Every building project has a moment when the structure is at its most photogenic — the steel frame up, the concrete poured, the cladding going on, the whole enterprise looking exactly like what it promised to become before the complications of completion, of snagging, of the gap between aspiration and reality have had a chance to intervene. Jamaica’s property market, in the summer of 2008, is in exactly that moment. The frame is up. The concrete is in. The market is performing. And from this vantage point, with the numbers looking strong and the sentiment positive, the complications that are already forming on the distant horizon are very easy not to see. Or to see and to choose not to look at.
Jamaica’s tourism sector has, in the twelve months to mid-2008, recorded its best revenue performance in the island’s history: US$2.22 billion in total tourism receipts, a 3.73 percent increase over 2007. Remittances — the lifeblood of the Jamaican economy and an essential input into its property market — have reached their all-time peak of approximately US$2.02 billion, equivalent to 15-17 percent of GDP. The construction and real estate sector grew at approximately 30 percent in nominal terms in 2008 — down from the extraordinary 36.5 percent of 2006-07, but still a figure that represents the most sustained period of residential construction growth Jamaica has experienced since independence. The Kingston apartment market is more active than it has ever been. The north coast resort corridors are attracting international developers and buyers at a pace that would have seemed implausible ten years ago.
This is a boom. A genuine, data-supported, broadly-distributed property market boom, and this column will not pretend otherwise. But it is also, this observer must say clearly and loudly, a boom in which the warning signs of an approaching change in conditions are already visible to anyone who cares to look at something other than the numbers that are still moving upward. There are other numbers that are not moving upward. And one very large development, in a very distant country, that should be making every Jamaican property investor extremely attentive.
Reviewing 2007: The Year That Made the Boom Look Eternal
The twelve months that preceded the date of this analysis were, by any reasonable standard, the peak of Jamaica’s post-independence property boom. In 2006-07, the real estate and construction sector grew at approximately 36.5 percent in nominal terms — a figure so large that it invites disbelief until you see it corroborated by the physical evidence: the tower cranes on the Kingston skyline, the newly-completed gated communities being marketed in St Catherine and beyond, the north coast villa developments selling off-plan to buyers in New York and Toronto and London who had concluded that the Jamaican property market represented an opportunity that was not yet widely known and would not remain undervalued for much longer.
Tourism in 2007 generated excellent receipts, building the platform for the 2008 peak that has now been achieved. Remittances were running at historically high levels, having grown consistently through the early 2000s as the diaspora communities in North America and the United Kingdom expanded and the earnings of Jamaicans abroad grew in the high-employment environment of the mid-2000s global economic boom. The exchange rate was depreciating gradually but not dramatically, maintaining the competitiveness of Jamaica’s exports and tourism destination pricing while not yet creating the currency anxiety that a faster depreciation would generate in diaspora investor minds.
The property market of 2007 benefited from a particular structural development that has not received enough analytical attention: the emergence of a genuinely urban Jamaican apartment culture. For the first time, significant numbers of Jamaican professionals in the upper-income bracket were choosing apartment living in Kingston as a primary residence rather than a transitional arrangement. New Kingston’s apartment stock, previously dominated by older concrete blocks from the 1970s and 1980s, was being comprehensively upgraded by a wave of modern developments — higher specifications, more amenity, better security, managed common areas — that reflected a design ambition that Jamaica’s developers had not previously demonstrated at scale. This new product attracted buyers who would, in earlier decades, have defaulted to the detached house in a suburban neighbourhood as the only acceptable expression of their success. The apartment became aspirational. And when an asset class becomes aspirational in a rising market, prices follow.
