Jamaica Real Estate Roundup — Q1 2008: A Strong Winter Season, Bear Stearns Rescued Sixteen Days Ago, and Uncertainty at the Horizon

• Winter diaspora season delivers strong property market enquiry and transactions.
• Bear Stearns rescued March 16-17, 2008 — sixteen days ago; systemic implications assessed.
• North Coast winter peak among best seasons in recent memory.
• Sub-prime crisis’s credit market consequences building; Jamaica monitors with attention.
• Property market still in boom conditions; external horizon less certain than a year ago.

The first quarter of 2008 is, in its broad property market sweep, a continuation of the conditions that the preceding years’ extended boom has established: a strong winter diaspora season delivering solid enquiry and transaction activity, a North Coast winter peak performing at levels that would have been considered exceptional in any preceding decade, and a Kingston residential market whose premium segment is sustaining the pricing and transaction velocity that the boom period’s supply constraints and demand energy have maintained. The narrative of Q1 2008’s property market is, for most of its three months, a positive and familiar one.

The quarter’s final fortnight changes the tone. The Bear Stearns rescue of March 16-17 — the emergency acquisition of one of Wall Street’s largest investment banks by JP Morgan Chase, facilitated by the US Federal Reserve with an unprecedented loan against Bear Stearns’ mortgage-backed securities portfolio — was the event that transformed the US sub-prime mortgage market’s credit stress from a contained sectoral problem into the first demonstration that the vulnerabilities it had produced were potentially systemic in their scale. Sixteen days after the rescue, as this edition goes to press, the assessment of what Bear Stearns’ near-failure means for the global credit environment, and ultimately for the tourism and diaspora investment flows that the Jamaica property market depends on, is one that the market’s attentive participants are conducting with a care that the preceding quarter’s boom conditions had not required.

The Winter Season: Peak Conditions

January and February 2008 delivered the Jamaica property market the most active winter season in the Roundup’s experience to date. The diaspora community’s January presence on the island was energised by the boom period’s confidence, the currency advantage of overseas earnings against the Jamaican dollar, and the property market’s sustained appreciation that was creating a now-or-later urgency among buyers who had been watching prices rise and were anxious not to be priced out of the markets they were targeting. Viewing activity was at peak levels, conversion rates from viewing to offer were at their highest, and the transaction pipeline that January 2008 generated was the most substantial in recent memory.

The North Coast’s winter peak season matched the diaspora season’s energy with a performance that the resort communities’ operators were finding difficult to distinguish from the peak of the boom. Visitor arrivals were strong, occupancy levels high, and the premium resort experiences that the North Coast’s best operators were delivering were converting the usual cohort of holiday visitors into property enquirers at rates that kept the estate agencies’ pipelines full. International buyers from the US, Canada, and Britain were active in the North Coast market, and the transactions that the season was generating were, in many cases, the most ambitious in the Jamaica market’s history — premium villa transactions, beachfront development plot acquisitions, and resort residential unit purchases at price levels that would not have been contemplated a decade earlier.

The Sub-Prime Context and Bear Stearns

The US sub-prime mortgage market’s difficulties had been visible in the financial press since the second half of 2007, and the Jamaica property market’s most attentive participants had been tracking the credit market stress that the sub-prime losses had introduced into the global financial system with the attention that the potential connections to tourism and investment demand warranted. Through the winter season’s first months, the credit market’s difficulties had not yet significantly penetrated the leisure travel and property investment decisions of the North American and British consumers whose activity drove the Jamaica market’s most important demand sources, and the market’s winter performance reflected this insulation.

The Bear Stearns rescue of March 16-17 changed the assessment. The Federal Reserve’s decision to provide emergency lending against Bear Stearns’ mortgage-backed securities portfolio — a portfolio whose market value had collapsed as the sub-prime crisis spread to the broader structured credit market — and the subsequent JP Morgan acquisition at a price per share that was a fraction of Bear Stearns’ pre-crisis value represented the first unambiguous demonstration that the credit market’s stress had reached the systemic level. The Jamaica property market’s reading of this event is one of attentive uncertainty: the crisis has been contained, for now, by an extraordinary intervention; the question of whether the intervention’s containment will prove durable is one that the coming months will answer.

Kingston: Boom Conditions with a Watching Posture

Kingston’s residential market through Q1 2008 maintained the boom period’s characteristic dynamics: strong premium segment demand, active middle-market transaction volumes, and a development pipeline that was responding to the market’s sustained energy with an ambition of new supply that the demand environment had been supporting. The Bear Stearns event’s March timing meant that its effect on the Kingston market’s Q1 activity was limited to the final two weeks of the quarter, and the market’s Q1 aggregate performance — measured by enquiry volumes, viewing activity, and transaction completions — was among the strongest on record.

Quarter Close: Peak Performance, New Questions

The first quarter of 2008 closes with Jamaica’s property market having delivered what may prove, in retrospect, to be the most impressive quarterly performance of the extended boom period, and having ended with the Bear Stearns rescue introducing the first acute external signal that the global credit environment’s vulnerabilities are of a scale that the boom’s enthusiasts have not fully accounted for in their forward projections. The winter season was exceptional; the Bear Stearns event is consequential in ways that sixteen days’ assessment cannot yet fully quantify. The Jamaica Roundup enters Q2 2008 with the recognition that the market’s most important external variables — the credit environment’s stability, the US economic outlook’s trajectory, and the consumer confidence of the North American and British households whose travel and investment decisions power the Jamaica property market’s most critical demand channels — are now less certain than they were at the quarter’s start.

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