There is a particular horror in a building site that has been abandoned mid-construction. The steel rods rise from the concrete columns, rusting now at their tips. The block walls reach halfway to what should be the ceiling. The plastic sheeting that was tied over the window openings has torn and flags in the breeze, admitting rain. Nobody is coming back to finish it — not this week, perhaps not this year. The money ran out. The market disappeared. The dream deferred. Drive through any Jamaican parish in the summer of 2010 and you will see versions of this image — the half-built houses, the paused schemes, the construction equipment that has not moved since 2008. They are the physical monuments of a property market that walked into a global catastrophe with its boots unlaced, and has been trying to find its feet ever since.
Jamaica’s GDP contracted by 1.4 percent in 2010, following a contraction of 3.4 percent in 2009. These two years represent the most severe back-to-back economic contraction Jamaica has experienced in the modern era. The combined GDP loss of nearly 5 percent over two years has not been recovered, and will not be recovered quickly. Employment in the formal sector has fallen. Consumer confidence is at multi-year lows. The tourism sector — Jamaica’s great engine of foreign exchange earnings and, for the north coast property markets, the essential driver of demand — has been recovering slowly from the shock of 2009, but it has not returned to its 2008 peak and there is no certainty about when it will.
Into this environment, the property market is doing what it must: contracting, preserving what capital remains, waiting. The waiting is rational. It is also, for the developers and investors and ordinary Jamaican families who had been building their futures around property ownership, profoundly difficult.
Reviewing 2009: The Year the World Changed and Jamaica Felt It
The story of 2009 in Jamaica’s property market is inseparable from the story of the global financial crisis that had begun in the United States in 2008 and arrived in Jamaica with the force of a delayed but very real shock. The crisis’s transmission into the Jamaican economy operated through several channels simultaneously, each of which had direct implications for property activity.
The most immediate was remittances. Jamaica’s diaspora — millions of Jamaicans living and working in the United States, Canada, and the United Kingdom — had been sending home approximately US$2.02 billion per year at the 2008 peak. These flows represented somewhere between 15 and 17 percent of GDP, making Jamaica one of the most remittance-dependent economies in the world. When the financial crisis hit the North American and British economies in late 2008, Jamaican workers abroad experienced it directly: through job losses, reduced overtime, constrained credit, and the pressure to reduce all non-essential expenditures. Remittances to Jamaica fell by approximately 11.2 percent in 2009 — a decline of roughly US$225 million in a single year. For a property market in which remittance income funds incremental construction, provides down payments, and supports the purchasing capacity of diaspora buyers, this was a significant blow.
The second channel was tourism. Jamaica’s tourism receipts had reached a peak of US$2.22 billion in 2008. By 2009, they had fallen to US$2.07 billion — a decline of 6.84 percent, or approximately US$150 million in revenue. The drop in tourism spending was partly a volume effect — fewer visitors — and partly a price effect, as the hotels and resorts that were competing for a reduced pool of leisure travellers offered discounts and incentives that compressed their per-visitor revenue. For the resort corridor property markets that depend on the vitality of the tourism industry, this decline in earnings was directly felt. Development of new vacation properties slowed. Investment in resort-adjacent residential stock paused. The confident northern-coast villa market of 2007-2008 took on a more tentative quality.
The Jamaican dollar depreciated 5.5 percent against the US dollar in 2008 and a further 9.4 percent in the first quarter of 2009 alone — a pace of depreciation that, while eventually stabilising, created sharp uncertainty about the value of Jamaican dollar-denominated assets for diaspora investors who were measuring their investment in US dollar terms. A property that had appeared to offer good value in US dollar terms in 2007 became, by 2009, more complicated to assess: the Jamaican dollar price had not fallen proportionally to the exchange rate depreciation, meaning that the US dollar cost of Jamaican property had actually risen relative to 2007 levels even as the economy contracted. This pricing anomaly — Jamaican properties expensive in US dollar terms relative to an economy in recession — was one of the factors that deterred diaspora investment during the 2009-2010 period.
