It opened without a great deal of drama — five kilometres of road across Kingston Harbour that the market had been pricing in for three years — and in doing so confirmed a pattern that Jamaica’s infrastructure decade has established with some consistency: the opening of a major road changes things more quietly than the announcement, because by the time the ribbon is cut, the property market has already done the mathematics.
Highlights
- Portmore Causeway opens July 2006, ending a decade of single-crossing congestion
- Western Portmore commute to Kingston reduced from 45+ to under 20 minutes
- Property values in western Portmore stabilise after pre-opening appreciation run
- Kingston and St. Andrew residential market shows first signs of price moderation
- General election due within 12 months; political uncertainty enters market calculus
- BOJ repo rate at 12.5%; commercial lending approaching 14-15% for best credits
The morning commute from Willowdene to New Kingston now takes eighteen minutes. That sentence does not seem, on its face, like the kind of thing that moves property markets. But the mathematics behind it is straightforward: western Portmore, which has been priced at a discount to equivalent addresses in eastern Portmore and the Highway 2000 corridor for the entire life of the current boom, was discounted precisely because of the morning penalty. Subtract the penalty, and the discount evaporates. The transactions that have been closing in the weeks since the causeway opened are doing so at prices that the pre-causeway market would not have supported, and the vendors who held their positions through the three years of anticipation are finding that patience has been the most effective strategy of the decade.
The broader market, however, is showing its first signs of breath-catching after a run that has lasted three and a half years without a meaningful pause. Prime St. Andrew is still trading above its year-ago levels, but the pace of appreciation that characterised 2004 and 2005 has moderated. Properties that would have drawn three or four offers within a fortnight eighteen months ago are now sitting at asking price for somewhat longer. This is not a market turning — it is a market digesting what it has done to itself. Values in the best Kingston addresses have risen approximately 70 to 80 percent in J$ terms since the FINSAC-era trough, and the buyer who can absorb those prices at commercial lending rates is a narrower group than the market was reaching at the beginning of the boom.
The Bank of Jamaica’s gradual easing of monetary conditions has continued. The central bank’s repo rate has moved to 12.5 percent, down from 13 percent at year-end 2005, and the commercial sector has responded by trimming lending rates for its best credits toward the 14 to 15 percent range. This is still, by any international comparison, expensive money for property finance. But the direction matters: for the first time since the recovery began in earnest in 2004, commercial bank mortgage rates are moving in a way that expands rather than contracts the pool of households that can service a private loan. The effect is slow and partial, but it is the mechanism through which the market broadens its participation beyond NHT contributors.
The political calendar is becoming impossible to ignore. Jamaica’s People’s National Party has now held power continuously since 1989 — seventeen years, five elections, three prime ministers. The Jamaica Labour Party under Bruce Golding, who returned to lead the party in 2005 after his decade-long departure to found the National Democratic Movement, has been consolidating its position and reading the political landscape with the calculation of a party that believes its moment is approaching. An election must be called by October 2007; the conventional wisdom within the property industry is that a contest before the end of 2006 or early in 2007 is more likely than one in the final months of the permissible window. What the market wants from this election is not a particular outcome so much as a particular set of policy signals: that whoever wins will maintain the fiscal framework that has supported the recovery, will not reverse the NLA’s titling momentum, and will find a way to address the transfer-tax burden that has throttled transaction velocity throughout the boom.
The north coast continues its own trajectory, somewhat insulated from the political calendar by the dollar-denominated nature of much of its transaction volume. The resort construction that has been underway along the Trelawny and St. James coastline for three years is now producing completions, and the ancillary residential investment that follows hotel openings — the villa parks, gated communities, and branded residences that international hospitality brands have been introducing to the Caribbean market since the late 1990s — is visible at Montego Bay and several locations to the east. The Falmouth pier project, planned to accommodate cruise ships that cannot dock in Ocho Rios or Montego Bay, is drawing attention from investors who are positioning around the anticipated uplift in Falmouth and northwestern Trelawny.
The National Land Agency has processed its 100,000th title application since the agency’s creation in April 2001 — a milestone that the institution marked with some ceremony and that represents a genuine administrative achievement in a system that was, as recently as the late 1990s, measured in years-long queues rather than weeks. The LAMP programme’s cadastral work has now covered more than half the island’s parishes at a meaningful resolution, and the NLA’s processing times for standard first registration applications have held steady at the improvements achieved in 2003 and 2004. The 100,000-title milestone is not a solution to Jamaica’s family land problem — the stock of unregistered parcels remains large — but it marks a genuine change in the institutional capacity of the land administration system.
What This Means
Jamaica’s property market in the second half of 2006 faces a moment of transition that is partly about infrastructure — the Portmore Causeway’s opening completes the current cycle of road-driven value creation, and no comparable project is in the near-term pipeline — and partly about politics. An election that must arrive within a year is beginning to slow the subset of transactions that are sensitive to policy uncertainty, and the professionals who advise on large commercial and development purchases are building modest risk premiums into their assessments of deals that would not close until after the vote. For the residential market, the most important variable over the next six to eighteen months is the pace of commercial lending rate reduction: if the Bank of Jamaica can bring inflation durably below double digits and allow the commercial sector to reach 12 to 13 percent lending rates for residential mortgages, the next phase of the boom will broaden to include a generation of buyers who have watched from the threshold since 2004.
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