Austerity’s First Year: Jamaica’s Housing Market Under Portia’s PNP — December 2012

Publication Date: 3 December 2012 | Coverage Period: 3 November – 2 December 2012 | Category: Monthly Review

Month in Brief

• One year of PNP rule: Portia Simpson Miller’s government doubles down on fiscal consolidation targets.
• Commercial mortgage rates remain stubbornly above 11%, suppressing market activity.
• NHT loan demand continues to outstrip available supply across all parishes.
• Construction sector remains subdued; private developers hold permits without breaking ground.
• HAJ advances land titling programme, regularising informal settlements island-wide.
• Diaspora remittance flows approaching US$2 billion annually, underpinning family housing investments.

Housing Market Conditions

Jamaica’s residential property market enters the final month of 2012 in a state of careful suspension. Prices in the upper and middle segments have softened, with five-bedroom house rentals down sharply from a year earlier and three-bedroom apartment rents in Kingston’s traditional belt — New Kingston, Half Way Tree, Liguanea — registering marked declines. Sellers with urgent liquidity needs find buyers scarce; those without pressure are content to wait.

The affordability gap remains the market’s defining structural feature. With commercial bank mortgage rates oscillating between 11% and 15% per annum, monthly debt service on even a modest J$8 million property is beyond the reach of the median formal-sector worker. The National Housing Trust’s subsidised rates — ranging from zero to 5% depending on contributor income band — represent an enormous advantage, and the Trust’s oversubscription reflects exactly this. Waiting lists in Kingston, St. Andrew, St. Catherine, and St. James remain long, with applicants cycling through the balloting system repeatedly before securing a solution.

In the rental sector, demand from young professionals and civil servants who cannot access NHT solutions quickly enough continues to provide a floor. Landlords in inner-city adjacent communities report stable occupancy even as rents in upscale areas dip. The buy-versus-rent calculus, with mortgage rates so elevated and property prices flat, firmly favours renting for most households for the foreseeable term.

Government Policy

The PNP government, now 11 months in office following its January 2012 election victory, is navigating a fundamental tension in housing policy: the imperative to maintain fiscal discipline — and transfer funds from the NHT’s surplus to the Consolidated Fund — sits uncomfortably alongside the political promise of expanded affordable housing. Opposition benches in Gordon House have not let the government forget it.

The Jamaica Labour Party, under Andrew Holness, has made the NHT transfer a reliable debating point, arguing that raiding the Trust’s reserves undermines its capacity to fund new housing schemes and disburse loans to contributors who have paid in for years. Government ministers respond that fiscal stability is a prerequisite for any sustained improvement in housing conditions — an argument with economic merit, even if it rings hollow for contributors waiting on their NHT applications.

Prime Minister Simpson Miller has reaffirmed the government’s commitment to the Vision 2030 housing targets, but analysts note that achieving even a fraction of the stated goals requires construction activity well beyond current levels. With the national housing deficit estimated at 100,000 to 120,000 units, incremental progress from NHT schemes and HAJ projects barely keeps pace with household formation.

Construction Activity

The construction sector continues to underperform relative to its potential. Cement imports — a reliable leading indicator — remain below the levels that would signal a recovery in residential starts. High input costs, including fuel (with petrol prices in Jamaica remaining elevated), steel, and imported fittings, compress developer margins on affordable units to the point of unviability without subsidy.

Private developers continue to focus on the upper-income segment where margins are more defensible, but even that market is sluggish given the constrained availability of commercial mortgage finance. The NHT’s Interim Finance Programme for developers — which offers concessionary construction financing in exchange for affordable selling prices — received only a handful of applications in the 2012/13 financial year, reflecting both tight developer capacity and the programme’s conditions.

HAJ’s work in Bernard Lodge (Catherine Estates) and other parish centres is advancing through the planning and environmental permitting stages. Groundbreaking on several schemes is anticipated in the coming year, though timelines in Jamaican public housing have historically slipped.

