Into the Eye of the Storm: Jamaica’s Housing Market at Mid-Crisis, July 1998

Jamaica Homes Housing Affordability & Cost of Living Review — July 1998

• The FINSAC crisis is in its most intense phase; financial institutions across the building society and insurance sectors are being placed under FINSAC management or closed
• Commercial mortgage rates have risen to crisis-era extremes; the formal mortgage market for working-class Jamaicans has effectively collapsed
• The Asian financial crisis, which erupted in July 1997, continues to reverberate through global financial markets; Jamaica’s external financing conditions have worsened
• NHT remains the functioning formal housing finance institution; its below-market contributor-funded loans are the primary route to homeownership for working Jamaicans who can access them
• Construction activity is severely depressed; developer credit has dried up; new housing supply is at a multi-year low
• The Jamaican dollar has depreciated materially through the crisis period; import costs for building materials have risen, making construction more expensive in nominal terms

July 1998 is Jamaica’s housing market at the crisis midpoint. The FINSAC operation — which began in earnest through late 1996 and 1997 as domestic financial institutions began to fail — is now at the height of its intervention activity. Institutions that were once household names in Jamaica’s savings and mortgage landscape are being restructured, closed or absorbed into the FINSAC resolution vehicle. The mortgage books of these institutions — representing the accumulated homeownership aspirations of thousands of Jamaican families — are being transferred to workout entities whose mandate is resolution, not service.

The practical consequence for Jamaica’s housing market is stark. A working Jamaican family in July 1998 — a family in which both partners work, which has savings, which has maintained NHT contributions, which aspires to homeownership — finds the formal market essentially closed to it. Commercial mortgage rates in July 1998 are at levels that would make monthly payments a multiple of what the household can sustain. The NHT pathway exists, but is constrained by scheme availability and eligibility queues. The self-build pathway exists, but material costs have risen with currency depreciation. The market of aspirations is vast; the market of accessible options is tiny.

Understanding the FINSAC Dynamic

It is worth, in July 1998, understanding what FINSAC is and what it is attempting to do. The Financial Sector Adjustment Company was established in 1997 as the government’s vehicle for rescuing Jamaica’s domestic financial institutions, which had expanded aggressively through the early 1990s on the basis of connected lending, inadequate supervision and assumptions about growth that were not borne out. When the reversal came — driven by tightening monetary conditions and the exposure of the sector’s structural weaknesses — the failures cascaded. FINSAC was the government’s response: guarantee depositor funds, take over failed institutions, manage the workout of bad assets, and stabilise the financial system.

The cost of this operation is enormous. The government has issued bonds to fund the bailout; these bonds must be serviced with interest; the interest burden has crowded out government spending on housing, infrastructure and social services. The interest rates required to attract buyers for this government debt have pushed commercial rates higher throughout the economy. The FINSAC crisis is, in this sense, self-reinforcing: the cost of the rescue makes the environment that the rescue is supposed to improve harder to achieve.

What This Means

For aspiring homeowners, July 1998’s message is one of disciplined patience. The FINSAC crisis will not be resolved in months; it will take years. Families who are maintaining NHT contributions consistently are building the eligibility capital that will be their housing finance resource when conditions eventually improve. Those who have not been contributing should begin immediately; every quarter of contribution accumulation has future value even when the current environment appears hopeless.

For existing homeowners, loan management is critical. Defaults are rising across the sector; lenders are increasingly under pressure; foreclosure proceedings that may not have been pursued aggressively in normal times are more likely to proceed in the distressed environment of 1998. Families facing mortgage payment difficulties should engage proactively with lenders rather than allowing arrears to accumulate silently.

The Outlook: Waiting for the FINSAC Chapter to Close

Jamaica’s housing market in July 1998 is in a period of enforced suspension for the majority of aspiring owners. The suspension will end. The FINSAC crisis, however severe, is a temporary distortion of Jamaica’s financial system — one that will eventually be resolved and that will eventually give way to conditions more conducive to homeownership. The families who are best positioned to benefit from the recovery are those who are managing this crisis period actively: maintaining contributions, preserving savings, protecting credit records, and staying engaged with NHT. The crisis will pass; the preparation done now will matter enormously when it does.

This review is produced for informational and journalistic purposes only and does not constitute financial, legal or investment advice.

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