New Year, New Limits: Jamaica’s Housing Market Enters 2011 With Upgraded NHT Lending — January 2011

Publication Date: January 3, 2011 | Coverage Period: December 3–January 2, 2011 | Category: Monthly Review

December in Brief

• The NHT’s new maximum loan limit of J$4.5 million took effect on January 1, 2011, the most significant expansion of NHT lending capacity in several years.
• December’s diaspora-driven property market delivered its strongest monthly performance since 2007, with multiple transactions completing across Kingston and resort parishes.
• BOJ policy rate estimated to have ended 2010 at approximately 6.5–7.0%, down sharply from the 2009 peaks, marking the most accommodative monetary stance in years.
• Commercial mortgage rates declined further in December at several banks; the best rates for prime borrowers approaching the 10.5% level.
• Construction pipeline for early 2011 delivery shows the strongest new residential project activity since the 2007–2008 peak.
• Tivoli Gardens community rehabilitation discussions advanced with IDB engagement confirmed; initial programme targeting structural repairs to 200+ damaged homes.

Housing Market Overview

Jamaica’s housing market enters 2011 in its strongest position since the onset of the financial crisis and the political turbulence of the Coke affair. December delivered a seasonal performance that exceeded most analysts’ expectations: diaspora buyers, returning for the Christmas period in larger numbers than 2009 and with improved confidence in Jamaica’s near-term trajectory, completed transactions across a range of market segments, providing year-end momentum that real estate professionals expect will carry into the first quarter.

The NHT loan limit increase to J$4.5 million, effective from January 1, is the single most anticipated policy development the market has been expecting. Contributors who have been accumulating savings and tracking suitable properties for months in anticipation of the new limit are now in a position to activate their purchasing decisions. The pipeline of NHT-eligible buyers is broadly estimated to be substantially larger under the new limit than under the previous J$3.5 million ceiling, and developers who have structured their projects to fall within or close to the new limit have positioned themselves well for the first quarter.

In the commercial mortgage segment, the direction of travel is positive but the destination — a rate meaningfully below 10% — is not yet in sight. The best rates available to prime borrowers at leading banks are approaching the 10.5% level, and further reductions are anticipated as the BOJ’s easing cycle continues and competition among lenders intensifies. Every percentage point of mortgage rate reduction represents meaningful monthly payment relief for borrowers and expands the pool of buyers who can service commercial debt.

Government Policy and NHT Activity

The NHT enters 2011 with its lending capacity enhanced and its institutional health intact. The Trust’s ability to maintain consistent loan approvals through the turbulence of 2010 — including the Tivoli crisis, the Coke extradition and the broader macroeconomic challenges — reflects the structural depth of its contributor base and the robustness of its operational framework. The new loan limit will generate increased demand for NHT financing in the first quarter and is expected to drive full-year 2011 approval volumes well above the 2010 total.

The Golding government’s housing agenda for 2011 includes, beyond the NHT limit increase, continued land titling activity through the HAJ, progress on the Tivoli rehabilitation programme and ongoing discussions with the IDB about a broader community development programme for inner-city areas. These policy initiatives, taken together, represent a more active government engagement with the housing sector than has been the case for several years — a recognition, perhaps, that the sector’s performance is both economically significant and politically sensitive for a government facing increasing opposition pressure.

Construction Sector

The construction sector’s forward order book at the start of 2011 is the strongest it has been since the downturn. Developers in suburban locations — particularly in St Catherine, St James and Manchester — are reporting active first-quarter project starts, and several Kingston-based projects that had been delayed by the events of 2010 are expected to begin construction in the January–March period. The combination of improved developer confidence, an improving interest rate environment and the NHT limit increase creates a more supportive environment for new housing supply than at any point in the past two years.

Construction material costs remain a consideration. Cement prices have stabilised but not declined materially; steel and hardware costs continue to be influenced by global commodity markets; and labour costs, while recovering only modestly, are an ongoing component of project economics. The exchange rate’s stability — the Jamaica dollar ending 2010 at approximately J$87–90 per US dollar — has provided some relief compared to the sharp depreciation years of 2008–2009, but imported material costs remain elevated relative to the pre-crisis period.

