Dot-Com Millionaires Abroad, BOJ Rates at Home: Jamaica’s Diaspora Property Paradox — July 1999

Publication Date: July 3, 1999 | Coverage Period: June 3–July 2, 1999 | Category: Monthly Review

Month in Brief

• The Bank of Jamaica holds its benchmark rate steady as the first half of 1999 closes; the rate remains in the 19–22% range, sustaining the adverse conditions for commercial mortgage lending that have characterised the post-crisis period.
• The US NASDAQ Composite closes June 1999 up approximately 20% on the year-to-date, generating substantial paper wealth among technology-sector investors and fuelling diaspora remittance capacity.
• NHT reports continued strong demand for its mortgage products, with waiting times for approved applicants extending in some income categories to over two years.
• FINSAC publishes a mid-year report on its asset disposition programme; commercial property remains the slowest-moving category, with values continuing to be depressed by the market overhang.
• The IMF’s relationship with Jamaica remains productive; the Fund acknowledges progress on fiscal consolidation while urging further structural reforms, including in the financial sector.
• Construction activity in Montego Bay and its environs is reported to be marginally more buoyant than in Kingston, driven by tourism-linked commercial development and a small number of resort-adjacent residential schemes.

Housing Market Overview

The first half of 1999 closes with Jamaica’s housing market in a state that might charitably be described as stable convalescence. The acute crisis of 1996–97 — when the collapse of the financial sector froze credit markets, devastated household net worth, and sent the construction industry into a severe contraction — is now several years in the past. But the recovery has been slow and partial, and the conditions for a robust, broad-based expansion of housing market activity remain, at mid-year 1999, conspicuously absent.

The defining characteristic of the current market is segmentation. Three distinct housing markets operate in parallel on the island, each with its own dynamics, its own financing structure, and its own typical participant profile. The upper market — properties above approximately J$8 million in prime Corporate Area locations — functions on the basis of cash transactions and diaspora capital, largely insulated from the commercial lending environment. The middle market, in the J$2.5–8 million range, is heavily dependent on NHT access and moves at the pace the Trust’s disbursements allow. And the lower market — informal settlements, self-build, and family-compound additions — operates entirely outside the formal system, financed through accumulated savings, family networks, and remittances.

Transaction volumes in June were in line with the subdued levels that have prevailed through the year. Estate agents note that the mid-year period is traditionally quieter than the autumn months, and that the school holiday season, beginning in late June, further reduces market activity as families’ attention and budgets are directed elsewhere.

Government Policy and Regulatory Developments

The Patterson government’s housing agenda in the first half of 1999 has been dominated by incremental progress on the NHT’s construction pipeline and by continued engagement with the structural reform agenda agreed with the IMF. The latter has included measures to improve the efficiency of financial sector regulation — reforms that, while not directly targeted at the housing market, have implications for the eventual normalisation of commercial lending rates.

Land title and registration reform remains a significant agenda item. The National Land Agency, established to consolidate and modernise Jamaica’s fragmented land administration system, continues to make progress in digitising title records and streamlining the conveyancing process. This work is critically important for the long-run functioning of the property market: a system in which straightforward residential transactions routinely take twelve months or more to complete is one that imposes substantial transaction costs on all participants and disproportionately disadvantages less sophisticated buyers who lack the resources to manage protracted legal processes.

Building permit processing at local authorities remains a bottleneck that constrains the pace at which approved housing schemes can proceed to construction. Developers report permit waiting periods of six to twelve months as routine in the Corporate Area, adding cost and interest charges to projects that are already carrying significant financing burdens.

Construction Sector

The construction sector’s mid-year position reflects the bifurcation of the broader market. NHT-contracted residential construction is proceeding steadily in St. Catherine and selected areas of St. Andrew, providing the sector’s primary source of new project starts. Private residential construction is limited almost entirely to the upmarket segment, where buyers are not dependent on commercial financing and where the economics of development remain viable despite high input costs.

Commercial construction — which historically drives the most significant employment and sub-contractor activity in the sector — remains essentially dormant. The few projects of note are tourism-related: a resort extension in Montego Bay, a hotel refurbishment in Ocho Rios. These projects provide some relief to the specialist trades — electrical, plumbing, interior fit-out — that have been most severely affected by the absence of commercial development, but they are insufficient to absorb the sector’s idle capacity.

