Patterson Wins Again: Jamaica’s Post-Election Housing Agenda and the FINSAC Inheritance — January 1998

Publication Date: January 3, 1998 | Coverage Period: December 3–January 2, 1998 | Category: Monthly Review

Month in Brief

• The People’s National Party under Prime Minister P.J. Patterson won Jamaica’s general election on December 18, 1997 — within our coverage period — with a substantial majority, defeating Edward Seaga’s Jamaica Labour Party decisively. Patterson secures a second full term; the PNP’s unbroken hold on government, which began under Michael Manley in 1989, continues into its ninth year.
• Edward Seaga’s defeat was his third consecutive general election loss as JLP leader; informed commentary suggests this may prove to be Seaga’s final campaign at the head of the opposition, though no leadership change has yet been announced.
• The PNP’s election victory means continuity in the management of the FINSAC crisis: the same government that established FINSAC will now see through its resolution. Investors and policymakers begin 1998 with this settled political backdrop.
• The Asian financial crisis shows no sign of resolution as the new year begins: South Korea’s IMF programme is in its early implementation phase; Indonesia’s rupiah has continued to weaken dramatically; Japan is increasingly caught in the regional downdraft. The crisis has entered 1998 in a more severe condition than it ended 1996.
• Jamaica’s Bank of Jamaica maintains extraordinary interest rates as 1998 begins; no near-term signal of normalisation has been given; the FINSAC workout continues to dominate the Bank’s policy agenda.
• Jamaica’s residential property market enters 1998 in the same structurally constrained condition that has characterised all of 1997: commercial mortgage activity negligible, NHT the only accessible route to property finance, construction sector suppressed.

The Election Result and Its Housing Implications

Jamaica voted on December 18, and the verdict was clear. The People’s National Party, under P.J. Patterson, won a substantial majority — sufficient to govern with authority and without dependence on independents or minor parties. It was, in the context of an electorate making its judgement on an eight-year PNP government that presided over the worst financial crisis in Jamaica’s modern history, a remarkable result. The electorate’s conclusion, evidently, was that whatever its reservations about the management of FINSAC and the economic pain of the past several years, it preferred the incumbents to the alternative.

For Jamaica’s property sector, the election result has several immediate implications. First, and most simply, it removes uncertainty: the political context for the next five years is now known. Property investors — domestic and diaspora — can factor a PNP government into their medium-term assumptions without needing to model a counterfactual JLP scenario.

Second, it means continuity in FINSAC management. The institutions, the personnel, the approach and the timeline for Jamaica’s financial sector workout remain under the same political direction that established them. Whether one judges the PNP’s management of FINSAC as adequate or inadequate, continuity provides a known quantity that uncertainty does not.

Third, it sets the context for the housing policy agenda that will now be pursued over the next term. Patterson made commitments on the NHT during the campaign: on loan limits, on delivery targets, on the pace of social housing provision. He will now be held to those commitments. We will track their implementation in the months and years ahead.

As for Edward Seaga: his defeat — his third as JLP leader in consecutive general elections — represents a significant personal and political setback. Seaga has led the JLP since 1974; his tenure as Prime Minister from 1980 to 1989 was defined by privatisation, structural adjustment and the celebrated recovery from Manley’s first administration. But the 1990s have not been kind to the JLP under his leadership, and the question of whether he will seek a further term as opposition leader is one that the JLP will now need to resolve. We make no prediction; we note only that Jamaica’s political landscape has been defined, for many years, by the Seaga-Patterson rivalry, and that the era may be moving toward its close.

Housing Market

December 1997 was, predictably, one of the quietest months in Jamaica’s residential property market for the entire year. The election on December 18 focused political and public attention almost entirely on the campaign; property transactions of any kind were at the margin of most people’s concerns. The Christmas and New Year period further reduced transactional activity to a seasonal minimum.

As 1998 opens, the question is not whether conditions will recover — on that, the directional answer is yes, at some point — but how rapidly, and from what catalyst. The PNP’s election victory provides political continuity and the removal of electoral uncertainty. Neither of those things changes the interest rate environment, which remains the fundamental barrier to market recovery, but they do provide a modestly more supportive psychological backdrop for any eventual thaw.

Kingston’s residential market in December continued in the pattern of the year: Cherry Gardens, Norbrook and Barbican seeing a handful of transactions between parties with pre-existing relationships; outer parishes anchored by NHT scheme completions; no meaningful private commercial development activity. The construction sector took a December pause that is expected but not this year readily reversible.

Government Policy and the NHT: Post-Election Agenda

The NHT enters 1998 under the continued direction of the PNP government, with a mandate that now extends several years further. The Patterson administration’s campaign commitments on the NHT — including signals about loan limit increases and enhanced delivery targets — will now begin to be translated into policy.

The practical question is timing and quantum. An increase in NHT loan limits from the current J$1.2–1.5 million ceiling — which has not kept pace with construction cost inflation through the FINSAC period — would be a meaningful improvement for qualifying contributors. Whether such an increase can be implemented without compromising the NHT’s financial sustainability is a question that will require careful actuarial assessment. The NHT’s reserves, while substantial relative to many public sector institutions, are finite; the cost of a significant loan limit increase must be set against the Fund’s long-term obligations to its contributors.

FINSAC itself remains the dominant backdrop to all housing and financial policy. The Bank of Jamaica and the Ministry of Finance enter 1998 with the workout continuing: non-performing loans being resolved, assets being managed and disposed of, failed institutions being wound down or absorbed. There is no credible indication that a reduction in the BOJ’s extraordinarily high interest rates is imminent. The Bank’s first priority, as 1998 begins, is the defence of exchange rate and financial system stability; interest rate normalisation is a goal for when that defence has been consolidated, not before.

