Publication Date: 3 August 2009 | Coverage Period: 3 July–2 August 2009 | Category: Monthly Review
Month in Brief
- US Q2 GDP contracts less severely than feared; tentative global recovery signals emerge.
- Jamaica unemployment approaching 15%; formal sector employment shrinks across parishes.
- H1N1 case counts rising globally but Caribbean travel beginning to stabilise cautiously.
- Oil prices hover near US$65–70/barrel, sustaining elevated energy import costs for Jamaica.
- BOJ holds policy rate as currency pressure persists near J$91–92 per US dollar.
- NHT remains effective sole vehicle for residential mortgage financing for most Jamaicans.
Housing Market Conditions
The July coverage period offered Jamaica’s housing market no material improvement in transaction dynamics. The structural barriers — prohibitive commercial interest rates, rising unemployment, and declining household purchasing power — that have suppressed activity throughout 2009 remained firmly in place. The occasional transaction that does close in this environment typically involves either an NHT-qualifying buyer purchasing a below-ceiling property or a cash purchaser — often diaspora-connected — who can circumvent the commercial mortgage market entirely.
Price softening in the mid-market segment — properties priced between J$8 million and J$20 million — is becoming more apparent. This bracket, which relies entirely on commercial financing since it exceeds the NHT ceiling, is experiencing the sharpest demand destruction. Sellers holding properties in this range face a buyer pool of near-zero and are increasingly confronting the choice between sustained vacancy and meaningful price reduction. Several properties in established residential districts of St. Andrew have traded below assessed value during the coverage period, marking a departure from the norm of recent years.
The sub-J$4 million affordable segment retains somewhat firmer pricing dynamics, sustained by NHT-eligible demand. However, supply in this segment remains constrained, and the gap between the availability of qualifying buyers and the availability of qualifying properties means that even this sub-market is not generating the volume of transactions its demand base would suggest. New affordable supply from HAJ and private developers is needed to unlock this latent demand.
Government Policy
The August period falls within the mid-year budget review cycle, during which the Ministry of Finance will assess whether revenue and expenditure outturns are tracking the 2009–10 estimates. Early indications suggest that tax revenues are underperforming projections, a predictable consequence of the GDP contraction now estimated at three to four per cent for 2009. This revenue shortfall will further constrain capital allocations, including those directed at housing and infrastructure.
The National Housing Trust continues to operate as the primary policy instrument for housing market support. The NHT’s loan approvals have been sustained through the downturn, reflecting the Trust’s institutional resilience and the continued accumulation of contributions by the formal workforce. For contributors who remain employed, the NHT benefit represents a substantial and well-understood entitlement that many are positioned to exercise once a suitable property becomes available at a viable price point.
Policy discussion is beginning to focus on the potential role of employer housing allowances and co-contribution schemes as a supplement to NHT financing. The concept — whereby employers contribute to employees’ housing fund alongside the statutory NHT deduction — could expand the effective loan quantum available to formal-sector workers. Such schemes would require enabling regulation but are administratively feasible and could be targeted at lower-income brackets most acutely affected by the current affordability gap.
Construction Sector
Construction sector output continues to decline year-on-year. The private residential development segment has seen several project phases deferred or cancelled, with developers citing the inability to achieve pre-sales at price points that cover financing costs. The commercial construction pipeline is similarly constrained, with hotels, retail, and office developments facing funding difficulties from both domestic and international capital sources.
The government’s housing agency pipeline represents the primary active development front. HAJ projects in St. Catherine — notably in the Greater Portmore and Spanish Town environs — and in St. Elizabeth continue to advance under government procurement. The targeting of these locations reflects both population density and land availability considerations, and the units under development will address part of the estimated 100,000–120,000-unit housing deficit when completed.
Material costs during July presented a mixed picture. Steel prices have stabilised at post-crash levels, offering some input cost relief relative to the 2008 peak. Cement and aggregate costs remain elevated by affordability-housing standards. Energy costs, driven by oil’s recovery toward US$70, add to operational expenses across all construction activity. The net effect is a construction cost environment that challenges developer margins without offering clear relief from the revenue-side pressure of reduced buyer demand.
Investment Climate
Global financial markets staged a significant recovery during July, with major equity indices recouping a meaningful portion of their 2008–2009 losses. US GDP data for Q2, released in late July, showed a contraction of 1.0 per cent — less severe than many economists had feared — prompting commentary that the recession may be approaching its trough. These signals are cautiously positive for Jamaica, but the transmission lag between global financial stabilisation and meaningful investment flows into Caribbean real estate is typically measured in quarters, not weeks.
Domestic investor sentiment remains risk-averse. The Jamaican stock market has recovered modestly but many listed companies are reporting earnings declines that dampen enthusiasm for equity. Real estate’s illiquidity premium is particularly unattractive in an environment where investors favour capital preservation. The market for commercial property — retail centres, office buildings — is showing similar caution, with vacancy rates rising in several Kingston commercial districts as tenants consolidate or exit.
Diaspora and Remittances
The second-quarter remittance data expected from the Bank of Jamaica will provide a clearer picture of the full H1-2009 trend. Anecdotal evidence from money transfer operators and community-level data suggest that the decline from 2008 levels has been sustained, with year-on-year reductions of eight to twelve per cent consistent across transfer corridors. The US, Canada, and UK channels all reflect the deterioration in host-country labour market conditions.
An important nuance is the segmentation of remittance purpose. Transfers sent specifically for housing — mortgage payments, land purchases, construction materials — may be declining faster than consumption-support transfers, as senders prioritise immediate welfare over asset accumulation in a period of uncertainty. If this is confirmed by data, it would reinforce the picture of a housing market losing one of its historically important demand-side funding streams.
Affordability
In the affordability register, the August review finds no meaningful improvement. The commercial mortgage rate remains anchored near 14–18 per cent, making formal ownership inaccessible to approximately 70–75 per cent of the Jamaican workforce by income. The NHT offers a critical exception, but is bounded by the loan ceiling and the supply of qualifying properties.
An important consideration for the medium term is the trajectory of construction costs relative to NHT loan ceilings. If material costs recover in line with oil prices while the NHT ceiling remains static, the space of viable affordable housing development could narrow further. Developers of HAJ-partnered schemes in St. Catherine are already navigating tight margins, and any further cost escalation will require either an NHT ceiling revision, a government subsidy top-up, or a reduction in build specification standards — each with its own trade-offs.
Looking Ahead
The September coverage period will be watched closely for signs that global recovery signals are translating into any improvement in Jamaica’s immediate economic environment. Tourism performance data for the July–August peak season — historically Jamaica’s strongest period for visitor arrivals — will be particularly telling. If summer 2009 tourist numbers outperform the deeply depressed comparison period of early 2009, it will offer some employment stabilisation in the hospitality-dependent parishes and a marginal improvement in housing demand on the north coast.
The deeper structural question — when commercial mortgage rates will begin to ease — remains unresolved. The BOJ’s rate-setting posture is contingent on currency stability and inflation dynamics that are themselves externally driven. Until a sustained US recovery solidifies the external environment, the BOJ’s room to ease is limited, and the housing market’s dependence on NHT financing as the primary — and often only — viable ownership pathway will persist.
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