Dudus Gone: Kingston Rebuilds Confidence After the Extradition Crisis — July 2011

Publication Date: July 3, 2011 | Coverage Period: June 3 – July 2, 2011 | Category: Monthly Review

Month in Brief

• Christopher “Dudus” Coke, the West Kingston community leader and alleged drug trafficker at the centre of a two-year extradition saga, was handed over to United States authorities on June 22, 2011, arriving in New York to face federal charges. His departure marked a formal closing chapter to the Tivoli Gardens crisis that began in May 2010.
• The extradition, long anticipated but repeatedly delayed, was received with relief by the business community and international observer community, who had viewed its resolution as a necessary precondition for Jamaica’s rehabilitation of investor confidence and rule-of-law credibility.
• The Bank of Jamaica maintained its policy stance through June, with the benchmark rate holding in the 6.5–7.5 percent band as inflation remained within manageable bounds and IMF programme targets continued to be met under the Extended Fund Facility.
• West Kingston residential and commercial property markets, depressed since the May 2010 Tivoli incursion, showed early signs of stabilisation in June, with analysts and community development organisations beginning to assess the reconstruction and investment opportunity in the area.
• The eurozone crisis continued to dominate international financial headlines through June, with fresh doubts about the second Greek bailout package and rising borrowing costs for Spain and Portugal generating volatility in global bond markets — but with limited direct transmission to Jamaican property conditions.
• NHT mortgage disbursements for June continued at a pace consistent with the 2011 year-to-date trend, with officials noting strong demand from contributors in the J$1 million to J$2.5 million annual income bracket seeking to access the Trust’s benefit-tier loan products.

Housing Market

The extradition of Christopher “Dudus” Coke to the United States on June 22 was not primarily a housing market event. But it carried implications for Jamaica’s property sector that reach beyond the borders of West Kingston, and those implications deserve careful assessment as the nation processes the end of a saga that has cast a long shadow over Jamaica’s reputation as a place to invest, develop, and do business.

For the Kingston metropolitan housing market as a whole, the June coverage period was broadly uneventful in terms of transaction volumes and price movements. The NHT-financed segment — the engine of accessible home ownership for working Jamaicans — continued to function at a pace consistent with the first half of 2011. Agents report steady activity in Portmore, Caymanas, and the outer St. Andrew suburbs, with demand particularly concentrated in the first-time buyer segment.

What the extradition’s resolution offers is less a direct boost to transaction volumes — residential decisions are not made on the basis of single geopolitical events — and more a gradual improvement in the ambient confidence that underpins medium-term investment decisions. Developers considering whether to launch new schemes in Kingston, overseas investors evaluating whether to direct capital toward Jamaican real estate, and financial institutions assessing appetite for mortgage product expansion: all of these decision-making processes are sensitive, at the margin, to Jamaica’s perceived stability and governance credibility.

In the upper market segment — properties above J$25 million in premium Kingston addresses and the north coast resort belt — the extradition’s completion was noted positively by agents who had observed overseas buyers hesitating over concerns about Jamaica’s governance environment. While no single buyer can be attributed to the resolution of the Dudus affair, the general disposition toward Jamaica as a destination for serious capital appears to have improved among the international community.

West Kingston: The Property Dimension

The community of Tivoli Gardens and its surrounding West Kingston environs have not recovered, by any meaningful measure, from the events of May 2010. The security operation that led to the capture and detention of Coke’s associates resulted in significant physical damage to structures within the community, displacement of residents, and the effective suspension of the informal economic arrangements — including housing provision and allocation — that had characterised Tivoli under Coke’s oversight for many years.

Fourteen months on, the rebuilding of West Kingston remains an incomplete and contested project. Government-provided reconstruction support has been partial, disputed by community representatives, and complicated by questions of land tenure that reflect the informality of much of the housing stock in the area. Many residents who were displaced in May 2010 have not returned; some have found accommodation in other West Kingston communities, others have relocated to outer Kingston or Portmore.

