Jamaica Real Estate Roundup — Q4 2009: Christmas in the Recession, Debt Restructuring Negotiations Advance, and the Property Market Waits for 2010’s Resolution

• Recession year draws to close; economy contracts through global crisis impact.
• Domestic debt restructuring and IMF programme negotiations advancing toward conclusion.
• Christmas diaspora season resilient despite recession; property enquiries sustained.
• Tourism sector records worst year since at least the 1990s.
• Property market awaiting 2010’s fiscal framework resolution.

The fourth quarter of 2009 brings to a close a year that will be remembered as one of the most difficult for the Jamaican economy in the modern era. The global financial crisis that erupted in full in the final months of 2008 reached Jamaica with the force of a small open economy fully exposed to the external shocks that a collapse in global tourism demand, a contraction in diaspora remittances, a withdrawal of external investment, and the commodity market disruptions of the crisis year produced. The island’s economy contracted through 2009, tourism arrivals fell significantly from the pre-crisis peak, the fiscal deficit widened as revenues contracted and debt-servicing obligations continued, and the property market navigated twelve months in which every structural support for demand — employment, income, tourism activity, diaspora purchasing power, and investor confidence — was under simultaneous pressure.

As this edition goes to press in the first days of 2010, the most consequential development for Jamaica’s near-term economic trajectory — the domestic debt restructuring and IMF programme framework whose conclusion the government has been working toward through negotiations with the domestic financial sector and with the IMF — is in its final stages of preparation. The market widely expects that the new year’s first weeks will see the formal announcement and launch of the restructuring that the fiscal framework’s sustainability requires, and the property market’s Q4 2009 dynamics reflect the particular variety of cautious optimism that attends a period of anticipation: difficult present conditions, but the expectation that the near-future resolution of the structural uncertainty will eventually produce the improvement conditions that the market’s recovery requires.

The Fiscal Crisis and Its Approaching Resolution

The Jamaican fiscal crisis that the government has been navigating through 2009 is the product of the interaction between the long-term accumulation of public debt, the structural fiscal deficit that the underlying revenue and expenditure patterns produce, and the global economic crisis’s compression of the revenue performance that the fiscal framework depends on. The debt-to-GDP ratio, already elevated before the crisis, has been pushed higher by the recession’s revenue impact, and the debt-servicing burden’s consumption of government revenue has created the fiscal space constraints that have limited the government’s ability to respond to the recession with the counter-cyclical measures that the economy’s contraction would otherwise call for.

The domestic debt restructuring that the government has been negotiating with the domestic financial sector through the second half of 2009 is the mechanism through which the forward debt-servicing burden can be reduced to the level that the fiscal framework’s sustainability requires. The IMF programme that the restructuring would accompany is the multilateral endorsement and external financing support that the structural adjustment’s implementation would require. The market’s expectation that the restructuring’s announcement is imminent is based on the evidence of advanced negotiating engagement that the quarter’s financial sector reporting has provided, and the property market’s assessment of the upcoming event is the same nuanced reading of near-term constraint and medium-term opportunity that every previous edition of this Roundup has noted as the appropriate frame for the adjustment period that the restructuring will inaugurate.

Christmas Season: Diaspora Resilience in the Recession

The Christmas and New Year diaspora season’s Q4 2009 performance was, in its own way, one of the year’s more encouraging data points. The global recession’s compression of diaspora employment and remittance capacity had been a significant source of concern for the property market through 2009, and the December visits’ property engagement was expected to reflect the diaspora community’s reduced purchasing power. The actual experience was more resilient than the worst fears had suggested: the Jamaican diaspora’s commitment to its December family visits and its property market engagement proved more durable than a single year of recession-related income pressure could suppress.

The diaspora visitor’s December 2009 property market activity was inevitably cautious, weighted toward assessment and viewing rather than immediate transaction commitment, but its presence was sustained at levels that maintained the property market’s end-of-year pipeline. The buyer who had deferred through the crisis year’s uncertainties was using the December visit to assess where the market had settled after a year of difficulty, to evaluate whether the prices and conditions of the recession environment represented genuine value relative to the medium-term trajectory that the expected 2010 restructuring would establish, and to maintain the market relationships that would support purchase activity when the structural clarity the restructuring would provide was available.

Tourism 2009: The Worst Year in a Generation

The tourism sector’s 2009 performance was the defining economic reality of the year for the North Coast resort communities and, through the property market’s dependence on tourism-derived buyer pipelines, for the North Coast property market’s international demand base. Visitor arrivals fell significantly from the pre-crisis peak as the global recession’s compression of leisure travel budgets, the Swine Flu pandemic’s Q2 2009 suppression of Caribbean travel, and the general contraction of consumer confidence in the major source markets combined to produce the tourism sector’s most difficult year since at least the early 1990s. The resort operators who navigated 2009 did so through the combination of rate discounting, cost management, and market diversification that the conditions required, preserving operational continuity through the year’s worst months in the expectation that the crisis’s eventual resolution would support a recovery in the years ahead.

Quarter Close: 2010’s Resolution Awaited

The fourth quarter of 2009 closes with Jamaica’s property market in the particular condition of a market that has survived a very difficult year and is approaching the structural resolution whose arrival will define the recovery’s trajectory. The domestic debt restructuring and IMF programme that the government’s engagement through the quarter has been preparing are expected in the new year’s first weeks. The property market’s participants are managing through the final days of the most difficult period with the discipline that the proximity of the expected resolution supports. The year that is ending was the hardest. The year that is beginning is expected to deliver the framework whose presence will make the hardest part — the wait for the resolution — finally conclude. The Jamaica Roundup enters 2010 with the expectation that the resolution’s delivery will be the year’s defining story.

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