Clinton Returns: Four More Years and Jamaica’s Diaspora Housing Market Outlook — December 1996

Publication Date: December 3, 1996 | Coverage Period: November 3–December 2, 1996 | Category: Monthly Review

Month in Brief

• Bill Clinton defeats Bob Dole in the United States presidential election on November 5, securing a second term — a result watched closely by Jamaica’s substantial diaspora communities in New York, Miami, and Hartford.
• Jamaica’s domestic financial system continues under severe strain; the Bank of Jamaica holds benchmark rates near 40 per cent as institutions across the non-bank sector remain fragile.
• The National Housing Trust reports sustained demand from returning residents and NHT-eligible contributors, even as commercial mortgage credit remains prohibitively priced.
• Construction input costs edge higher through November as the Jamaica dollar trades near J$35 to the US dollar, pressuring developers who source steel and cement internationally.
• Commercial property foreclosures in the Corporate Area continue at elevated pace, opening distressed-asset opportunities for cash buyers with access to hard currency.
• End-of-year sentiment among housing professionals is cautious but not despairing; the primary market — NHT-assisted sales below J$3 million — shows resilience where the secondary market does not.

Housing Market

The residential property market closed the November coverage window in a condition best described as bifurcated. At the upper end — units priced above J$6 million in Kingston and the St Andrew corridor — transaction volumes are thin and vendor expectations remain anchored to replacement costs that buyers, facing commercial borrowing rates of 35 to 45 per cent per annum, cannot match. Agents report that serious negotiations are taking weeks longer to conclude than at any point in the preceding five years, with buyers extracting price concessions of 10 to 20 per cent from listed values before agreement is reached.

Below that threshold, the picture is markedly different. NHT-assisted transactions — where the effective borrowing rate sits between zero and five per cent depending on contributor tier — continue at a pace that defies the broader credit environment. The Trust’s scheme housing in areas such as Portmore, Naggo Head, and Gregory Park moved steadily through November, with applications outpacing completions. Demand here is structural rather than speculative: families who have contributed faithfully to the Trust for years are exercising entitlements they cannot afford to delay.

The vacation and resort segment — properties in Montego Bay, Ocho Rios, and the Negril corridor — presents a third dynamic. International buyers, particularly members of the diaspora in North America, appear intermittently interested in end-of-year purchasing, partly because the exchange rate makes Jamaican assets appear inexpensive in US dollar terms and partly because Clinton’s re-election removes a source of political uncertainty that some diaspora purchasers cited as a reason to wait. Whether this translates into closed transactions before the new year remains to be seen.

Government Policy

The P.J. Patterson administration has maintained its position that the housing sector requires targeted intervention rather than broad monetary easing, which remains the prerogative of the Bank of Jamaica as it manages exchange rate stability and inflation containment. The Ministry of Construction and Housing has pointed to the NHT’s continuing draw-down of its loan book as evidence that state-backed housing finance is performing its countercyclical role.

Critics — including the Jamaica Real Estate Board and several private developers who addressed the media in late November — counter that the gap between NHT rates and commercial rates has become so wide as to represent a structural distortion. With NHT lending at concessionary rates while commercial banks must charge north of 35 per cent to cover their cost of funds, the private developer building for the open market is effectively competing against a subsidised public sector product. The debate is unlikely to be resolved before the next budget cycle, but it is shaping the lobbying agenda heading into 1997.

Construction Sector

Activity in the construction sector through November reflected the same two-speed dynamic visible in housing sales. Public and NHT-commissioned projects — affordable housing schemes, road rehabilitation works, school infrastructure — proceeded at planned pace. Private commercial construction, by contrast, saw a number of announced projects deferred pending resolution of financing arrangements that assumed interest rates materially lower than those currently prevailing.

Steel prices, denominated in US dollars by Jamaican importers, rose modestly through November in line with international trends, adding to the squeeze on contractors already absorbing higher local labour costs. Cement supply from domestic producers remained adequate, and no significant shortages were reported. The consensus among quantity surveyors is that construction cost inflation for 1996 will print somewhere between 18 and 24 per cent in local currency terms — painful, but not outside the range that careful project budgeting can absorb.

Investment Outlook

For the investor community, the closing months of 1996 present a narrow but identifiable opportunity set. Distressed commercial properties in the Corporate Area — office buildings and retail units whose owners face refinancing obligations they cannot service at current rates — are beginning to appear at prices that reflect genuine distress rather than merely negotiating positions. Buyers with access to US dollar liquidity, whether resident or diaspora, are in a structurally advantaged position.

Residential land in the peri-urban belt around Kingston — particularly in the St Catherine parishes accessible via improved road infrastructure — is attracting renewed interest from developers who intend to hold rather than build immediately. The logic is that the financial system’s current stress will eventually resolve, rates will normalise, and land banked at today’s distressed prices will appreciate substantially. This is a patient capital thesis, not a near-term trade.

Diaspora Dimension

Clinton’s decisive re-election on November 5 carries particular resonance for the approximately 600,000 Jamaicans and Jamaican-Americans resident in the United States. The Dole campaign had emphasised stricter immigration enforcement, a position that generated measurable anxiety within diaspora communities regardless of their citizenship status. Clinton’s continuation in office is read by community leaders in Brooklyn and the Bronx as a broadly stable outcome for immigration policy — not a guarantee of reform, but an absence of the disruption that some feared.

For housing market purposes, diaspora purchasing power is an underappreciated variable. Remittances to Jamaica — running at roughly US$650 million annually by current estimates — do not translate automatically into property investment, but a subset of remittance-receiving families does use those flows to service mortgage payments or accumulate deposits. Diaspora members who purchase directly, typically in the resort corridor or in upscale Kingston suburbs for eventual retirement use, are acutely sensitive to US political conditions. The election outcome removes one uncertainty; the exchange rate, at J$35 to the dollar, provides another form of incentive.

Affordability

The affordability calculus for the median Jamaican household deteriorated further through the November coverage period. With average formal sector wages estimated at roughly J$60,000 to J$80,000 annually and the cheapest new-build housing units — NHT scheme housing in outer Portmore — priced at J$1.8 million to J$2.4 million, the price-to-income ratio sits between 22 and 40 times annual income for the unaided buyer. Only NHT financing, which caps repayments as a percentage of contributor income, makes homeownership arithmetically possible for this cohort.

Commercial lenders have effectively withdrawn from lending to households earning below J$150,000 annually. At that income level, a J$2.5 million mortgage at 38 per cent per annum carries monthly payments exceeding the entire gross monthly salary of most borrowers in the target band. The NHT’s concessionary lending therefore functions not as a marginal subsidy but as the sole viable mechanism of homeownership for the majority of formal sector workers.

Looking Ahead

As 1996 draws to a close, the housing sector faces the new year with a mixture of structural resilience and acute cyclical stress. The NHT pipeline of committed projects will sustain activity in the affordable segment. The commercial and upper-market segments will remain subdued until interest rates show a credible downward trajectory — and no such trajectory is yet visible in the Bank of Jamaica’s signalling.

The question most professionals are asking privately is not whether 1997 will be better than 1996 — most expect it will be — but how much further adjustment the non-bank financial sector must absorb before the credit environment normalises. The answer will determine whether the distressed-asset opportunities currently visible in the market represent the beginning of a recovery cycle or merely an early chapter in a longer contraction. This publication will monitor developments closely through the new year.