Cement prices, the most universally relevant input cost, have remained elevated relative to their pre-crisis levels in Jamaican dollar terms. The Carib Cement Company’s pricing is a function of both production costs — which include significant energy inputs affected by international oil price movements — and exchange rate dynamics. With the Jamaican dollar having depreciated substantially over the past five years, the real cost of cement in hard currency terms has actually declined for potential export-oriented buyers, but for the domestic construction sector, the Jamaican dollar price is what matters.

Investment Climate

The global investment environment at mid-1999 is extraordinary by historical standards. In the United States, the technology-led equity bull market that began in the mid-1990s has accelerated to a pace that is generating both enormous wealth creation and growing concern among more cautious analysts about the sustainability of valuations. The NASDAQ Composite, which crossed 1,000 points in 1995, is now approaching 2,500 — a gain of approximately 150% in four years. The companies driving this appreciation — internet portals, e-commerce platforms, networking equipment manufacturers — represent a genuinely new category of enterprise, and the difficulty of valuing them by conventional metrics has not dampened investor enthusiasm.

For the Jamaican property market, this environment is a double-edged sword. On the positive side, it is generating substantial wealth among the Jamaican diaspora in the United States, and this wealth is flowing, in part, toward Jamaica through remittances and property investment. On the negative side, it is creating opportunity costs for diaspora capital that make the relative case for Jamaican property investment harder to sustain. A Jamaican-American professional comparing the returns on a Kingston residential property — perhaps 5–10% annual appreciation in a good year, in a currency depreciating against the dollar — with the returns available in US technology equities faces an arithmetic that is not flattering to the Jamaican asset.

Diaspora Dimension

Remittance data for the first half of 1999 confirms the continued strength of flows from the diaspora, particularly from the United States. The US economy is in its ninth year of uninterrupted expansion — the longest peacetime expansion in recorded American history — and Jamaican workers in the US are disproportionately employed in sectors — healthcare, hospitality, construction, retail — that have benefited from this expansion. Their earnings capacity is higher than at any previous point, and remittance flows to Jamaica reflect this.

Within the real estate sector specifically, diaspora engagement is visible in two primary forms. First, the direct purchase of residential properties in Jamaica, either for personal use on return visits, as investment rental properties, or as planned retirement homes. Second, the provision of financial support to family members on the island for housing-related purposes — assistance with NHT mortgage payments, funding for home improvements, or capital contributions to self-build projects. Both forms of engagement are material to the market, though only the first is typically captured in formal property transaction statistics.

Affordability Analysis

The affordability picture at mid-1999 is defined by the interaction of three factors: high commercial lending rates, modest income growth in the formal sector, and the NHT’s expanding but capacity-constrained mortgage programme. For a median formal-sector household in Kingston, the purchase of a property in the J$2–3 million range is achievable through NHT financing but requires patience — waiting-list times can extend to two to three years in some categories. The same purchase through commercial financing is effectively impossible on median income.

The rental market, by contrast, is more accessible and has been the primary housing solution for households priced out of ownership. Rental yields on residential properties in Kingston and St. Andrew are estimated at between 6% and 12% depending on location and property type — yields that are attractive by international standards but that, at current commercial borrowing rates, still do not support investment-financed rental property development.

Looking Ahead

The second half of 1999 will bring a predictable set of challenges and potential catalysts. The August to October hurricane season peak will impose its customary uncertainty on market activity. The approach of the year 2000 and the Y2K transition is beginning to generate visible anxiety among financial institutions and technology-dependent businesses, with implications for the timing of major transactions. And the ongoing trajectory of BOJ rates — the single most important domestic variable for the housing market — will be closely watched by all market participants.

The structural case for Jamaican residential property investment remains sound for the patient, well-capitalised investor. Population growth, urbanisation, and the quality aspirations of a young and mobile population create structural demand that no macroeconomic cycle can permanently suppress. The challenge is to create the financing conditions under which that structural demand can express itself in the formal market, rather than being diverted into the informal sector or deferred indefinitely.

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