Sandy Strikes: Hurricane Damage Tests Jamaica’s Coastal Housing Resilience – November 2012

Publication Date: November 3, 2012 | Coverage Period: October 3-November 2, 2012 | Category: Monthly Review

Month in Brief

• Hurricane Sandy struck Jamaica on October 24 as a Category 1 storm, bringing strong winds and heavy rain before tracking northeast; damage was significant in coastal parishes, particularly St. Elizabeth, Westmoreland, and sections of Kingston Harbour.
• Sandy subsequently devastated the northeast coast of the United States on October 29, causing catastrophic flooding in New York, New Jersey and Connecticut — the deadliest US storm since Katrina, with implications for the Jamaican diaspora concentrated in those states.
• The US presidential election is scheduled for November 6 — three days from publication — with the outcome uncertain; remittance flows and diaspora investment sentiment may be influenced by the result in the months ahead.
• The Bank of Jamaica’s policy rate held near 6-7%; commercial mortgage rates remained at 11-14%, with no movement expected until IMF negotiations conclude.
• Post-Sandy damage assessment in Jamaica identified significant uninsured residential property losses, renewing debate about the adequacy of property insurance penetration among lower-income homeowners.
• The NHT confirmed that it is monitoring the situation of affected subscriber-mortgagors and will consider case-by-case payment relief for properties rendered uninhabitable by storm damage.

Housing Market

Hurricane Sandy’s passage through Jamaica on October 24 was not the catastrophic direct hit that the island has suffered in past years, but it was damaging enough to arrest the cautious momentum that had been building in the residential market through September. The storm’s Category 1 intensity at landfall produced wind gusts sufficient to damage roofing on older and poorly constructed homes, and its slow forward speed allowed rainfall totals to accumulate to levels that caused flooding in low-lying areas of Kingston Harbour, Portmore, and the St. Elizabeth coast.

Transaction activity effectively ceased during the storm’s approach and aftermath, with the real estate market entering an informal hiatus of approximately ten days as agents, buyers, and sellers assessed damage and attended to more immediate priorities. As of publication, activity has begun to resume, but there is a palpable shift in sentiment in coastal property markets. Buyers who were considering properties in flood-prone or storm-exposed locations are now renegotiating offers or deferring decisions pending clearer understanding of insurance and remediation costs.

In the Corporate Area hillside communities — Norbrook, Beverly Hills, Cherry Gardens — which have natural elevation protection and typically better construction standards, the disruption was shorter and the recovery swifter. Agents in these communities report that viewings have largely returned to normal and that sellers have not needed to adjust asking prices in response to the storm. The flight-to-quality dynamic that emerges in the wake of weather events, whereby buyers prioritise elevation, construction standard, and drainage quality over location amenities alone, may benefit well-constructed hillside properties in the months ahead.

The Sandy Effect: Diaspora Dimension

Sandy’s trajectory from Jamaica to the US eastern seaboard created an unusual dual impact on Jamaica’s diaspora-linked property market. On the one hand, the storm’s damage to Jamaica itself reminded diaspora buyers — particularly those with family members still living on the island — of the real physical risks that coastal and low-lying properties carry. Several diaspora clients reportedly put planned purchases on hold pending confirmation that specific properties they were considering had survived intact.

On the other hand, Sandy’s subsequent devastation of New York and New Jersey on October 29 has directly affected a large segment of the Jamaican-American community concentrated in those states. Reports from within those communities suggest that thousands of Jamaican households in Brooklyn, the Bronx, and New Jersey’s Essex County suffered property damage, temporary displacement, and income disruption. For this group, the near-term capacity to service existing remittance obligations or advance new property investments in Jamaica will be reduced.

The scale of this effect on remittance flows is likely to be modest and temporary — US federal disaster relief is significant and the affected communities are resilient — but it represents a headwind to the diaspora investment pipeline that had been building through the post-Olympic months of August and September. Agents with North American client books are accordingly tempering their Q4 expectations.

Government Policy

The Simpson Miller government’s response to Hurricane Sandy has been managed through the existing National Disaster Risk Management Council framework. Emergency assessments in the most affected parishes are ongoing; initial estimates suggest that several hundred homes sustained moderate to severe damage, with a smaller number rendered uninhabitable. The government has signalled that it will deploy Housing Agency of Jamaica teams to assess and prioritise reconstruction assistance for the most vulnerable households.

Sandy’s passage has reinvigorated the longstanding debate about building codes and enforcement. A significant proportion of the homes most severely damaged in the October 24 event were informal or semi-formal constructions that pre-date modern building codes or were built without permits. Enforcing building standards in informal settlements is politically and logistically complex, but the recurring pattern of disproportionate damage to the least-regulated housing stock represents both a humanitarian challenge and a policy failure that no serious housing strategy can indefinitely defer.

