Interest rates continue their post-JDX decline, the exchange rate holds in a narrow band around J$87 per US dollar, and the IMF programme passes its second review — a quarter in which Jamaica’s property market records its second consecutive period of modestly improving transaction activity without the dramatic surge that peak-era sellers still privately hope for.
Highlights
- BOJ benchmark rate declines further as monetary easing continues post-JDX
- Commercial mortgage rates approach 12 per cent at leading institutions for top-tier borrowers
- IMF SBA second review confirms Jamaica’s primary surplus targets are being met
- Tourism recovery strengthens as US consumer confidence improves heading into winter season
- North coast resort property market shows first genuine activity in eighteen months
- Government signals intent to seek second domestic debt restructuring once SBA concludes
The recovery unfolding in Jamaica’s property market in the third quarter of 2010 had the quality of light returning gradually to a room rather than a switch being thrown. There were no announcement effects, no dramatic policy interventions, no infrastructure openings that catalysed a surge of buyer enthusiasm. There was instead the patient accumulation of normalising conditions — rates declining, the dollar stable, remittances rising modestly, seller expectations adjusting, buyer confidence rebuilding — that collectively created a market in which transactions could complete and developers could plan without the paralysis that had characterised the previous three years.
The Bank of Jamaica’s benchmark rate, which had been held above ten per cent through most of the crisis period, was declining as the JDX compression continued to work its way through the term structure of interest rates. Commercial bank mortgage rates at leading institutions were approaching twelve per cent for prime borrowers with strong income documentation and modest loan-to-value ratios. This was still above the nine to eleven per cent range that had characterised the boom years of 2004 to 2006, but it was sufficiently below the sixteen to seventeen per cent range of the crisis peak that a new segment of buyers was becoming viable for the first time in three years. Middle-income professional households — doctors, lawyers, accountants, teachers with solid NHT contribution records and supplementary commercial bank financing — were finding that properties previously beyond their borrowing capacity were now within reach.
The north coast resort market, which had been particularly depressed because its buyer base combined offshore investor hesitancy with the tourism-dependent remittance dynamic, showed the first signs of life since 2008. Several condominium and villa developments in the Montego Bay and Ocho Rios corridors that had been launched before the crisis and then suspended during it were being reactivated with revised pricing and more conservative construction timelines. The buyers who were re-engaging were predominantly Jamaican diaspora members — people who had maintained a connection to Jamaica through family or business and who had been waiting for the combination of lower entry prices and a stable dollar before committing to retirement or holiday property investments. Their re-entry was modest in aggregate but psychologically significant: offshore Jamaican buyer confidence, once restored, tends to sustain itself through word-of-mouth networks in diaspora communities that move together.
The IMF Stand-By Arrangement’s second review, completed in the quarter, confirmed that Jamaica was meeting its programme targets. The primary fiscal surplus — the margin by which revenues exceeded non-debt expenditure — was being maintained within the programme’s requirements. This achievement was harder than it appeared, given that the economy was still contracting in aggregate: maintaining a primary surplus during a recession requires either cutting spending faster than revenues fall or finding new revenue sources, and the government was doing both with the wage restraint and administrative revenue measures it had introduced in 2009 and early 2010.
One of the structural benefits of the improving macro environment was the resumption of cadastral and titling activity at the National Land Agency. The LAMP — Land Administration and Management Programme — which had been progressing through rural and peri-urban surveying, systematisation, and title issuance since the early 2000s, had maintained its field operations through the crisis years with IDB support. By 2010, an increasing number of properties in previously informal settlements, particularly in the southern parishes and in the suburban growth corridors around Portmore, were being brought into the formal title system. Each new title created an asset that could be mortgaged, insured, and transacted with legal certainty — adding to the pool of formally accessible property that the recovering mortgage market could serve.
Within the Kingston metropolitan area, the commercial property market was moving in step with the residential. Office vacancy rates, which had risen as financial sector firms downsized and relocated during the crisis, were beginning to fall as the banking sector’s improved margins — benefit of JDX-compressed funding costs — allowed some modest expansion. New Kingston’s Grade A office market was seeing enquiries from BPO companies — business process outsourcing operations serving North American clients — which were beginning to establish Caribbean operations or expand existing footprints, attracted by the combination of Jamaica’s English-language workforce, time zone advantage, and labour costs that were competitive for voice and back-office services.
What This Means
The third quarter of 2010 confirms that the recovery trajectory established in the first quarter is durable rather than a brief rebound. The combination of falling commercial mortgage rates, exchange rate stability, improving tourism prospects, and returning diaspora buyer confidence constitutes a more reliable foundation for property market recovery than any single policy event could provide. The six to eighteen month outlook is positive but calibrated: rates will continue to fall, but slowly; the exchange rate will remain subject to periodic pressure as the current account deficit persists; and the government’s need to maintain primary surplus targets under the IMF programme constrains the public investment that would accelerate recovery. The market will improve, sector by sector, geography by geography, with NHT-eligible residential leading, commercial following, and the upper end of the market recovering last — as it always does after a leverage cycle turns.
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