Publication Date: October 3, 2012 | Coverage Period: September 3 – October 2, 2012 | Category: Monthly Review
Month in Brief
- Jamaica’s post-Olympics period has brought a measurable uptick in diaspora property enquiries, particularly from the United Kingdom, as the global goodwill generated by London 2012 filters into tangible economic interest.
- Prime Minister Portia Simpson Miller’s PNP government opened the parliamentary autumn session; housing policy, fiscal consolidation and the ongoing IMF programme discussions dominated the agenda.
- Commercial mortgage rates remained stubbornly in the 11–14 per cent band; the Bank of Jamaica held its policy rate broadly unchanged as the government continued negotiations toward a new economic programme.
- The hurricane season entered its peak month of September with the Caribbean on elevated alert; Jamaica’s coastal housing stock remains structurally exposed to storm surge and wind damage.
- NHT mortgage applications remained high in September; the Trust’s loan book continues to expand, though demand materially outpaces available benefit allocations.
- Construction materials costs — cement, steel, imported timber — remained elevated, constraining the viability of new affordable housing schemes.
Housing Market
September 2012 has confirmed what last month’s edition anticipated: the post-Olympic period has generated genuine, if uneven, momentum in Jamaica’s property market. The most evident movement has been at the upper end and in diaspora-connected segments. North coast agents in Montego Bay and Ocho Rios report that enquiry volumes in September were materially higher than the same month in 2011, with a notable proportion of those enquiries originating from UK-based Jamaicans who watched London 2012 with a level of national pride that sharpened their desire to reconnect with the island through property ownership.
In the Kingston metropolitan area, the picture is more complex. The structural characteristics of the market — a chronic supply deficit, NHT waiting lists that stretch months, and private sector developers who struggle to produce units priced within reach of median earners — have not shifted in the September period. The rental market remains extremely tight, with vacancy rates in desirable inner-city and uptown residential areas estimated at near-historic lows. Landlords have, in many instances, increased rents at renewal, reflecting both inflation pass-through and the fundamental imbalance of supply and demand.
The Portmore market continues to absorb demand from Kingston’s workforce. Several private schemes in the Portmore area are at various stages of development or planning, and the NHT’s engagement in that corridor remains central to making units accessible to the income groups that most need formal housing. Analysts watching sell-through rates in recently completed NHT-assisted schemes report strong absorption — units are not sitting on the market.
Government Policy
The parliamentary autumn session opened in September with the Simpson Miller government navigating the difficult terrain between a housing agenda that demands expenditure and a fiscal consolidation path that constrains it. The macroeconomic context is not comfortable: public debt stands at a level that has made Jamaica one of the most indebted countries in the world as a share of GDP, and the IMF discussions that have been ongoing through 2012 are expected to culminate in a new programme in the months ahead that will require continued fiscal discipline.
Within those constraints, the government has maintained its commitment to the NHT as the primary vehicle for affordable housing delivery. The Trust’s rate structure — zero to five per cent for qualifying contributors — remains the most effective instrument available for bringing homeownership within reach of lower-income Jamaicans. The government has indicated that it is also exploring ways to accelerate the public-private partnership framework for housing, with the goal of leveraging private capital and expertise to supplement what the public sector can deliver alone.
Planning reform remains an area where progress has been discussed more than delivered. The time and cost of obtaining planning approvals in Jamaica is a consistently cited barrier to housing supply expansion. Developers report that the process from land acquisition to planning approval to construction start can stretch to several years in complex cases — a timeline that is incompatible with the pace at which the housing deficit is growing.
Construction Sector
The construction sector in September showed the characteristic resilience of an industry that survives more on informal and self-build activity than on formal developer pipelines. Remittance-funded residential construction continued at pace across rural and peri-urban Jamaica, with the post-Olympics surge in diaspora engagement lending additional impetus to a segment that rarely gets adequate policy attention.
On the formal side, cement production data — one of the more reliable proxies for construction activity — suggests a modest uptick in the third quarter of 2012 compared with the same period in 2011. This is consistent with the picture of slowly recovering residential construction and continued public infrastructure spending.