The State of the Mid-2008 Market: A Portrait at Peak
Apartment construction in Kingston in 2008 is at its highest levels since independence. The New Kingston CBD, the corridors radiating from Half Way Tree, the hills of Barbican and Cherry Gardens, and selected locations in St Andrew have all seen significant new residential apartment development over the past three to five years. The product ranges from compact one-bedroom investor units to spacious three-bedroom residences with finishes that compare creditably to what is available in comparable international markets. Prices have risen significantly from where they were in 2003-2004 — in some desirable Kingston sub-markets, values have doubled in five years in Jamaican dollar terms, and the US dollar appreciation has been nearly as impressive for international investors.
The townhouse and suburban family home market has also performed strongly. St Catherine’s explosion of residential development — driven by the combination of NHT financing, accessible land costs, and improved road links to Kingston — has created entire new communities that did not exist in 2000. The Portmore metropolitan area, which had previously been associated with affordable public housing of modest specification, has been upgraded by an influx of middle-class developments targeting buyers who are priced out of Kingston but unwilling to sacrifice access to its employment and commercial opportunities. New gated communities in the Braeton, Bridgeport, and Gregory Park areas of St Catherine offer security, amenity, and community management at price points that the Kingston market cannot match.
The geographic reach of the boom has, by 2008, extended into parishes that had previously seen minimal formal residential development. St Thomas, immediately east of Kingston, has attracted several townhouse and villa developments targeting buyers who want more space, proximity to the coast, and slightly lower prices than the Kingston market requires. Clarendon has seen some activity in the Manchester border area, serving the growing population of Mandeville’s professional class. The market is, in a meaningful sense, becoming a national rather than merely a Kingston and resort-town market. That broadening of the demand and supply base is a structural improvement that will outlast the boom cycle itself, even if the boom prices do not.
The North Coast: International Money Arrives
The north coast property market has, by 2008, developed a profile among international real estate investors that it did not have ten years ago. The combination of Jamaica’s strong tourism brand, the island’s accessibility from the major North American and European cities, the relative price advantage compared to comparable Caribbean destinations like Barbados or the British Virgin Islands, and the improving quality of resort residential product has attracted a wave of international interest that is qualitatively different from the tentative diaspora retirement purchases that previously characterised international engagement with the Jamaican market.
Gated villa and condominium communities in the Rose Hall and Ironshore areas of Montego Bay, the Long Bay and West End areas of Negril, and selected locations near Ocho Rios are being marketed to and purchased by North Americans, British, and European buyers who are making second-home or investment purchases — not retirement decisions, but active investment decisions driven by yield expectations and capital appreciation assumptions. This class of buyer has access to offshore financing at international rates — much lower than Jamaican domestic mortgage rates — and their investment horizon and risk tolerance are different from those of the domestic Jamaican buyer. They are sophisticated, price-comparative, and not sentimentally committed to Jamaica in the way the diaspora buyer is.
Their arrival in meaningful numbers has been one of the more significant structural shifts in the Jamaican property market of the 2000s. It has raised the quality expectations for resort residential product, pushed prices in the most desirable north coast locations to levels that would have been unimaginable a decade ago, and created a market segment whose performance is driven by global rather than local factors. This is both an opportunity and a risk: global factors can be very positive for a small market, and they can also withdraw very rapidly when global conditions change.
Remittances: The Invisible Force That Has Powered the Boom
No analysis of Jamaica’s property boom can be complete without an honest reckoning with the role of remittances. The US$2.02 billion that Jamaicans abroad are sending home annually is not simply a welfare transfer that keeps families fed. It is the engine of a vast, informal housing finance system that operates completely outside the formal mortgage market and generates residential construction activity that never shows up in the housing start statistics.
The Jamaican family in Birmingham that has been sending £200 a month back to Jamaica for fifteen years and has saved enough to build a house for their parents — they are not in the formal property statistics. The nurse in Brooklyn whose entire strategy for the last decade has been to accumulate NHT contributions and save enough for the property she will buy when she returns in three years — she is in the NHT statistics but not in the market data until she transacts. The construction worker in the Cayman Islands who is building his family home in Clarendon one room at a time, funding each stage from his quarterly savings transfers — he is building real real estate that never shows up in any survey.