Major Developments

The IDB’s confirmed engagement on the Tivoli rehabilitation programme is the most significant development for the inner-city housing market. The initial focus on structural repairs to more than 200 homes damaged in the May 2010 security operation will provide direct relief to affected families while also signalling to the broader market that the West Kingston area is not being abandoned. Community organisations and the HAJ are working on the programme’s operational framework, with first works expected to commence in the first half of 2011.

In the resort property market, new hotel development plans in Trelawny and St Ann, first signalled in the second half of 2010, are advancing toward formal planning applications. These projects, if they proceed on schedule, will generate residential demand for construction and service workers in the north coast corridor and may also stimulate development of villa and residential communities targeting the international and diaspora buyer segments who are attracted to resort-adjacent locations.

Infrastructure

Infrastructure provision remains a constraint on housing market development in several high-growth areas. Portmore, the most active residential market in the greater Kingston metropolitan area, continues to face water supply, drainage and road capacity limitations that affect the liveability and therefore the long-term value of its residential stock. The government’s plans for Portmore infrastructure improvement are in development, but the fiscal constraints of the IMF programme limit the pace of capital investment. In suburban parishes outside Kingston, the quality of road infrastructure remains a primary determinant of housing market performance.

Investment Climate

The investment climate at the start of 2011 is broadly supportive. GDP returned to modest positive growth in the third quarter of 2010; the BOJ easing cycle is ongoing; the fiscal programme is on track; and the immediate political crisis of the Coke affair, while not entirely resolved in its political consequences, has not prevented the government from maintaining an active economic policy programme. Institutional investors’ interest in Jamaican real estate as an inflation hedge and as an alternative to lower-yielding post-JDX government securities continues to provide demand support for the commercial and upper-residential property markets.

Diaspora and Remittances

The December diaspora season delivered strong remittance inflows and above-average property purchasing activity. As diaspora visitors return to their countries of residence in January, the pipeline of transactions initiated during their visits is expected to result in a steady stream of completions through the first quarter. The diaspora property buying cycle — in which visiting Jamaicans identify properties in December and complete purchases in the subsequent two to three months — is a well-established seasonal feature of the market and one that agents serving this segment structure their calendars around. The 2010 Christmas season’s stronger than expected activity suggests a solid first quarter conversion pipeline.

Affordability

Affordability at the start of 2011 is measurably better than at the equivalent point in 2010. Commercial mortgage rates have declined by approximately 1–2 percentage points from their 2009–2010 peaks; the NHT loan limit has been increased to J$4.5 million; inflation, while still elevated at around 11%, appears to have peaked; and economic growth is returning. Each of these improvements is incremental; together they represent a meaningful shift in the affordability landscape. The central challenge — that commercial mortgage rates remain too high for a large proportion of the population to access financing for market-priced residential units — persists, but the direction of change is positive.

Regional Context

The Caribbean enters 2011 with Haiti’s post-earthquake reconstruction ongoing and the broader regional housing development agenda shaped by the lessons of that catastrophe. CDEMA’s engagement with building standards and disaster risk reduction across the region has intensified following the earthquake, and Jamaica is among the countries that have been reviewing and strengthening their building codes and enforcement mechanisms. For Jamaica’s property market, these regional conversations reinforce the long-term value of structural quality and regulatory compliance as drivers of residential value.

Looking Ahead

January 2011 brings the activation of the NHT’s new loan limit, a continuing BOJ easing cycle and a construction pipeline that is the strongest in two years. The market’s expectations for the first quarter are cautiously optimistic: transaction volumes should improve over the first quarter of 2010, the NHT segment should be notably more active and the commercial market should benefit from ongoing rate reductions. The primary risks to this scenario are a reacceleration of inflation, any unexpected deterioration in the BOJ’s easing trajectory or renewed political uncertainty that damages business confidence. As of January 2011, none of these risks appears imminent. The housing market enters the new year with the most positive foundations since 2007.