid West Cove project in Palma, which has received a dozen reservations at its launch. “The demand is high both inland and on the coast, especially in the north. Construction is rife in Rodrigues also.” However, he fears a slowdown because of the coming election, as investors prefer to wait to see if there will be any change in government policy. “From my experience, when the same government comes back, the impact is minimal with policy continuity. With a change of government, investors tend to wait for new policy orientation,” he says.

Bhooshan Ramloll: “The construction industry is growing”

Bhooshan Ramloll, Director of RBRB Construction Ltd, says that the construction industry has all the ingredients right now for total success. “I do not think there will be a slowdown in the sector this year,” says the builder. He is also of the opinion that the next general elections are not necessarily a factor that could slow down the momentum of the sector. Regarding availability of labour, he says it is an ongoing problem, but the Government is tackling this issue seriously.

Kamlesh Newaj: “There is a huge market for apartments”

The Site Manager at Maugam’s Luxury, a residential project on the beach in the south, tells us that there is huge demand from Mauritian families for affordable houses and apartments. This is what will keep the sector busy during the next three to five years. “Today, most working couples can easily apply for loans and purchase a house or apartment. Young people loathe the idea of building a house because of major inconveniences. They prefer to purchase ready to move turnkey houses in projects,” says Kamlesh Newaj. He reveals that his project has received nearly 60% bookings since its launch. “We are offering almost beachfront apartments at very affordable and unbelievable prices for common Mauritian families, and each unit has an exclusive seaview over the magnificent bay,” he explains. The project which holds a Real Estate Scheme certificate is also accessible to foreign buyers. He believes that the south of the island will experience the next wave of development in Mauritius, after saturation of the north and west. “Properties are comparatively cheaper in the south, and people love the unspoilt beauty, serenity and safe environment of the south,” he adds.