One Year of the JDX: Has Jamaica’s Housing Market Turned a Corner, or Is It Still the Same Street?

Jamaica Homes Housing Affordability & Cost of Living Review — April 2011

• The Jamaica Debt Exchange was completed fourteen months ago in February 2010; the government has passed several IMF programme reviews but the macro-to-mortgage transmission remains incomplete
• The political fallout from the Dudus extradition crisis continues; Prime Minister Golding’s authority has been weakened, and the JLP faces an election within the next eighteen months
• Consumer confidence has been slow to recover; household formation continues to outpace formal housing supply across all income segments
• NHT disbursements remain steady, providing the critical affordable mortgage channel for formal sector workers; the Trust is the market’s most reliable institution
• Construction costs have risen through the JDX adjustment period, squeezing developer margins on affordable schemes and reducing new supply
• Land access and titling remain major structural barriers; the backlog in the National Land Agency’s registration system delays formal property transactions significantly

Fourteen months have passed since the Jamaica Debt Exchange was completed. The exercise — Jamaica’s most consequential domestic financial operation since independence — achieved its primary objectives: it reduced the annual interest bill, created fiscal space for a primary surplus, and gave the government the platform to re-engage with IMF programme support on terms that could credibly be described as sustainable. The quarterly programme reviews that followed have been broadly passed. The fiscal arithmetic, by the standards of the crisis years, has improved. And yet, standing in April 2011 and asking what ordinary Jamaicans experience when they try to buy, rent or build a home, the answer is: not much that is different from two years ago.

Commercial mortgage rates remain in the double digits. The affordable formal housing supply is not expanding. The construction sector is operating well below its capacity. The NHT is working — reliably, as it always does — but it cannot alone fill the gap between what working Jamaicans need and what the market provides. The JDX was necessary but not sufficient. The housing market’s improvement requires not just fiscal stabilisation but the years of growth, investment and credit market normalisation that fiscal stabilisation makes possible. April 2011 is a point on that journey, not a destination.

What the JDX Actually Changed, and What It Did Not

The JDX reduced the coupon rates on approximately J$700 billion in domestic government bonds, generating annual interest savings of several billion dollars that allowed the government to run a primary surplus consistent with its IMF programme requirements. These are real fiscal achievements. For the housing market, however, the connection is indirect and slow. Banks whose government bond portfolios now yield less need time to restructure their balance sheets, explore alternative revenue sources and reduce their cost structures before they can pass lower funding costs through to mortgage borrowers. This process is underway but has not yet produced the commercial mortgage rate reductions that buyers need to access the formal market in significantly larger numbers.

The JDX also did nothing to address the supply-side constraints on Jamaica’s housing market: the planning system’s slowness, the infrastructure deficit, the construction cost pressures, the land titling backlog. These are structural features of the housing landscape that require sustained policy attention quite apart from whatever the macro-fiscal environment provides. A government with the fiscal space and the political will to address them could make meaningful progress. But fiscal space, in the post-JDX environment, is still limited, and political will is a commodity that is harder to supply when a government is politically damaged and approaching an election.

The Land Titling Problem: An Invisible Tax on Housing

One of the least-discussed but most significant barriers to formal housing market activity in Jamaica is the land titling system’s inefficiency. The National Land Agency, responsible for registering property transactions and issuing formal titles, faces a chronic backlog that means transactions can take months or years to be formally recorded. For buyers financing through commercial lenders, the absence of a clear registered title is often a fatal obstacle: lenders will not advance mortgage funds against a property whose title is unregistered or disputed. For NHT borrowers, the path is somewhat more forgiving, but title issues remain a significant cause of transaction delays and failures.

The proportion of Jamaica’s residential property that is held informally — occupied and built upon by families who have generational occupancy rights but no registered paper title — is very difficult to estimate precisely, but it is almost certainly well above half of the total stock. This is not merely an inconvenience for individual property owners; it is a systemic constraint on the formal housing market’s development. Properties without titles cannot be mortgaged, cannot be insured against their full value, cannot be sold in formal transactions, and cannot be used as collateral for business credit. The titling backlog is an invisible tax on Jamaica’s economic development, and its housing market consequences are significant.

Construction Costs: The Squeeze on Affordable Supply

Jamaican construction costs have been rising through the JDX adjustment period. The combination of exchange rate depreciation — which raises the local currency cost of imported materials — and general inflation has pushed the per-square-foot cost of construction above the levels at which developers can build and sell units within the NHT’s price ceilings and still generate viable returns. The result is a retreat from the affordable supply segment: developers who would have built two and three-bedroom starter homes in the J$6 to J$8 million price range have either deferred projects, moved upmarket, or exited residential development entirely in favour of commercial projects with more forgiving margin structures.

What This Means

For buyers who have been waiting for either commercial rates or property prices to fall, April 2011 suggests that commercial rates are closer to declining than they were a year ago, but not yet at a level that changes the affordability calculus dramatically. Property prices in established Kingston communities have been broadly flat in nominal terms, which represents a real decline given inflation. For NHT-eligible buyers, this is a relatively favourable buying environment: the NHT rate is fixed and subsidised, property prices are not inflating strongly, and the market is not crowded with competing buyers.

For the development industry, the combination of rising construction costs and flat or softening affordable property prices is creating a viability gap that will only be resolved by either a fall in costs, a rise in prices, or a government subsidy that bridges the difference. None of these is immediately in prospect. Developers who are waiting for a better building environment have rational grounds for their wait.

The Outlook: The Corner Not Yet Turned

Jamaica’s housing market has not yet turned the corner that the JDX promised to make possible. The macro foundation is better than it was. The institutional structures — the NHT, the commercial banks, the development industry — are intact and functioning, however constrained. The demand for affordable housing has not diminished. The conditions for recovery exist; the recovery itself has not yet arrived. April 2011 is a market in transition: past the acute crisis of 2009-2010, but not yet in the normalisation that the JDX’s logic points toward. The corner is ahead. The question, as always, is how far.

This review is produced for informational and journalistic purposes only and does not constitute financial, legal or investment advice.

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