The extradition of Coke does not automatically resolve the outstanding questions of land title, structural repair, or community governance in Tivoli. But it does remove an active impediment to engagement: government and private sector actors who had been reluctant to commit resources to the area while Coke’s legal status remained unresolved now face fewer grounds for deferral. Community development organisations and social housing advocates are beginning to articulate plans for the medium-term reconstruction of the area’s housing stock on a more secure and formally titled basis — a process that, if well-managed, could create a model for informal settlement upgrading applicable to other communities across Kingston.

Property values in West Kingston and the surrounding areas of central Kingston remain substantially depressed relative to pre-2010 levels. For investors with appropriate risk tolerance and a sufficiently long time horizon, this depression may represent an opportunity. For ordinary residents of these communities, the priority is not investment return but secure and adequate shelter — a need that continues to go substantially unmet.

Government Policy

Prime Minister Bruce Golding’s administration faces a complex post-extradition political landscape. The handling of the Dudus affair over the past two years has been a source of persistent controversy and political attrition for the JLP government, and the resolution of the extradition question — while widely welcomed — does not immediately translate into political capital on the housing and economic development fronts.

On housing policy, the government’s commitments under the national housing programme remain formally in place. The NHT’s medium-term investment plan, which includes continued mortgage disbursements, joint venture development schemes with private developers, and contributions to serviced land supply, has not been altered by the political turbulence of recent months. The Agency for Jamaica (now the Housing Agency of Jamaica), responsible for direct government housing construction and land development, is advancing several projects in St. Catherine and Clarendon, though completion timelines have slipped from original schedules.

The Bank of Jamaica’s June monetary policy stance held the benchmark rate steady, consistent with its 2011 pattern. Governor Wynter and his team have indicated comfort with the current rate trajectory as long as inflation remains contained and external reserves stay above programme floors. For housing market purposes, the key signal is the absence of tightening: lenders have no macro-policy rationale for raising commercial mortgage rates above their current 11–14 percent range in the near term.

The government also faces pressure to accelerate the release of government-owned land for affordable housing development. The private sector lobby, through the Jamaica Chamber of Commerce and the Caribbean Association of Housing Finance Institutions, has renewed calls for a more systematic programme of land release and infrastructure provision in outer urban areas. With the political calendar increasingly constraining bold long-term commitments, it remains to be seen how much of this agenda can be advanced in the second half of 2011.

Construction Sector

Construction activity in June 2011 was broadly stable, with no material acceleration or contraction relative to the preceding months. The sector continues to operate at a level that reflects the careful calibration of developers to existing demand pipelines rather than any speculative expansion of capacity.

The most significant construction activity was concentrated in Portmore and the St. Catherine corridor, where several private developers are advancing townhouse and apartment schemes in the 80-to-200-unit range. These schemes, predominantly priced for NHT-assisted purchase in the J$5 million to J$10 million range, represent the sector’s most efficient point of intersection with documented demand.

Commercial construction in Kingston showed modest signs of life in June, with several mixed-use redevelopment projects in the New Kingston business district advancing. The relationship between commercial vitality in the corporate area and residential demand in surrounding St. Andrew communities is well established — expanding commercial employment in New Kingston generates sustained demand for residential accommodation within commuting distance.

Input costs remained elevated but stable. Cement and steel prices, the two primary imported cost components of the residential construction budget, did not shift materially in June. Fuel — a significant line item for earth-moving and concrete-mixing equipment — remains a concern given persistently elevated global oil prices, though some analysts expect modest relief as global demand slows in the second half of 2011.

Investment Climate

The resolution of the Dudus extradition affair is the most significant single event for Jamaica’s investment climate in the June coverage period — and, arguably, in the broader sweep of 2011 so far. The saga had become a recurring reference point in negative assessments of Jamaica’s governance environment by international rating agencies, the US State Department, and bilateral development partners. Its resolution does not erase those assessments, but it removes an active point of friction.