The Debt Exchange and Its Complicated Legacy
The Jamaica Debt Exchange, completed in February 2010, was the most significant financial event in the Jamaican economy since the financial sector crisis of the late 1990s. The government of Jamaica, facing an unsustainable interest burden on its domestic debt, invited holders of Jamaican government bonds — principally the banking sector, building societies, insurance companies, and pension funds — to exchange their existing bonds for new instruments at lower interest rates and longer maturities.
For the property market, the Debt Exchange had implications that cut in two directions simultaneously. On the positive side, the reduction in yields on government paper reduced the cost of funds for the financial institutions that held it, creating downward pressure on their lending rates including mortgage rates. Building society rates, which had been running at approximately 12.5 percent, were coming under pressure to fall as the institutions’ cost of funds declined. This should, over time, translate into improved mortgage affordability — not immediately, but directionally.
On the negative side, the Debt Exchange was a form of forced restructuring that imposed real losses on Jamaica’s domestic financial institutions, including the building societies. The National Building Society, Victoria Mutual, and others held significant quantities of Jamaican government bonds, and the exchange — while it preserved their nominal principal — reduced their income through lower coupons and their liquidity through longer maturities. Institutions whose balance sheets had been damaged by the exchange were not in an aggressive mood to expand their mortgage books. The immediate effect of the Debt Exchange on mortgage market activity was, paradoxically, slightly contractionary — even as its medium-term effect on mortgage rates was positive.
What Is Actually Happening in the Residential Market
The residential property market of 2009-2010 has not experienced a dramatic price crash of the kind that characterised the American, Irish, and Spanish markets during the same period. Jamaica’s market is structurally different: it is less leveraged, less liquid, and more dominated by own-use buyers than investment buyers. When confidence falls and buyers disappear, the Jamaican market tends to freeze rather than collapse — sellers who do not need to sell simply withdraw their properties from the market rather than accepting the prices that buyers in a distressed environment are willing to pay.
But beneath the surface of apparent price stability, the market is weaker than the headline numbers suggest. Transaction volumes — the number of properties actually changing hands — have fallen significantly. The properties that are transacting are doing so at prices that would have been considered disappointing two years ago. The developers who are completing projects in 2010 are completing them into a market that has moved against them: construction costs have remained elevated while demand has contracted, and the profit margins on schemes that began in 2007 and 2008 are far below what was projected at launch.
The NHT-funded segment of the market has been the most resilient, for the structural reasons that make it less sensitive to the commercial mortgage rate cycle. The NHT’s subsidised financing has maintained a baseline level of activity in the affordable housing market throughout the crisis, particularly in the parishes where land costs allow developers to bring product to market within the NHT’s loan ceiling. This activity is genuinely important — it represents real Jamaican families achieving homeownership in difficult circumstances — but it is not sufficient to offset the weakness in the broader residential market.
Mortgage rates at the commercial end of the market remain prohibitively high. Building society rates at approximately 12.5 percent in 2010, and commercial banks offering rates in the 8-10 percent range for their prime borrowers, mean that the cost of financing a J$10 million property over twenty years is a monthly commitment that exceeds the gross income of a large majority of Jamaican households. The effective buyer universe for properties above the NHT’s loan ceiling is, in 2010, extraordinarily small. It consists of cash buyers, high-income professionals with access to employer-assisted financing, and diaspora investors who are providing their own equity from overseas.
Tourism’s Slow Recovery and What It Means for the North Coast
Tourism expenditure in 2010 reached US$2.10 billion, recovering from the 2009 low of US$2.07 billion. The improvement is real but modest — only US$30 million above the 2009 trough, and still US$120 million below the 2008 peak. Jamaica is recapturing visitors, but the revenue per visitor remains compressed relative to the boom years, as competitive pricing continues to be necessary to attract travellers who have more options and more price sensitivity than they did before the crisis.
For the north coast property markets, the slow recovery of tourism revenue is the most important indicator of when those markets will begin to move again. The Montego Bay and Negril real estate markets are, in a very direct sense, derivative instruments on the performance of the Jamaican tourism sector. When hotels are full and expanding, the demand for hospitality-adjacent residential property — staff housing, management villas, investor condos seeking short-term rental income — grows. When hotels are running at 65 percent occupancy and cutting rates, that demand contracts.
