Publication Date: February 3, 2011 | Coverage Period: January 3–February 2, 2011 | Category: Monthly Review
January in Brief
- January 2011 NHT loan applications under the new J$4.5 million limit surged, with the Trust reporting its strongest January enquiry volumes in at least three years.
- BOJ continued its easing cycle in January; commercial banks responded with further mortgage rate reductions at several institutions.
- Kingston residential transaction completions in January exceeded the January 2010 equivalent by a clear margin, reflecting both improved conditions and pent-up demand.
- Construction project starts for first-quarter delivery accelerated in January, with suburban residential schemes in St Catherine and St James leading activity.
- Tivoli Gardens rehabilitation programme moved into initial implementation phase, with structural surveys of damaged homes underway.
- Inflation data for December 2010 showed a slight moderation, raising hopes that consumer price pressures may be beginning to abate.
Housing Market Overview
Jamaica’s property market opened 2011 with the most positive January performance in three years. The NHT’s new J$4.5 million loan limit, effective from the first of the month, proved immediately catalytic: enquiries and formal applications surged in the first two weeks of January as contributors who had been tracking the new limit since its announcement in October moved swiftly to submit applications for properties that are now within reach of NHT financing. The Trust is understood to have processed a significantly higher volume of January applications than in 2010 or 2009, setting up what may prove to be a record year for NHT lending.
Beyond the NHT sector, the commercial mortgage market is also showing signs of improvement. The BOJ’s continuing easing of the policy rate has maintained downward pressure on wholesale funding costs, and commercial banks have responded with further reductions in retail mortgage rates at several institutions. The best available rates for prime commercial borrowers in January approached the 10–10.5% range — still high by historical and international standards, but a meaningful improvement from the 12–13% rates that prevailed through most of 2009 and early 2010.
Transaction completions in Kingston in January exceeded the January 2010 equivalent by a clear margin. While the January comparison is relatively easy — January 2010 was itself a weak month, in the immediate aftermath of the Jamaica Debt Exchange and at the beginning of a year that would be dominated by the Dudus crisis — the absolute level of activity is the most encouraging seen for several years. Sellers who had been holding out for better conditions are finding buyers, and the price gap between asking and achieving that characterised the 2009–2010 market is beginning to narrow.
Government Policy and NHT Activity
The NHT’s January performance is the most tangible early validation of the loan limit increase decision. The surge in applications from January 1 onwards confirms that a substantial population of contributors had been ready and waiting for the higher limit to take effect, and that the Trust’s pipeline of approvable applications is now significantly larger than at this point in 2010. The NHT’s management is expected to report to its board in February on the January performance and to begin assessing whether additional measures — potentially including further limit adjustments, enhanced developer finance facilities or expanded geographic reach — might be warranted in the remainder of the fiscal year.
The Housing Agency of Jamaica’s Tivoli rehabilitation programme has moved from planning to early implementation. Structural surveys of homes damaged in the May 2010 security operation are underway, providing the baseline data needed to prioritise repair works and allocate the IDB-supported rehabilitation funding. Community engagement has been a central feature of the programme’s design, with community liaison officers working with affected households to explain the process and manage expectations about timelines and the scope of works. The government has been at pains to present this as a rehabilitation and community development initiative rather than as a post-conflict operation, a framing that community leaders have broadly accepted.
Construction Sector
Construction sector activity in January has confirmed the positive forward-order picture that emerged from the end of 2010. New residential project starts in the greater Kingston area, in St Catherine and in St James are all tracking above January 2010 levels. The suburban residential pipeline for first-half 2011 delivery is robust, with several NHT-assisted schemes in advanced construction stages and expected to begin handovers in the second quarter. For first-time buyers who have been waiting for the right combination of available units and financing terms, 2011 is shaping up to be the best buying opportunity in several years.
The commercial construction market in Kingston is also more active than at any point in the past two years. Several office refurbishment and retail construction projects that had been deferred during the crisis period are proceeding in January, reflecting improved business confidence and the recovering commercial property market in New Kingston. This commercial construction activity provides employment for the sector and generates the economic activity that underpins residential demand.
