The Euro is Born: What Europe’s New Currency Means for Jamaica’s UK Diaspora Buyers — February 1999

Publication Date: 3 February 1999 | Coverage Period: 3 January–2 February 1999 | Category: Monthly Review

Month in Brief

• The Euro was formally launched on 1 January 1999, with eleven European nations — Germany, France, Italy, Spain, Portugal, the Netherlands, Belgium, Luxembourg, Austria, Finland, and Ireland — adopting a single currency for financial market transactions; the United Kingdom remains outside the eurozone, maintaining sterling.
• The United States Senate impeachment trial of President Clinton is underway throughout January; the eventual vote is expected before mid-February, with most observers anticipating acquittal given the arithmetic of the Senate.
• Bank of Jamaica interest rates remain in the 20–25% range; no reduction has been signalled, and commercial mortgage rates continue at 25–30%, maintaining the severe affordability constraints that have characterised the Jamaican market through 1998.
• The first-quarter property market in Jamaica has opened tentatively; transaction volumes are recovering from December’s seasonal lull, but the broad structural constraints on demand remain unresolved.
• NHT’s Georges deferral programme continues; the Trust has announced that contributions data for 1998 show a modest increase in the contributor base, providing some support for its mortgage disbursement capacity in 1999.
• Global financial markets are in a cautiously stabilising mode following the autumn 1998 crisis; the US economy remains robust, providing a favourable backdrop for remittance flows and diaspora economic capacity.

Housing Market Overview

January 1999 will be remembered primarily for two global events: the birth of the Euro and the continuing spectacle of the Clinton Senate trial. For Jamaica’s housing sector, the significance of the Euro’s launch lies less in any immediate transactional effect and more in what it signals about the direction of European economic integration and the implications for the Jamaican diaspora’s largest concentration outside the Americas.

Domestically, the property market has emerged from December’s seasonal pause in its characteristic state of constrained activity. Kingston estate agents report that January inquiries have been slightly ahead of the same month in 1998 — a modest positive signal that may reflect diaspora buyers who initiated contact during December visits following up with more serious conversations — but that the conversion of inquiries to formal offers and completed transactions remains slow.

The Kingston upper-residential market — properties north of J$10 million in Cherry Gardens, Norbrook, Stony Hill, and the Barbican Road corridor — continues to attract the most activity, driven by the combination of diaspora interest, professional-class demand from the relatively resilient formal service sector, and institutional interest in premium rental property. The broader middle market, from J$3–7 million, remains the most active segment for NHT-financed transactions but is constrained by the gap between NHT loan ceilings and the current cost of decent-standard housing units.

Government Policy and NHT Response

The government’s housing policy agenda for the early months of 1999 is primarily one of continuity and consolidation. The Ministry of Water and Housing has not announced new major programmatic initiatives; the focus is on managing existing programmes, continuing the Georges reconstruction response, and maintaining the fiscal discipline that the IMF programme requires.

NHT has published its annual report for fiscal 1997–98, which shows the Trust in sound operational health relative to the broader financial sector. The institution’s independence from the commercial banking system — and its direct contributory financing model — insulated it from the worst of the FINSAC contagion, and its balance sheet remains the most important source of long-term residential mortgage finance in Jamaica. The report notes that the Trust’s geographical coverage is expanding — mortgage disbursements in rural parishes account for an increasing share of total activity, reflecting the population distribution and the availability of land for affordable housing outside the Kingston metropolitan area.

The government has also maintained its commitment to the housing partnership programme with private developers, though the number of new partnership agreements signed in 1998 was below the programme’s targets. The principal obstacle — that the financial economics of affordable housing development do not work at current interest and materials cost levels without significant subsidy — has not been resolved.

Construction Sector

The formal construction sector’s January activity is typically a predictor of the year’s trajectory; contractors return from the Christmas break and begin mobilising for projects contracted in the final quarter of the previous year. The 1999 signal is ambiguous: there is some new residential development activity in the suburban parishes of St. Catherine and St. Andrew, partly driven by the arrival of NHT-approved schemes, and some commercial construction activity in New Kingston and the Half Way Tree corridor. But the overall level of new project starts remains below the sector’s capacity, and labour absorption in the formal construction sector is below the levels of the early 1990s.

The Georges repair dynamic continues to underpin activity in the informal sector, particularly in the affected rural parishes. The pace of roof and wall repair has accelerated as materials costs have normalised and the immediate post-storm disruption to labour markets has resolved. Contractors and tradespeople from Kingston and St. Andrew have been working in the affected parishes throughout the period, contributing to a modest increase in income circulation in communities that were otherwise economically stressed by the storm.

