The property market that Bruce Golding inherited in September 2007 was a different animal from the one that confronted P.J. Patterson when he came to power in 1992. Then, the market was in the early stages of the boom that FINSAC would eventually destroy; now, it has spent four years rebuilding from FINSAC’s aftermath, is well into the consolidation that follows a strong appreciation cycle, and is watching, with a kind of wary attention, a global financial crisis that the rating agencies are only beginning to acknowledge as something that will outlast the news cycle.
Highlights
- Golding government confirms fiscal framework continuity in its first Budget signals
- Dean reconstruction driving construction activity; roofing materials in island-wide shortage
- Global credit crunch deepening; Jamaica external borrowing spreads widen materially
- Kingston and St. Andrew residential values close 2007 flat on year after Dean and election
- NHT maintains lending through disruption; serves as market stabiliser once again
- Diaspora remittances begin to show first deceleration in five years on US economic slowdown
The first evidence of the new government’s economic character has come in the form of signals rather than policies: consultations with the IMF that confirm the existing primary surplus commitment, statements from the Minister of Finance that position fiscal discipline as a shared cross-party inheritance rather than an ideological preference, and an early Budget submission that maintains the spending envelope without the kind of expansionary gesture that a newly elected party, after eighteen years in opposition, might have been tempted to attempt. This continuity, modest in its ambition but important in its implications, is what the property market needed to see. It has seen it.
The more immediate drama of Q4 2007 is material rather than political. Hurricane Dean left behind a reconstruction agenda that the construction sector is still working through in December: roofing contractors are booked months ahead, galvanised iron is intermittently in short supply, and the insurance adjusters who were processing claims in September are now, by December, beginning to release the settlements that will fund the most significant bout of property improvement activity Jamaica’s southern parishes have seen since Ivan’s reconstruction in 2004 and 2005. The Dean reconstruction is, in an odd way, its own form of property market activity — not transactions, not appreciation, but the physical work of restoring and improving housing stock that, in many cases, is ending up better than it was before the storm.
The titled, insured segment of that housing stock, as noted through every storm season since Ivan, is recovering faster than the untitled, uninsured segment. The correlation is so consistent now that it has stopped surprising and started informing: the NLA’s titling programme, whatever its pace, is not an abstraction but the mechanism by which households enter or remain outside the recovery system. The families in Clarendon and St. Catherine who held registered titles before Dean arrived are in better shape in December than those who did not, not because their houses were stronger, but because their paperwork gave them access to a set of financial and institutional tools that untitled households cannot reach.
The global backdrop has darkened considerably since September. What began as a structured finance problem in American subprime mortgages is now presenting as a global credit crisis, with interbank lending rates in Europe and the United States elevated above what any central bank’s policy rate would suggest, and with the institutions that bought mortgage-backed securities facing write-downs that are still being disclosed, still being estimated, and that are, by most informed assessments, still underestimated. The Jamaican government’s ability to access external bond markets at reasonable spreads has diminished since the quarter began. The BOJ, which was easing rates through 2006 and into 2007, has paused: the exchange rate has come under pressure as global risk appetite has retreated, and the central bank is once again managing the familiar tension between supporting growth and defending the currency.
Remittances, which had been growing in every year since 2000 and had reached US$1.8 billion in 2006, are showing their first deceleration. The December quarter data suggests that the annual total for 2007 will come in slightly below 2006 — modest in absolute terms, but the first reversal of a trend that has been one of the property market’s structural supports throughout the recovery decade. The cause is visible in the American employment data: the sectors that employ the largest concentrations of Jamaican diaspora workers — construction, hospitality, health services — are beginning to feel the spending contractions that precede a broader economic slowdown. The remittance signal is, as always, a lagged indicator, and the degree of the lag will depend on how severe the American downturn becomes.
Against all of this, the National Housing Trust has performed the role that it performs in every market disruption: it has kept lending. Its contributions-based model makes it counter-cyclical in exactly the way that commercial bank lending is procyclical — when private credit tightens, the NHT, funded by the steady accumulation of payroll contributions, does not face the same funding pressure. The December lending figures will confirm that the Trust has maintained its throughput through a year that included a major hurricane, a general election, and an emerging global financial crisis. Its consistency is the property market’s single most reliable stabiliser.
What This Means
Jamaica’s property market closes 2007 in a condition that its analysts would describe as stable rather than dynamic: values are flat on the year in the primary Kingston and St. Andrew markets, the pace of title registration has been maintained, NHT lending is holding up, and the new government has confirmed rather than disrupted the fiscal framework. But the tailwinds of 2004 and 2005 — the roads, the rate reductions, the recovering remittance flows, the post-FINSAC demand backlog — have converted into headwinds: a global credit crisis that will slow the American economy and the remittances that depend on it, a new government that will need at least a year to find its economic footing, and an inflation rate that is edging up again as commodity prices — oil in particular, now at US$90 per barrel — work their way into the J$ price level. The market’s most optimistic scenario for 2008 is stability. The more demanding one involves the global financial system delivering something worse than a credit crunch, and Jamaica, with its US$1.8 billion in annual remittances and its reliance on external financing, having to navigate that delivery without much fiscal room to cushion the impact.
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