Publication Date: December 3, 2010 | Coverage Period: November 3–December 2, 2010 | Category: Monthly Review
November in Brief
- Jamaica’s third-quarter GDP data showed a return to modest positive growth for the first time since the 2009 recession, providing a significant boost to market confidence.
- Diaspora arrivals for the Christmas season tracking above 2009 levels, with property agents reporting increased viewing activity from returning Jamaicans.
- Kingston’s residential transaction volumes in November achieved the strongest monthly performance of 2010, driven by seasonal diaspora demand and improved rate environment.
- Commercial mortgage rates at leading banks now in the 10.5–12% range, down from post-crisis peaks; further reductions expected in the first quarter of 2011.
- NHT’s new J$4.5 million loan limit, effective January 2011, is generating strong forward enquiries from contributors who wish to qualify under the new terms.
- Construction sector reported fourth consecutive month of year-on-year improvement in new project starts, confirming that recovery is underway.
Housing Market Overview
November delivered the strongest performance that Jamaica’s housing market has recorded in 2010, and as the year draws toward its close the market’s mood is the most positive it has been since the Coke crisis upended the first half of the year. The return to positive GDP growth — modest, fragile, but real — provides the macroeconomic foundation that has been missing from the recovery narrative. When the economy is growing, employment is (eventually) increasing, income expectations are improving and the appetite for major financial commitments such as home purchases rises accordingly.
The seasonal dynamics of November are also important context. The approach of Christmas and the associated influx of diaspora visitors is a reliable driver of Jamaican property market activity. Jamaicans living abroad frequently use holiday visits to inspect properties they have been following online or through agents, and many purchasing decisions that have been contemplated for months are concluded during the December quarter. This year, with diaspora arrivals tracking above 2009 levels and the security situation normalised, the seasonal uplift appears to be more pronounced than in the previous year.
The broader market narrative for 2010 is one of a year that began in crisis — political, security-related and financial — and ends in cautious recovery. The Jamaica Debt Exchange, the Tivoli Gardens operation, the Coke extradition and the post-crisis monetary easing have all shaped a year that has been, for the property market, more turbulent than any since the 1990s financial sector crisis. That the market emerges from 2010 in better shape than the mid-year nadir suggested is itself a significant achievement.
Government Policy and NHT Activity
The NHT’s forthcoming loan limit increase to J$4.5 million is generating advance momentum, with contributors seeking to position their applications to qualify under the new terms from January. The Trust has been careful to manage the transition effectively, ensuring that contributors who are in the process of selecting properties understand how the new limit will affect their eligibility. The loan limit increase is estimated to expand the pool of NHT-financeable units by a meaningful margin and will be the single most impactful housing policy change of the 2010–2011 period.
The Golding government’s housing policy record in 2010 is a study in institutional resilience under political duress. Despite the Dudus affair, the security operation and the broader political pressures of the year, the policy machinery of the NHT and HAJ has continued to function and, in several respects, to improve. Land titling activity has accelerated, NHT loan volumes are up and the loan limit increase represents a genuine policy advance. These achievements have received less credit than they deserve in a year when political controversy has dominated the headlines.
Construction Sector
The construction sector’s recovery is now sufficiently broad-based to be described as a trend rather than a statistical anomaly. Four consecutive months of year-on-year improvement in new project starts, combined with improved forward bookings for the first quarter of 2011, suggest that developers have concluded that the recovery is durable enough to justify new commitments. The suburban residential pipeline for 2011 delivery in St Catherine, St James and Manchester looks considerably healthier than at any point in the past two years.
In Kingston, the recovery is more tentative. Several development projects that were announced earlier in the year have begun to move into active construction phases, but the pipeline of new urban residential supply remains thin relative to the structural demand represented by Kingston’s growing professional workforce. This supply-demand imbalance is likely to support prices in the Kingston market even as transaction volumes gradually recover.