The cost environment remains the sector’s dominant headwind. The Jamaican dollar has been under intermittent pressure against the US dollar, and since construction materials are predominantly imported, exchange rate movements translate directly into build cost inflation. Contractors report that fixed-price contracts have become increasingly difficult to structure, given the uncertainty around materials costs over construction timelines of 12–24 months.
Investment Outlook
For investors, October 2012 presents a market with improving sentiment but unchanged structural challenges. The Olympic afterglow has elevated Jamaica’s profile with diaspora and international investors; the commercial lending rate environment — 11–14 per cent — continues to make leveraged residential development difficult to finance profitably at price points accessible to the broad market.
The most active investment segment remains the diaspora-funded, equity-financed end of the market: cash buyers or near-cash buyers acquiring land or existing property in the home parish, often with a view to retirement or return migration. This segment is insulated from domestic interest rate conditions and benefits from the current exchange rate, which makes US dollar or sterling proceeds translate into significant Jamaican dollar purchasing power.
The tourism-adjacent north coast market — resort villas and serviced apartments in Montego Bay and Ocho Rios particularly — continues to attract foreign buyers, though transaction volumes are modest by regional standards. Jamaica’s All-Inclusive resort model, which dominates tourism accommodation, has historically limited the development of the owner-occupier holiday home segment that is more prominent in competing Caribbean destinations.
Diaspora
As anticipated in last month’s edition, the post-Olympics period has brought measurable diaspora engagement with Jamaica’s property market. The UK community — energised by London 2012 in ways that domestic Caribbean viewers perhaps were not — has been the most active source of inbound property enquiries in September. Agents in resort parishes and in the diaspora’s home parishes report a level of genuine transactional interest that goes beyond the browsing patterns typical of quieter periods.
The North American diaspora — the largest single group by volume of remittances — has also shown elevated engagement, though US economic conditions in 2012 — a recovery from the 2008–09 recession that is real but still uneven, with the US presidential election approaching in November — create some uncertainty about disposable income and investment appetite among Jamaican-Americans.
The Jamaica Diaspora Foundation and various parish-based diaspora associations have continued their programmes of engagement around housing and investment during September. The conversation about whether remittances can be more systematically channelled into formal housing investment — rather than informal self-build — continues; no definitive policy framework has yet emerged to achieve this at scale.
Affordability
September brings no structural improvement to the affordability challenge that defines Jamaica’s housing market. The housing deficit remains above 100,000 units; commercial rates remain in double digits; NHT benefit pools remain oversubscribed. The core arithmetic of homeownership — income versus mortgage payment versus property price — continues to exclude the majority of Jamaica’s formal workforce from the formal housing market.
What has changed, marginally, is the sentiment environment. The Olympic period generated a moment of national confidence that, at its best, translates into economic activity — consumer spending, investment decisions, business formation. Whether that confidence percolates through to housing market activity in the October–December period will be a useful test of how durable the Olympic effect really is.
For the affordability segment specifically — households trying to access NHT-assisted homeownership at the lower end of the formal market — the October budget period and any adjustments to NHT benefit limits are the most consequential near-term variables. An upward revision to the NHT’s maximum loan amounts, reflecting construction cost inflation since the last adjustment, would have an immediate practical impact on how many more households could realistically access formal homeownership.
Looking Ahead
October brings two significant uncertainties for Jamaica and its housing market. The hurricane season peaks in October, and the Atlantic basin has been active in 2012 — Jamaica’s coastal and low-lying housing stock is on elevated alert. The government’s disaster preparedness and recovery capacity will be tested if a significant storm affects the island in the weeks ahead.
The United States presidential election on November 6 is the other major external variable. A Romney victory would likely produce a different posture on US-Caribbean economic relations than an Obama second term; either outcome will affect the US economic environment that underpins Jamaican remittance flows and diaspora investment confidence. The election result will be known before our next edition.
Domestically, the expected finalisation of Jamaica’s IMF programme discussions in the months ahead is the most consequential policy event on the calendar. The shape of the programme — its fiscal targets, conditionality, and duration — will set the parameters within which housing and social policy must operate for the foreseeable future. Market participants are watching those negotiations carefully.
Jamaica’s property market enters the final quarter of 2012 with better sentiment than it had twelve months ago, but fundamentally unchanged structural challenges. The Olympic moment has provided a platform; the task now is to build something durable on it.
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