On the IMF negotiation front — the other major policy thread of this period — discussions continued through October, with no finalised agreement as of publication. The macro-fiscal framework under negotiation will be critical for determining the interest rate environment into which any recovery-driven housing investment must be deployed.

Construction Sector

The construction sector faces a dual dynamic in November’s aftermath. The near-term demand signal from hurricane damage repairs represents a genuine, if unwelcome, source of work for contractors, particularly in roofing, drainage remediation, and structural reinforcement. Companies with experience in rapid-response residential repair are expected to see an increase in enquiries from homeowners whose insurance claims have been assessed and whose insurers have authorised repairs.

The longer-term concern is whether the storm has set back the fragile recovery in new residential construction that had been building through Q3. Developers who were considering scheme launches in coastal locations may defer pending a clearer picture of insurance pricing in those locations post-Sandy. Material supply chains, which had been slowly normalising after mid-year global commodity price softening, face potential disruption if import logistics are affected by the US port disruptions caused by the storm’s Northeast landfall.

Investment Outlook

For investors taking a medium-to-long view on Jamaican residential property, Hurricane Sandy represents a set-back in confidence rather than a fundamental change in the structural drivers of the market. Demand for housing in Jamaica is structural, driven by population dynamics, household formation rates, and an accumulated deficit that will take years to address. The hurricane’s passage creates a short-term disruption in transaction activity and a recalibration of risk pricing in coastal segments, but does not alter the underlying reality that Jamaica needs tens of thousands more homes than currently exist.

The US presidential election on November 6 — three days from publication — is being watched carefully by those concerned about the broader macroeconomic environment that will influence Jamaican mortgage rates and remittance flows in the year ahead. The two candidates offer differing visions for US fiscal and monetary policy; their implications for the US Federal Reserve’s interest rate stance, and through that for global risk sentiment and emerging market capital flows, matter for a small open economy like Jamaica’s. This review does not anticipate the election’s outcome, but notes that the result will be a significant input to the outlook analysis in the December edition.

Diaspora Flows

October remittance data will not be fully compiled for several weeks, but the early intelligence from money transfer operators is that inflows held broadly steady through the first three weeks of the month before the storm’s US impact introduced uncertainty. The Jamaican communities of New York and New Jersey are among the most active remittance-sending populations; disruption to their daily lives and household finances following October 29 is expected to produce a dip in November inflows that should partially recover as FEMA disaster relief and community mutual aid restore normalcy.

The Bank of Jamaica and Ministry of Finance are unlikely to treat a temporary weather-related remittance fluctuation as a structural signal; the underlying trend of robust inflows from North America and the United Kingdom remains intact. The more important medium-term variable for diaspora investment in Jamaican real estate is the interest rate outlook — and that, in turn, awaits the conclusion of IMF negotiations.

Affordability

Hurricane Sandy has added a new dimension to the affordability analysis that rarely features prominently in normal market conditions: the cost of uninsured risk. For the majority of lower-income Jamaican homeowners, formal property insurance is an unaffordable luxury that competes directly with food, school fees, and utility payments in the household budget. When a storm causes damage, the uninsured homeowner bears the full cost of repair, often using savings, diaspora support, or informal credit at punishing rates.

This dynamic creates a perverse affordability trap. Lower-income households occupy the most vulnerable housing stock in the most exposed locations, pay the most (in relative terms) for the privilege, and are the least able to insure against catastrophe. Government-backed catastrophe insurance pools, of the kind that have been proposed in various Caribbean contexts, represent a potential policy response that would improve the risk-adjusted affordability of homeownership for the most vulnerable segment of the market.

Looking Ahead

As Jamaica enters the final two months of 2012, the property market’s agenda is crowded. Hurricane recovery in the most affected parishes will dominate local attention in the near term. The IMF negotiations — and whatever fiscal architecture emerges from them — will set the trajectory for interest rates and housing investment through 2013. The US election result will colour diaspora sentiment and remittance capacity in ways that will take months to fully manifest.

Through all of this, the fundamental story of Jamaica’s housing market remains unchanged: a deficit of more than 100,000 units, a financing system that works for formal-sector workers with NHT access and fails most others, and a construction industry that lacks the capital and contractual certainty to scale production to meet demand. Sandy has tested the island’s coastal housing stock and found it wanting in places. The test is also, in a sense, a prompt: to build better, insure better, regulate better, and plan better for the storms — meteorological and economic — that will come again.

Jamaica Homes Monthly Review is published on the first business day of each month. Data reflect market conditions as of the coverage period close date.

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