Major Developments
The confirmation of the Tivoli rehabilitation programme’s implementation phase is the most significant community housing development of the January period. After months of discussion, assessment and IDB engagement, the programme is now operational and will deliver visible housing improvements to West Kingston over the coming months. For the broader Kingston property market, the rehabilitation of Tivoli Gardens — which has been a source of concern and uncertainty since May 2010 — removes a lingering cloud from the capital’s residential investment climate. The gradual improvement of the community’s housing stock and physical environment is expected to have positive effects on property values in adjacent areas over time.
In the resort corridor, the hotel development plans on the north coast that were signalled in the second half of 2010 have reached the formal planning application stage in Trelawny and St Ann. Planning approval processes in Jamaica can be protracted, but the formal submission of applications marks a concrete step forward and allows developers of adjacent residential and villa schemes to begin their own planning and marketing activities with greater confidence in the resort infrastructure pipeline.
Infrastructure
The National Works Agency has announced road rehabilitation works in several parishes scheduled for the first quarter, including in areas of St Catherine and Clarendon where residential development activity has been strong. The connection between road quality and residential value is direct and well understood by market participants: communities with improved road access consistently command higher property prices and attract stronger developer interest. The government’s willingness to prioritise road works in high-growth residential areas reflects an acknowledgment of this dynamic, even within the fiscal constraints of the IMF programme.
Investment Climate
The investment climate in Jamaica at the start of February 2011 is the most favourable in at least three years. GDP growth has returned; the BOJ is easing; commercial banks are competing more actively for mortgage business; the NHT has expanded its lending capacity; and the political environment, while still shaped by the shadow of the Dudus affair, has stabilised sufficiently that business activity is not materially constrained. For foreign and diaspora investors evaluating Jamaica, the combination of improved fundamentals and relatively stable property prices represents an attractive entry point compared to the elevated prices of the pre-crisis period.
Diaspora and Remittances
January’s transaction completions have in part reflected the delayed close of purchasing decisions initiated during the December diaspora season. This pattern — in which diaspora visitors identify properties over the Christmas period and complete purchases in January and February — is consistent with every prior year and represents a reliable source of first-quarter market support. Remittance data for January is not yet available, but anecdotal reports from agents suggest that diaspora-funded transactions are running at a higher level than the equivalent period in 2010, consistent with the broader recovery in diaspora confidence following the normalisation of Jamaica’s security situation.
Affordability
The affordability picture in early 2011 is the most encouraging in several years, driven by the convergence of the NHT loan limit increase, declining commercial mortgage rates and the first signs that inflation may be moderating. For NHT contributors, the new J$4.5 million limit has materially expanded the range of properties accessible without commercial top-up financing, opening options in suburban markets that were previously out of reach. For commercial borrowers, the rate decline from 12–14% to the 10–11% range represents meaningful monthly payment savings. These improvements are still insufficient to resolve Jamaica’s fundamental housing affordability challenge — a challenge rooted in the structural gap between wage levels and construction costs — but they represent the most positive affordability trend of the post-crisis period.
Regional Context
The Caribbean housing market continues to be shaped by the intersection of fiscal constraints, natural disaster vulnerability and the long-tail effects of the 2008–2009 global financial crisis. Jamaica’s position within this regional landscape has improved relative to its 2010 nadir: the post-Dudus security normalisation, the return to GDP growth and the improved monetary environment compare favourably to the challenges facing several Eastern Caribbean economies where fiscal consolidation is more acute. Haiti’s reconstruction remains an ongoing reminder of the stakes involved in housing quality and resilience across the region.
Looking Ahead
February 2011 arrives with the Jamaican housing market in its best state since 2007. The NHT loan limit increase has been immediately effective; commercial mortgage rates are declining; GDP growth has returned; the construction pipeline is the fullest in two years; and diaspora and institutional demand is recovering. The key risks to this positive outlook are a reacceleration of food and energy-driven inflation, any unexpected shift in the BOJ’s easing stance or renewed political uncertainty. None of these appear likely on the horizon from the vantage point of the first week of February. The housing market’s trajectory, barring unexpected headwinds, is one of measured recovery accelerating through the first half of 2011. Jamaica’s aspiring homeowners, after a long and difficult period, are finding that their aspirations are, at last, a little more within reach.
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