Construction Sector

The construction sector enters 1998 with cautious relief at the removal of electoral uncertainty, but without any other material improvement in its operating conditions. The absence of affordable commercial construction finance, the limited size of the NHT-funded project pipeline, the elevated cost of imported materials and the thin labour market for skilled tradespeople: all of these constraints persist into the new year.

There is a widely shared expectation among Jamaica’s construction industry that 1998 will see the beginning of a gradual recovery — but ‘gradual’ is doing a great deal of work in that sentence. The conditions for a meaningful private-sector construction recovery require affordable finance, which requires lower interest rates, which requires FINSAC resolution, which requires time. The most optimistic scenario — BOJ rates beginning to fall materially through 1998 — would still leave commercial mortgage rates at levels far above what the pre-1995 market considered normal. The construction sector’s recovery will be measured in years, not months.

Investment Climate: Asian Crisis Enters 1998

The Asian financial crisis moves into 1998 in a condition that shows no sign of resolution. South Korea’s IMF programme — the largest in the Fund’s history, at approximately USD 57 billion — is in its early implementation phase. The conditions attached to the programme are severe: fiscal tightening, financial sector restructuring, chaebol reform and the acceptance of IMF oversight over economic management. Korea’s won has stabilised somewhat after its December collapse but remains far below pre-crisis levels; the economic contraction ahead will be painful.

Indonesia presents a more acute situation. The rupiah has depreciated catastrophically — losing more than half its value against the US dollar since the crisis began — and President Suharto’s government is in discussions with the IMF that have been complicated by questions about the application of the programme’s conditions to businesses connected to the Suharto family. The political economy of Indonesia’s adjustment is deeply uncertain, and the potential for social and political instability alongside economic crisis makes Indonesia the most immediate systemic risk in the region.

Japan — the world’s second-largest economy and the anchor of Asian economic stability — is entering 1998 in a condition that analysts are beginning to describe with language that would have seemed hyperbolic twelve months ago. Japanese banks carry enormous non-performing loan portfolios, accumulated through the bubble economy of the late 1980s and still not fully resolved. The Asian crisis has compounded those difficulties, reducing the value of Japanese banks’ regional loan books and their equity stakes in regional institutions. A Japanese banking crisis, superimposed on the Southeast Asian currency crises, would represent a qualitative escalation of the global financial challenge.

For Jamaica, the implications of continuing Asian crisis through 1998 are: sustained downward pressure on bauxite and alumina prices; continued difficulty attracting portfolio capital flows from international investors who remain in risk-off mode; and a global economic environment that offers no external tailwind to Jamaica’s domestic recovery effort. Jamaica’s FINSAC resolution must proceed on essentially domestic terms, without the benefit of a buoyant global economy to lift demand for Jamaica’s exports or attract foreign investment.

Diaspora

For the Jamaican diaspora, the December election result has been received with interest and, in many quarters, relief. The PNP’s majority was sufficiently substantial that it removes any immediate prospect of political instability; a fragile or contested result would have added yet another dimension of uncertainty to an already difficult investment environment. The clear mandate for Patterson provides a known political baseline for diaspora planning.

Diaspora interest in Jamaica property investment remains significant, even if active transactions are limited by the structural conditions we have documented throughout 1997. The community in the UK, the US and Canada continues to monitor the market closely. As we enter 1998, several diaspora contacts have signalled that the election result has crystallised their intention to move from consideration to action on property — not because the PNP’s win changes the economic fundamentals immediately, but because it clears the political uncertainty that was the last reason to defer.

We note, for the record, that the conditions for a diaspora-driven property market recovery are not yet in place. The J$ exchange rate, the availability of affordable mortgage finance in Jamaica, and the difficulty of managing property remotely without reliable institutional support all remain barriers. But the political context has improved, and improvement of any kind is welcome after a year as difficult as 1997.

Affordability

As Jamaica Homes Monthly enters 1998, the affordability picture is, at last, fractionally less dire — but only fractionally. The election result has provided political clarity, which is a precondition for confidence, which is a precondition for market recovery. But the structural numbers have not changed: commercial mortgage rates remain above 35 per cent, NHT loan limits remain at J$1.2–1.5 million, and construction costs for a basic residential unit remain at J$2.5–3.5 million or above.

The PNP’s campaign signals on NHT loan limits, if implemented, would represent a meaningful improvement for qualifying contributors. An increase to J$2 million or above would begin to bridge the gap between what the NHT can lend and what a basic house actually costs. This is not an announcement that has been made; it is a policy direction that has been signalled. We will report on whether it materialises.

The fundamental affordability barrier — the impossibility of commercial mortgage finance for ordinary households at current rates — remains. Until BOJ rates fall materially, and until commercial lenders rebuild the balance sheet capacity that FINSAC has destroyed, that barrier will not move. This is the inheritance that Patterson’s second term must address. It is an inheritance of extraordinary difficulty, and an electorate that chose continuity will be watching to see whether continuity delivers improvement.

Looking Ahead

Jamaica Homes Monthly enters 1998 with a clearer political picture than at any point in 1997, a continuing FINSAC challenge, and an Asian financial crisis that shows no sign of resolution. The property market’s recovery will be measured over years, not months. The NHT is the instrument of the moment; the commercial market awaits conditions that will take time to assemble.

We will track every development — BOJ rate signals, NHT policy changes, construction sector indicators, exchange rate movements, Asian crisis developments — with the same rigour we have applied throughout this journal’s history. Jamaica’s housing market is one of the most important dimensions of its social and economic life. Getting it right — restoring affordable home ownership to the reach of ordinary Jamaican households — is among the most important tasks that any government, and any society, can undertake. We will be here, month by month, to assess how that task is progressing.