The 2010 tourism picture suggests a market that is healing but not yet healed. Stopover arrivals are recovering. Cruise arrivals, less economically significant but a useful signal of destination confidence, are also improving. The hotel sector, which was in capital preservation mode in 2009, is beginning to think about investment again — not aggressively, but tentatively. A handful of resort development projects that were paused in 2008-2009 are being reviewed with cautious optimism. The property market will follow the tourism sector’s lead, with a lag of twelve to eighteen months. If tourism continues to recover in 2011 at the pace of 2010, the north coast residential market should begin to show genuine signs of life in 2012.
The Construction Sector in Its Worst State in a Generation
The construction sector tells the most unambiguous story about the state of Jamaica’s property market in 2010. Having grown at approximately 36.5 percent in the boom year of 2006-07 and at around 30 percent in 2008, the sector has now collapsed to approximately 3 percent nominal growth — a figure that, in a period of construction cost inflation, probably represents flat or slightly negative real output. The contrast is stark and quantifiable: the industry that was Jamaica’s most dynamic growth sector in 2006-2007 is now an industry in suspended animation.
The human cost of this collapse is real. The construction trades — block-laying, carpentry, plumbing, electrical, steelwork, concrete — have seen employment fall sharply. Workers who were earning regular incomes on major projects in 2007 and 2008 are now working irregularly, combining whatever small projects they can find with informal sector activity. Some have left Jamaica entirely, finding work in the more active construction economies of Trinidad, the Cayman Islands, and the British Virgin Islands. The skills and experience that were accumulating in Jamaica’s construction workforce during the boom are being lost, dispersed, or devalued. When the market eventually recovers, the industry will face a capacity problem that will manifest as higher costs and longer project timelines.
Looking Ahead to 2011: The Case for Tentative Hope
The forecast for 2011 must be honest about its limitations. This is not an environment in which confident predictions are justified. The global economic recovery is fragile. Jamaica’s fiscal situation remains precarious — the Debt Exchange has bought time but not solved the underlying fiscal problem. The diaspora communities on which Jamaica depends for remittances and property investment are still navigating post-crisis economies that are healing slowly. The tourism sector is improving but has not returned to its peak.
Against this, there are genuine reasons for cautious optimism. The Debt Exchange, for all its complications, has created the preconditions for lower mortgage rates. Building society rates are expected to fall toward 11 percent and eventually lower as the cost-of-funds effect works through their balance sheets. Each reduction in mortgage rates expands the qualifying buyer pool and improves the investment economics of residential property for both owner-occupiers and investors.
Remittances, which fell by 11.2 percent in 2009, have begun recovering in 2010. The Jamaican diaspora’s commitment to maintaining family support flows has historically been resilient to economic cycles, and the recovery of remittances toward the 2008 peak of US$2.02 billion — expected to approach US$2 billion in 2010-2011 — will provide important support to the household construction sector and, at the margin, to formal property demand.
The tourism sector’s recovery, if it continues at the pace of 2010, will begin to create genuine momentum in the north coast property markets in 2011-2012. The international demand for Caribbean coastal property — the retirement villa, the vacation condominium, the managed resort residence — is not dead; it is dormant. When the confidence of the buyer community in the United States and Canada recovers to the point where discretionary luxury investment feels appropriate, Jamaica’s north coast will be among the first beneficiaries.
The prediction, then, is not a recovery in 2011. It is the beginning of the preconditions for a recovery: lower mortgage rates, recovering remittances, improving tourism revenue, and a construction sector that, while still well below boom levels, has at least reached its floor. The abandoned building sites are not going anywhere. But somewhere, a developer is looking at the plans again. Somewhere, a diaspora family is having a conversation that ends with “maybe next year.” Somewhere, a first-time buyer is recalculating their mortgage qualifying figures with the new, slightly lower rate — and finding, for the first time in two years, that the numbers are beginning to work.
The half-built houses will not finish themselves. But the people who will finish them are, in 2010, still here. Still watching. Still waiting for the moment when the market gives them a reason to pick up where they left off. That moment is not yet here. But it is closer than it was a year ago. And in Jamaica’s property market, in the long summer of 2010, that is the most honest thing that can be said.
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