Major Developments
The IDB has confirmed in principle its support for a community housing improvement programme targeting West Kingston communities affected by the Tivoli Gardens security operation. While the formal agreement and disbursement timeline have not been finalised, the confirmation of IDB involvement is significant: it brings international credibility and resources to what has been a politically contentious reconstruction question, and it provides a pathway for structured rehabilitation that community organisations and the government can both support. The programme is expected to focus on structural improvement to damaged and deteriorated housing stock rather than wholesale redevelopment or community relocation.
The Jamaica Stock Exchange has ended the year on a positive note, with the main index recording gains that reflect improved corporate earnings and better macroeconomic conditions. For the property market, stock market performance matters at two levels: it affects the wealth and therefore purchasing capacity of upper-middle-class buyers, and it provides a reference point for the relative attractiveness of real estate as an investment class. With JSE gains in 2010 moderate but positive, and real estate prices stable rather than appreciating, some institutional investors are concluding that property offers attractive relative value in 2011.
Infrastructure
The government has flagged in its mid-year budget review that capital spending on housing-adjacent infrastructure will be maintained through the remainder of the fiscal year, within the constraints of the IMF programme. Road maintenance and water supply improvements in several growth parishes are expected to continue. For the housing market, these investments are important because infrastructure quality is a primary determinant of residential land values in Jamaica’s suburban and peri-urban communities, and areas where infrastructure has improved tend to see the strongest property value appreciation over time.
Investment Climate
The investment climate as December arrives is the most favourable since early 2009. The combination of macroeconomic recovery signals, improving interest rate environment, post-crisis security normalisation and strong institutional demand from pension funds looking to diversify away from lower-yielding government securities has created a backdrop that market participants characterise as the most supportive in at least two years. The critical remaining constraint is the absolute level of commercial mortgage rates, which at 10.5–12% continue to exclude a large proportion of the potential buyer population from the market for commercial-financed properties.
Diaspora and Remittances
The Christmas season’s diaspora arrivals are expected to generate the most active period of diaspora-driven property purchasing since 2007. The combination of improving conditions in Jamaica, pent-up purchasing decisions deferred during the Dudus crisis and the approach of the NHT loan limit increase is producing a concentrated window of buying activity. Agents who work primarily with diaspora buyers report that their December books are fuller than at any point in the past three years, and that several transactions that appeared stalled earlier in the year are now moving toward completion before year-end.
Affordability
Affordability in December 2010 remains the central structural challenge facing Jamaica’s housing market, but the trend is improving. Inflation appears to have peaked; commercial mortgage rates are declining, with further reductions expected in the first quarter; and the NHT loan limit increase will expand the market for lower and middle-income buyers from January. These improvements are cumulative and will take time to fully materialise in transaction volumes and price data, but the direction is clear. The year that began with the question of whether Jamaica’s housing market could weather the combined pressures of political crisis and financial stress ends with a tentative answer: yes, with difficulty, and with the foundations for a sustained 2011 recovery in place.
Regional Context
The Caribbean’s housing markets are entering 2011 from varied starting points. Trinidad and Tobago’s market remains active. Barbados is struggling with a high-end property overhang. Several Eastern Caribbean economies face fiscal constraints that limit public housing investment. Haiti’s reconstruction remains the region’s most acute housing challenge, with the international community engaged in a complex reconstruction effort that is being closely watched by disaster preparedness planners across the Caribbean. For Jamaica, the regional context is a reminder that the island’s housing challenges, while real, are less acute than some comparators and that the NHT infrastructure provides a level of institutional support for the market that is not available in most other Caribbean jurisdictions.
Looking Ahead
As 2010 draws to a close, the housing market consensus points to a 2011 in which the gradual improvement of the second half of 2010 continues and, with favourable interest rate and inflation developments, potentially accelerates. The key variables to watch in the opening months of 2011 are the speed and scale of commercial mortgage rate reductions, the takeup of the new NHT loan limit and the trajectory of inflation. A sustained decline in consumer price inflation toward the single-digit range would transform the affordability landscape and could unlock a more rapid recovery than current conditions suggest. For now, the watchword remains cautious optimism — with, as year-end approaches, rather more weight on the optimism than has been justified for most of the year.
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