Diana: Jamaica Mourns a Friend as the Asian Storm Gathers — September 1997

Publication Date: September 3, 1997 | Coverage Period: August 3–September 2, 1997 | Category: Monthly Review

Month in Brief

• Princess Diana, Princess of Wales, died in Paris in the early hours of August 31, 1997 — within our coverage period. The world, and Jamaica, is still absorbing the loss of a figure who had a warm and genuine relationship with the Caribbean and with the causes of the poor and marginalised everywhere.
• The outpouring of public grief in Britain — the flowers at Kensington Palace, the silence in the streets, the extraordinary scenes at Westminster Abbey — has been followed with deep emotion by the Jamaican diaspora in the United Kingdom, many of whom queued for hours to sign condolence books.
• The Asian financial crisis continues to deepen: Indonesia and Malaysia remain under severe currency pressure; the International Monetary Fund has indicated it stands ready to assist affected nations; and the scale of the potential economic disruption to the wider region is becoming clearer and more alarming.
• Jamaica’s domestic financial crisis — FINSAC — continues to impose extraordinary conditions on the residential property market, with commercial mortgage rates still at or above 35 per cent.
• NHT loan disbursements continue to provide the only accessible route to property finance for ordinary Jamaican households; demand for NHT allocations significantly exceeds available supply.
• The Jamaican dollar continues to weaken gradually against the US dollar, exacerbating construction material costs; the exchange rate has moved closer to J$36–38 per US dollar during August.

In Memoriam: Princess Diana and the Caribbean Connection

This edition of Jamaica Homes Monthly must open by acknowledging what has happened in the final days of our coverage period. On the morning of August 31, 1997, Diana, Princess of Wales, died in a Paris hospital following injuries sustained in a road accident in the Pont de l’Alma tunnel. She was thirty-six years old. The weeks that followed — and we write now in the immediate aftermath, the world barely two days removed from the shock — will be unlike anything that Britain, and the global community of people connected to Britain, has experienced in living memory.

Jamaica’s connection to Diana was real. She visited Jamaica, and she left an impression on the island that was warmer and more personal than the formal protocols of a royal visit might suggest. She was known — through her work with landmine victims in Angola, her championing of AIDS patients, her visits to homeless shelters and hospitals without the cameras that usually followed royalty — to be a person of genuine compassion. In Jamaica, a country that has known its share of poverty and marginalisation, that quality of compassion was not merely a public relations exercise. It was felt.

For the Jamaican community in the United Kingdom — which numbers in the hundreds of thousands, concentrated in London, Birmingham, Bristol and Manchester — the events of the last days of August have been devastating in a way that is both personal and communal. These are communities that have built their lives in Britain, that have sent their children to British schools, that have cared for British patients and driven British buses and built British institutions. Britain’s grief is their grief. The flowers outside Kensington Palace, the vigils in the parks, the extraordinary funeral procession that will soon pass through the streets of London: they are participants in all of it.

We record this moment with the solemnity it deserves. The property market will wait. Some things matter more.

Housing Market

Jamaica’s residential property market in August 1997 continued in the pattern that has characterised the entire FINSAC period: thin transaction volumes, suppressed prices relative to replacement costs, and an almost total absence of commercial mortgage activity. There is nothing in the August data to suggest any departure from this trajectory.

The residual market that does exist is sustained by a combination of cash buyers, returning diaspora members purchasing retirement or investment properties, and NHT-backed transactions in scheme housing. Outside these categories, the market is, for practical purposes, frozen. Vendors unwilling to meet the discounts that cash buyers demand are simply keeping their properties off the market and waiting; buyers unwilling or unable to access finance at commercial rates are equally stationary.

This equilibrium of paralysis has one significant property market implication that is rarely discussed: the enormous pent-up demand that is accumulating behind the affordability barrier. Jamaica’s population continues to grow; household formation continues; the desire to own a home is no less acute among Jamaicans in 1997 than it has ever been. What is absent is the financial mechanism to convert that desire into effective demand. When — if — rates normalise, the release of that pent-up demand could produce a rapid and significant recovery. But that normalisation is not yet in sight.

Government Policy and the NHT

The government’s housing policy posture in August was defined, as it has been for months, by the dominance of the FINSAC resolution agenda over everything else. Minister of Finance announcements and Bank of Jamaica communications in August were focused on the continuing management of institutions under FINSAC oversight, the timeline for resolving non-performing loan portfolios, and the broader question of when it might be possible to begin reducing the extraordinary interest rates that FINSAC defence has required.

The National Housing Trust continued its core function throughout August: receiving contributions, processing loan applications, and disbursing funds to qualifying contributors. The NHT’s loan limits — approximately J$1.2 to J$1.5 million at rates of zero to five per cent — remain unchanged and remain the most favourable mortgage terms available anywhere in Jamaica. The NHT is, in this environment, not merely a housing institution. It is a social stabiliser: the mechanism through which a government can credibly tell its population that home ownership remains theoretically accessible, even if the path is narrow and the queue is long.