More specifically for property investors: Jamaica’s attractiveness as a destination for real estate capital is inseparable from its stability as a jurisdiction. A country whose government visibly struggles to enforce the rule of law against powerful non-state actors — which is a fair characterisation of Jamaica’s situation between mid-2009 and June 2011 — carries a governance risk discount in international investment assessments. That discount should, over time, ease as the extradition story recedes from the front pages.

North coast tourism-adjacent property markets showed continued firm inquiry in June, with overseas buyer interest remaining concentrated in established resort corridors. Developers in these areas reported that questions about Jamaica’s security environment — previously a regular feature of buyer due diligence conversations — are being raised with somewhat less frequency and urgency following the extradition.

Diaspora Dimension

The Jamaican diaspora’s response to the Dudus extradition is complex and does not easily reduce to a single sentiment. For diaspora members who maintain strong community ties in West Kingston — and there are many, given the patterns of Jamaican migration since the 1960s — the extradition carries personal and communal significance that transcends its financial implications.

For the diaspora as a driver of property market activity, the cleaner signal is the governance and confidence dimension. Overseas Jamaicans considering whether to invest retirement savings in a Jamaican property, or to purchase on behalf of family members, weigh Jamaica’s stability and the security of property rights as central inputs to that decision. The resolution of a high-profile governance failure — however imperfectly executed by the government — provides a marginally more supportive environment for these calculations.

Remittance flows through June remained firm, consistent with the mid-year seasonal pattern. Bank of Jamaica data shows no material disruption to inflows, and the anecdotal report from agents serving diaspora buyers is of continued active inquiry — particularly from UK and US-based Jamaicans in the retirement-planning phase of their financial lives.

Affordability

For residents of West Kingston and the surrounding inner-city communities most directly affected by the 2010-2011 crisis, affordability is not an abstract market metric — it is a daily reality defined by the absence of adequate, secure, formally titled housing. The political economy of the Tivoli saga has illustrated, with unusual clarity, the connection between informal community governance structures and housing insecurity: when the informal system collapses, so does the fragile security of tenure that residents within it depended on.

Across the wider Kingston market, the affordability picture in June 2011 is unchanged from earlier in the year. Commercial mortgage rates at 11–14 percent remain prohibitive for the median formal-sector worker. NHT rates of zero to five percent are accessible to contributors, but the supply of suitable properties in the NHT price range remains insufficient to meet demand. The housing deficit — estimated at over 100,000 units nationally — shows no signs of near-term resolution.

There is a risk that the governance dividend of the extradition — to the extent it materialises in improved investment flows and property demand — will primarily benefit the upper market and overseas buyer segments, rather than the inner-city and lower-income households most in need of housing security improvements. This is a distributional tension that housing policy must consciously address if the post-extradition moment is to yield broad-based community benefit.

Looking Ahead

As July 2011 begins, Jamaica’s housing sector carries the modest optimism of a country that has closed one difficult chapter and faces the task of writing the next. The extradition of Christopher Coke removes a specific and long-running source of governance embarrassment, but it does not address the underlying conditions — poverty, informal employment, inadequate housing supply, dysfunctional land titling in inner-city communities — that made the Tivoli system possible in the first place.

For the housing market, the outlook is broadly stable with a modestly positive tilt in confidence. The NHT pipeline is functioning; construction activity is advancing in the most active corridors; the global picture, while uncertain, has not yet generated the kind of acute tightening that would materially affect Jamaican mortgage market conditions.

The medium-term opportunity — for government, for developers, for community organisations, and for the NHT — is to use the post-extradition moment to advance the structural reforms in land titling, serviced lot supply, and affordable construction that the market has needed for years. Whether the political will and fiscal space exist to seize that opportunity in the second half of 2011 remains the open question.

Jamaica Homes Monthly Housing & Development Review is published on the first business day of each month. Coverage reflects events within the preceding calendar month. All market observations are for informational purposes only and do not constitute financial or investment advice.