The boom of 2006-2008 has been turbo-charged by remittance income in ways that are genuinely difficult to quantify but that every developer, broker, and building materials supplier can feel in the pace of their business. The Jamaican economy is, in this period, more connected to the earnings of its diaspora than at any point in its modern history. That connection is a strength. It is also a vulnerability — because what the diaspora gives, the diaspora can withdraw, and the economic conditions that drive diaspora earnings are not under Jamaican control.
The Warning Signs That Are Already Present
And here, this column must depart from the celebratory tone that the boom-era data supports, and say something that is difficult to say in a moment when the market is performing well and nobody wants to hear it.
The United States housing market is in serious trouble. The subprime mortgage crisis that began to emerge in 2007 has, by mid-2008, become a systemic financial event of a magnitude that the global financial system has not seen since at least the 1930s. Major American financial institutions have reported losses that would have seemed impossible two years ago. The credit markets that fund not only American housing but the global investment activity of institutional investors and real estate developers are tightening at a pace and to a degree that is going to have consequences well beyond the US housing sector.
Jamaica is not insulated from this. It cannot be. The diaspora Jamaicans in the United States who are funding part of Jamaica’s property boom are working in an economy that is entering recession. Their job security is not what it was in 2006. Their ability to continue remitting at peak levels is uncertain. The international buyers who have been purchasing north coast villas with access to American credit markets are going to find that credit significantly more expensive and less available. The confidence of the broader North American consumer — the holidaymaker who drives Jamaica’s tourism revenue — is deteriorating.
Jamaica’s fiscal position, while not in immediate crisis, is carrying a debt burden that gives very little room for the kind of counter-cyclical response that a government ideally wants to be able to mount when the external environment deteriorates. The fiscal space to stimulate the economy, to cut taxes, to support housing demand through expanded NHT lending, is constrained by a debt stock that was already substantial before the global crisis began.
A Forecast for 2009 That Must Be Honest About the Risks
The honest forecast for 2009 is not the continuation of the boom. It is something considerably more complicated: a year in which the first consequences of the global financial crisis are felt in Jamaica, in which the property market’s extraordinary momentum begins to slow, and in which the decisions made by buyers, sellers, developers, and investors in that year will determine how severe the eventual correction is and how long it takes for the market to find its new equilibrium.
The north coast resort market will be the first to feel the change, because its international buyer base is the most directly connected to the deteriorating credit conditions in North America and Europe. Projects that are currently selling at boom prices to international buyers will find that the pipeline of new buyers thins rapidly once word travels, through the investment community networks, that the credit environment has changed and that Jamaican resort property is less liquid than it appeared in 2007.
The Kingston residential market will be more resilient, because its buyer base is primarily domestic and the NHT provides a structural floor beneath the affordable housing segment. But the confidence effects of a deteriorating economic environment — rising unemployment, falling remittances, a weakening exchange rate — will feed through into buyer hesitancy, reduced transaction volumes, and, eventually, price pressure.
The construction boom of 2006-2008 will not continue at its current pace. The projects that are already under way will be completed — though some will be completed slowly, as development finance becomes harder to access and pre-sales targets are not met. New project launches will become fewer and more cautious. The extraordinary construction growth rates of 36 percent and 30 percent will give way to something much more modest, and then, in 2009-2010, to something that may feel like the opposite of growth entirely.
This is the moment in the building project when the complications begin to reveal themselves. The steel frame was beautiful. The concrete is in. But the cladding has a tolerance problem, the windows are on a long lead time from a supplier in a country whose economy has just entered recession, and the bank that was going to provide the completion finance has just announced it is reviewing its development lending portfolio. The building will be completed. But not quite as planned, and not quite when expected. Jamaica’s property market, in the summer of 2008, is at exactly that juncture. Beautiful, and complicated. Performing, and at risk. The last dance of the boom is underway. The music is still playing. But somewhere in the distance, the band is beginning to pack up.
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