Construction Sector

The construction sector in August 1997 was characterised by caution bordering on stasis. The private residential development pipeline — what remains of it — is moving slowly and selectively. Developers with committed pre-sales and secured construction finance are completing existing projects; new starts are rare. The combination of high material costs, tight labour availability and effectively non-existent commercial end-buyer financing makes new project initiation a risk that few developers are willing to accept at current market conditions.

One modestly positive note: the NHT-backed social housing schemes that form the backbone of government housing delivery are, by and large, proceeding. These projects — in St Catherine, Clarendon, St James and other parishes — represent real activity for contractors and subcontractors, real employment for building trades workers, and real completed housing units for Jamaican families. They are not sufficient to meet the scale of housing need. But they are, at the moment, the most significant source of new residential supply in the market.

Investment Climate: The Asian Storm Deepens

The international investment environment in August 1997 has deteriorated significantly from the already alarming conditions we documented in our August 3 edition. The Asian financial crisis has moved from its initial epicentre in Thailand and the currencies of Southeast Asia’s smaller economies into a broader regional crisis that now threatens to engulf some of Asia’s larger and more systematically important economies.

Indonesia’s rupiah continued to weaken sharply through August, with President Suharto’s government coming under increasing pressure to accept the disciplines that an IMF programme would impose. Malaysia’s ringgit has lost significant ground. The Philippines has formally requested IMF assistance. Thailand’s own programme with the IMF, agreed in the weeks immediately following the July 2 baht devaluation, is imposing painful conditions on the Thai economy: fiscal austerity, financial sector restructuring, and the painful workout of institutions that borrowed short in dollars and lent long in baht.

The relevance of this Asian drama to Jamaica’s property market is multi-layered. At the commodity level: aluminium demand and prices are sensitive to Asian industrial activity, and a prolonged regional recession would put downward pressure on the bauxite and alumina revenues that are central to Jamaica’s foreign exchange position. At the macro level: the IMF is now deeply engaged across multiple fronts in Asia; its attention, and the attention of international financial markets, is heavily focused eastward. Jamaica’s own claims on international support and sympathy, never overwhelming, must be asserted in a more crowded arena.

At the level of investor psychology: the spectacle of what happens when emerging market financial systems lose the confidence of international markets — what happens to exchange rates, to asset prices, to economic activity — is playing out in real time in Southeast Asia. Jamaican policymakers need no further reminder of what is at stake in their own stabilisation effort. FINSAC is not merely a domestic accounting problem. It is a confidence management exercise, and confidence can depart very rapidly once it begins to ebb.

Diaspora

This month, the diaspora section of this review must begin where the whole edition began: with Diana. The Jamaican community in the United Kingdom is grieving, and it is grieving publicly and collectively. Churches in Brixton, Hackney and Handsworth have held services. Community centres have organised gatherings. Diaspora media and community papers have devoted pages to tributes. The response is genuine: Diana was someone who spoke to people who felt invisible, and the Jamaican community in Britain — which has sometimes felt precisely that — received her warmth as a personal gift.

On the matter of property investment in Jamaica, the mood among diaspora contacts this month has been subdued. The Diana shock, the Asian market instability, and the continuing FINSAC conditions in Jamaica have collectively produced a moment of reflection rather than action. Those who were considering property purchases in Jamaica have generally decided to wait: for the market to clarify, for the exchange rate to stabilise, for some signal that the FINSAC crisis is on a credible path toward resolution.

Affordability

The affordability situation in Jamaica’s housing market as of September 1997 is essentially unchanged from the past several months: catastrophically constrained for any household relying on commercial finance, and severely constrained even for NHT contributors, given the gap between loan limits and construction costs. The currency’s continued modest weakening — now approaching J$36–38 per US dollar — has slightly worsened the import cost component of construction, squeezing the affordability of self-build further.

There is, in the current environment, no short-term policy instrument that can materially address this affordability gap. The gap is a product of the FINSAC crisis, and the FINSAC crisis is a product of decisions made and vulnerabilities accumulated over many years. Resolving it will take corresponding time. The NHT continues to provide a partial bridge; that partial bridge is, for now, the best that can be offered.

Looking Ahead

September will bring the return of focus to the economic fundamentals, once the immediate period of mourning for Princess Diana has passed. The questions that matter for Jamaica’s property market remain the same as they have been throughout 1997: when will the Bank of Jamaica be able to begin reducing rates; when will the FINSAC workout reach a stage where commercial lenders can begin returning to normal activity; and when will international conditions stabilise sufficiently to allow Jamaica the breathing room to manage its own recovery without external shocks compounding domestic difficulties.

The Asian crisis, still accelerating as we write, will be a central feature of our next edition. If the contagion spreads to the larger economies — Hong Kong, South Korea, and ultimately Japan — the global economic implications will be of a different order of magnitude from what we have seen thus far. We will watch, and report, with the urgency this situation demands.