Jamaica Real Estate Roundup — Q1 2011: The JDX’s First Anniversary, a Winter Season Recovering, and the Property Market’s Cautious Return to Activity

• JDX approaches first anniversary; domestic financial conditions gradually improving.
• IMF SBA implementation tracking; fiscal disciplines showing initial results.
• Winter diaspora season delivers solid enquiry and transaction activity.
• Kingston premium market shows improving transaction velocity.
• North Coast winter peak sustains resort community property market.

The first quarter of 2011 arrives with Jamaica’s property market approaching the first anniversary of the pair of structural interventions that have defined the island’s fiscal and financial landscape since February 2010: the Jamaica Debt Exchange, which voluntarily restructured the domestic debt portfolio at reduced coupon rates, and the IMF Stand-By Arrangement, which provided the programme framework within which the fiscal consolidation that the JDX made possible is being implemented. Twelve months of the SBA’s disciplines have worked their way through the economy in the manner the programme’s design intended — not dramatically or immediately, but measurably — and the property market’s Q1 2011 dynamics reflect the early stages of the stabilisation that the fiscal framework’s implementation is beginning to produce.

The assessment of the JDX’s first year’s effect on the domestic financial environment is a mixed one. The compression of yields on domestic government paper has been real, and the direction of travel for the lending rate environment has been established. But the pace of rate normalisation has been slower than the property market’s optimists had projected in the JDX’s immediate aftermath, reflecting the depth of the fiscal adjustment that the SBA requires and the time it takes for the fiscal framework’s disciplines to translate into the confidence that lenders need to reduce their risk premiums to the levels that genuine mortgage affordability requires. The market is improving, but the improvement is measured in small steps rather than transformative leaps.

The Winter Diaspora Season: Renewed Energy

The January diaspora season delivered Q1 2011’s most important demand input with an energy that the property market’s agents and developers found meaningfully more robust than the equivalent period of the preceding two crisis-affected years. The Jamaican-born resident of the North American and British diaspora who arrived in January 2011 was doing so in a global economic environment whose worst post-crisis anxieties had been absorbed — the acute period of Q4 2008 and Q1 2009’s financial crisis’ most severe impact on diaspora employment and remittance capacity was behind them — and with the currency advantage of overseas earnings against the Jamaican dollar that the accumulated depreciation of the crisis period had actually widened.

The diaspora buyer’s January 2011 property market engagement was characterised by a return of the viewing and assessment activity that had been dampened through 2009 and the early part of 2010’s crisis aftermath. Agents reported higher numbers of serious enquiries, more viewing appointments converting to second viewings, and a more active pipeline of buyers progressing toward transaction stages than had been the case in the equivalent period of the preceding two years. The market was not yet at the transaction velocity of the pre-crisis years, but the direction of improvement was visible and encouraging.

Kingston Residential: First Signs of Recovery

Kingston’s residential market through Q1 2011 was showing the early signs of the recovery that the JDX’s domestic financial environment improvement was beginning to support. The premium segment — whose resilience through the crisis period had been the market’s structural anchor — was seeing a modest improvement in transaction velocity, with properties that had been on the market for extended periods finding buyers as the confidence environment’s cautious improvement encouraged more buyers to advance from assessment to commitment. Price recovery at the premium level was modest but present, reflecting the supply constraints that had maintained the segment’s pricing through the worst of the preceding period.

The middle-market segment’s Q1 2011 performance was less clearly improving, with the financing environment’s evolution still not having reached the affordability threshold where the buyer pool could meaningfully expand. But the signals from the financial institutions were becoming more positive — mortgage products with structures that attempted to bridge the affordability gap were being refined and promoted more actively, and the lending rate environment’s direction was clearly established as the fiscal framework’s implementation continued. The middle market’s recovery was anticipated to lag the premium segment’s by several quarters, but its eventual arrival was becoming more credibly foreseeable than it had been at any point since the crisis’s acute phase.

North Coast: Winter Peak Performs

The North Coast resort communities’ Q1 2011 winter peak season delivered occupancy levels that the sector’s operators found meaningfully more positive than the crisis-affected winters of 2009 and 2010. The North American and European winter visitor was returning to the Caribbean in numbers that reflected the gradual recovery of leisure travel from the crisis’s most acute suppression, and Jamaica’s resort product was capturing an appropriate share of the recovering demand with the competitive pricing and resort quality that the island’s established operators were delivering.

The North Coast property market’s Q1 2011 activity reflected the winter season’s improved energy. International buyer enquiries were more numerous than in the equivalent period of 2010, the viewing pipeline was more active, and the conversion of visitor experiences to purchase considerations was happening at a pace that suggested the market’s international demand base was recovering alongside the tourism sector. The committed buyer who had been deferring through the crisis’s worst period was beginning to re-engage, and the pipeline of international purchase interests that Q1 2011’s winter season was generating was expected to convert into transactions through the year’s remaining quarters.

Quarter Close: Recovery Confirmed, Pace to Be Determined

The first quarter of 2011 closes with Jamaica’s property market in the early stages of a recovery that the JDX and SBA framework’s implementation is beginning to support. The pace of that recovery — whether the gradual improvement of Q1 2011’s dynamics will accelerate as the fiscal framework’s disciplines compound their effect on the rate environment, or whether the structural constraints will maintain a slow recovery trajectory through the remainder of the year — is the key question that the year’s coming quarters will answer. The market enters the spring season with improving momentum, a more active international buyer pipeline than it has seen since the pre-crisis period, and the cautious confidence that the fiscal framework’s demonstrated implementation progress justifies. The recovery is real; the pace remains to be determined.

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