The numbers that close 2005 would have seemed implausible to anyone who watched Jamaica’s property market during the FINSAC years. Prime St. Andrew addresses are trading at levels not seen since the boom decade of the 1980s. NHT disbursements have hit a thirty-year high. The National Land Agency has processed more title applications than in any previous year. But the fiscal architecture that made all of this possible — a decade of hard interest rates, a primary surplus maintained at considerable social cost, and an IMF compact that left almost no room for expansionary error — was assembled and maintained by a political establishment now in the middle of its most consequential succession in a generation.
Highlights
- Prime St. Andrew residential values close 2005 up 18-22% year-on-year
- NHT annual disbursements at highest level since the Trust’s 1976 founding
- Bank of Jamaica holds 180-day repo rate at 13.0% through December
- Inflation closes year at 12.9%, eroding real returns for dollar-denominated buyers
- Portmore Causeway piling advances; July 2006 opening now formally targeted
- PNP leadership succession expected in early 2006 brings first political test of recovery
Property in Cherry Gardens. A three-bedroom in Liguanea. A serviced lot on the Highway 2000 corridor near Caymanas. A two-bedroom in Greater Portmore with a view across Kingston Harbour. The prices attached to each of these things in December 2005 are, in Jamaican-dollar terms, dramatically higher than they were in December 2001, when the National Land Agency and the National Environment and Planning Agency were new enough that practitioners still sometimes called them by the names of the offices they replaced. The market has moved, and it has moved in one direction across virtually every parish and price tier that participates in the formal economy of titled land.
The Bank of Jamaica’s year-end monetary policy numbers tell a story of expensive stability. The central bank’s 180-day repo rate sits at thirteen percent, a number that has barely moved across the year as the institution maintained the conservative stance it has held since the early years of this decade. Commercial bank weighted average loan rates closed December at 17.08 percent — down fractionally from 17.41 percent in September but representing no meaningful loosening of the credit conditions that make private mortgage finance inaccessible to most Jamaicans. The exchange rate sits at J$64.58 per United States dollar, having depreciated 2.6 percent across the December quarter. Twelve-month inflation is 12.9 percent, down from 13.7 percent the previous year but still running at a pace that compresses the real value of property appreciation for anyone holding J$-denominated assets.
The numbers sit in a peculiar tension. Inflation at 12.9 percent and property appreciation of 18 to 22 percent in Kingston’s better postcodes sound, to an investor, like an attractive spread. But the same inflation that appears benign in a property investor’s calculation is being paid by everyone who is not an investor — by the teacher in August Town, the call-centre worker in New Kingston, the market vendor in Spanish Town. The carry cost of homeownership is rising, and the combination of high commercial lending rates, a transfer-tax burden that exceeds twelve percent of purchase price, and price levels that have risen faster than wages for three consecutive years means that the subset of Jamaicans who can buy into this market without NHT support is narrowing even as the market itself broadens in nominal terms.
The NHT has responded by lending more. The Trust’s disbursements for the fiscal year just concluded represent the highest annual outflow in the institution’s history, with contributions-backed mortgages flowing into the Highway 2000 corridor, into Portmore’s older estates, and into the mid-range of Kingston and St. Andrew at rates the commercial banks cannot approach. The Trust’s portfolio quality has held up well through a year that included two hurricanes, but the institution’s capacity is not unlimited, and the gap between what the NHT can lend to any individual contributor and what properties in the most desirable locations now actually cost has been widening since at least 2003.
The year’s defining infrastructure moment arrived not in the property market itself but in its preconditions. The Portmore Causeway — the second carriageway crossing Kingston Harbour that will relieve the single most congested chokepoint in the Kingston metropolitan commute — has advanced meaningfully in the December quarter. Piling is complete along a substantial portion of the crossing, and the project is now formally targeting a July 2006 opening. When it does open, it will change the commuting arithmetic for western Portmore in a way that the Highway 2000 changed the arithmetic for St. Catherine’s inland parishes: by cutting journey times in a way that makes distance less relevant than connectivity. The land market in western Portmore is already, by most accounts, pricing in that change.
The story that sits behind all of these movements, and that professionals who have spent more than a decade in this market watch with a particular quality of attention, is the political one. P.J. Patterson has led Jamaica’s People’s National Party since 1992 and has been Prime Minister for nearly as long. He has, in that time, presided over FINSAC’s resolution, two IMF agreements, the creation of the NLA and NEPA, the Highway 2000 concession, and the fiscal primary surplus that has made external debt service viable if barely. The economic architecture that produced the property recovery was assembled on his watch, often at enormous political cost to the communities who lived through the austerity years and the interest rates of the mid-1990s.
That architecture is now approaching a moment of institutional transfer. A PNP leadership contest is expected early in 2006, and whichever candidate emerges — Portia Simpson-Miller is the frontrunner; others within the party are considering their positions — will inherit a fiscal framework that is delivering results but demanding continued discipline. The markets are not panicking. The J$ is depreciating in an orderly rather than disorderly fashion. The primary surplus is intact. But the question being asked in corporate boardrooms, in conveyancers’ offices, and at professional association meetings that end with everyone reaching for the property section of the Sunday newspapers is whether the incoming leadership will hold the fiscal line, or whether the succession opens political space for the kind of expansionary populism that Jamaica’s debt ratios cannot currently support.
What This Means
Jamaica’s property market closes 2005 in a position that nobody who attended a FINSAC creditors’ meeting in 1998 could have predicted with confidence: genuinely strong, broad across its titled segments, and supported by real transaction volumes rather than speculative froth. The question for 2006 is whether the political conditions that sustained the fiscal discipline behind the recovery will survive the transition that is now visibly underway. If the incoming PNP leadership signals continuity on the primary surplus, on the IMF relationship, and on the transfer-tax reduction conversation that has been deferred for five years, the property market will likely extend its run through at least the first half of the new year. If the succession produces pressure to spend — on social programmes, on wage settlements, on the political debts that accumulate in any party after a long period of difficult governance — the Bank of Jamaica will face choices between the exchange rate and the interest rate that could make 2006 considerably harder to navigate than 2005.
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