Investment Climate

The Euro’s launch on 1 January is the most significant structural development in the global financial architecture in many years. The creation of a single currency across eleven European economies — representing approximately US$6 trillion in combined GDP — introduces a new reserve currency into the international monetary system and potentially reshapes the dynamics of the US dollar’s global dominance.

For Jamaica’s macroeconomic position, the Euro’s launch creates several points of relevance. Jamaica’s external debt is denominated primarily in US dollars; the country’s trade and tourism relationships are predominantly USD-priced. To the extent that the Euro’s emergence over time creates a more genuinely multipolar international monetary system, Jamaica may gain marginal flexibility in its external financing options. In the immediate term, however, the practical effect on the Jamaican property market is modest.

More significant for property market dynamics is the general stability of global financial markets through January 1999. The US economy’s continued resilience — growth remains robust, unemployment at historic lows, and the Federal Reserve’s autumn rate cuts appear to have successfully stabilised financial markets post-LTCM — provides a favourable backdrop for remittance flows and diaspora economic capacity. A US economy in good health means Jamaican-Americans, Jamaican-Britons, and Jamaican-Canadians are more likely to be earning well and in a position to send remittances home or invest in Jamaican property.

Diaspora Perspective: The Euro Question

The Euro’s implications for the approximately 500,000–600,000 Jamaicans and Jamaican-origin residents in the United Kingdom are worth examining with some care. The UK’s decision to remain outside the eurozone — maintaining sterling — is a significant one that reflects both the particular character of UK-EU relations and deep-seated British reservations about monetary sovereignty. For the Jamaican-British community, the immediate practical reality is unchanged: transactions between the UK and Jamaica remain conducted in sterling and JMD, with USD as the bridge currency where needed.

However, the Euro’s emergence creates longer-term dynamics that are worth tracking for Jamaican-British property investors. If the Euro proves successful — strengthening against sterling over time — it would change the relative cost of UK earnings in international terms and affect the purchasing power of UK-based remittances and property investment. The sterling/Euro exchange rate in the months following launch will be an important signal to monitor.

More broadly, the launch of the Euro has reinforced the Jamaican-British community’s awareness of the degree to which European economic integration is reshaping the context in which they live and work. Britain’s posture toward Europe — engaged but not fully integrated — is a recurring topic of conversation in Jamaican-British community media, and the Euro debate has added new dimensions to discussions about the long-term economic security of UK residence versus the option of returning to Jamaica or relocating elsewhere.

For Jamaicans in the eurozone countries — a smaller but not insignificant community in Germany, France, and the Netherlands — the Euro’s launch removes the currency conversion complexity from transactions between their countries of residence and their dealings in the UK, though it adds a new Euro-JMD dimension to their Jamaica-related financial planning.

Affordability

January’s affordability picture is a continuation of the structural conditions that have defined the Jamaican housing market for the past several years. The BOJ’s high-rate policy remains intact; NHT’s subsidised programme remains the principal vehicle for formal home ownership among working Jamaicans; and the gap between NHT loan ceilings and market housing costs remains the most binding constraint on expanding access to adequate shelter.

One development worth noting: the modest depreciation of the JMD against the USD through late 1998 and early 1999 — moving from approximately J$36–37 per dollar at the start of 1998 to approximately J$39–41 by early 1999 — has subtly affected the affordability calculus for diaspora buyers whose funds are held in foreign currency. A weaker JMD means that sterling or USD remittances convert to more JMD, potentially allowing diaspora buyers to access higher price bands in the Jamaican market. The effect is real but modest at current exchange rate levels.

Looking Ahead

The Clinton Senate trial is expected to conclude in mid-February with an acquittal vote. This resolution — when it arrives — will remove a significant source of political uncertainty from the global environment and allow Washington’s attention to return to the economic and foreign policy agenda. For Jamaica, the normalisation of US political life is a positive development that should support continued stability in the bilateral relationship and the economic flows — remittances, tourism, trade — that depend on it.

The Euro’s first months in operation will be closely watched. The new currency launched at approximately US$1.18 and its near-term trajectory will signal the degree to which international investors regard it as a credible alternative to the dollar. For the Jamaican economy — heavily dollar-referenced — a strengthening Euro would be neutral to marginally positive, reducing the dominance of dollar dynamics in regional financial planning without creating new vulnerabilities.

The March edition of this review will assess the conclusion of the Clinton trial and its implications, the BOJ’s next monetary policy decision, and the trajectory of the first-quarter property market as the year’s first genuinely active transactional period gets underway.