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Slow sales of residences in the latest housing development done by the Jamaican Teas group has left the company ruing the opportunity cost of tying up valuable funds in real estate when it could be making money otherwise.
The company said over the past nine months to June, it began the process of exiting its real estate activities.
Of the 30 units in the Belvedere that came to market last December, Jamaican Teas has so far sold only eight, each priced within the $28 million to $30 million, the so-called “sweet spot”.
“It seems like we’re selling them at the rate of one per month. It is quite slow. All we’re really doing is getting back our money that we put in, we’re not making any money off it,” said CEO of Jamaican Teas Limited John Mahfood.
He expects the sales of another three units to be booked in the fourth quarter ending September.
The sale of the units have helped to boost revenue in the third quarter.
Revenue for the company was up by $57 million or eight per cent, from $715 million a year ago to $771 million. Jamaican Teas said “$28 million of this increase reflected the absence of real estate revenues in the year ago period.”
For the third quarter ending June, group profit was down 52 per cent from $179.56 million to $85.57 million.
“This primarily reflects the unusually high investment gains reported by QWI in the June 2023 quarter which were not repeated this quarter,” the company said.
Jamaican Teas is mainly in the business of tea manufacturing, but the group is also into retail grocery, holds stakes in two investment firms, and owns three companies that do real estate business, namely, LTJ Managers Limited, H Mahfood & Sons Limited and H Mahfood and Sons 2020 Limited. The latter two are property developers.
Mahfood says he is not satisfied with the return on investment when it comes to real estate; and that as a small developer, Jamaican Teas cannot achieve the same levels of efficiency as large operators since it does not own construction equipment.
Small operators also have to rely on their own resources, since commercial banks refuse to adequately finance projects, at times only giving about 50 per cent of the funds required, Mahfood said.
“We tie up a lot of money into the project and have to wait two to three years to see anything,” he said.
The $800 million invested in Belvedere would have been better placed were it utilised for the acquisition of a manufacturing entity, he remarked.
“There will be opportunities that will come up to buy other manufacturing companies and we want to have the cash available to take advantage of those opportunities,” said the JamTeas CEO.
“It would be better to use those funds to further our own business; in our case, tea manufacturing and other endeavours that are close to that and aligned our goal of more exports,” he added.
The company has sold a building at Harbour Street in Kingston, and is looking for buyers for two other Harbour Street buildings as well as two other investment properties.
Mahfood said the other two Harbour Street buildings have proved hard to move due to lack of parking. Interest in the property has only come from speculators, he added, but was adamant that JamTeas would not sell at bargain prices.
“Downtown Kingston is not yet being recognised as a good real estate investment. People are only interested in speculation because it’s not ready for commercial entities unless you were to do something like warehousing,” Mahfood said.
Harbour Street and all the roads leading to it, as well as the area leading up to Spanish Town Road and out to Windward Road, are wasted real estate, he asserted, adding that the Jamaican government needed to do more in terms of urban planning so that the building stock and spaces downtown can be properly utilised.
“Nobody can do commercial activity without parking. Until that goes into place the people who buy property are really doing so for speculative purposes, with the hope that it will pay off some time in the future,” he said.
The other holdings up for sale, one at Red Hills Road and the other in the Red Hills area of St Andrew, presently serve as rental properties but were suited for development, Mahfood said.
The company is aiming to make progress on its sales of properties and exit of real estate in the September quarter, and finalise the relocation of the group’s operations from Bell Road in Kingston to Temple Hall in St Andrew.
English (US) ·