Major Developments and Infrastructure

The National Land Titling Programme, launched formally in 2012, continues its work of issuing freehold titles to residents of communities that have historically existed in a legal grey zone. Secure land tenure is a prerequisite for NHT loan eligibility and for the ability to use property as collateral for commercial borrowing; the programme therefore directly expands the effective addressable market for formal housing finance. HAJ reports steady progress across more than 50 communities island-wide.

Road rehabilitation in several housing scheme catchment areas — notably in St. Catherine and Clarendon — continues under various government programmes, improving connectivity and, marginally, the desirability of peripheral residential zones that NHT schemes typically occupy. Investors in those areas, including returning diaspora members building on family land, take note.

Investment Climate

The macro backdrop for property investment is not encouraging for the speculative buyer. GDP growth is near-zero; the economy is in structural adjustment; and the exchange rate — around J$99–102 per US dollar — has depreciated steadily, raising the cost of imported construction materials. Inflation, running at approximately 9–10%, erodes real returns on rental income for landlords not indexed to inflation.

Nevertheless, property continues to be regarded by Jamaican households as a store of value superior to holding cash in a depreciating currency. For the middle class and the diaspora, land and bricks remain the instinctive savings vehicle of first resort. This cultural disposition sustains latent demand even when active transaction volumes are low.

Diaspora and Remittances

Remittance inflows to Jamaica are tracking towards approximately US$2 billion for calendar 2012, building on the US$2.025 billion recorded in 2011. As a share of GDP, remittances represent well over 13%, making them a more significant foreign exchange earner than tourism in certain months. A meaningful portion of these flows — informal surveys suggest as much as 25–30% — is directed towards housing: building or improving family homes, paying down land purchase installments, or contributing to NHT accounts.

The Jamaican diaspora, concentrated in the United States (New York, South Florida, Atlanta), the United Kingdom, and Canada, is a latent but significant potential investor in Jamaican real estate. To date, formal mechanisms to channel diaspora capital into the mortgage market remain underdeveloped; most investment happens informally through family networks. There is scope for the NHT and building societies to develop diaspora-specific products, though this remains at the discussion stage.

Affordability Analysis

The NHT’s maximum loan limit of approximately J$4.5 million for individual contributors (with joint applicants able to access more) is increasingly stretched against the cost of even a basic two-bedroom concrete unit. Material cost inflation, driven by the weakening Jamaican dollar and global commodity prices, means that a decent starter home in a parish capital now costs J$6–9 million all-in, well beyond what NHT financing alone covers. The gap must be filled by personal savings, informal borrowing from family, or — for the better-positioned — top-up commercial financing at punishing rates.

Households earning below J$30,000 per month — a substantial proportion of the formal workforce, and the overwhelming majority of the informal economy — are effectively excluded from formal homeownership without sustained subsidy. The social housing programmes of HAJ and Food for the Poor partly address this segment, but at volumes far below the scale of the deficit.

Regional Context

Across the Caribbean, housing affordability challenges are not unique to Jamaica. Trinidad and Tobago’s energy revenues give its government more fiscal space to subsidise housing; Barbados faces similar constraints to Jamaica despite a higher per-capita income. The CARICOM region as a whole grapples with housing deficits rooted in colonial land tenure patterns, weak mortgage market development, and structural unemployment.

In the wider hemisphere, the aftershocks of Hurricane Sandy — which struck the US East Coast in late October — continue to reverberate through insurance markets and construction supply chains. For Jamaica, the hurricane season’s end brings seasonal relief, though the island’s exposure to storm risk is a perennial drag on property insurance premiums and, indirectly, on the cost of formal homeownership.

Looking Ahead

As 2012 draws to a close, the most consequential question for Jamaica’s housing sector in 2013 is whether the government can engineer sufficient fiscal room — through combination of revenue measures, expenditure restraint, and debt management — to allow interest rates to begin declining without triggering a currency crisis. The Bank of Jamaica has kept its policy rate high as an anchor for the exchange rate and inflation expectations; any signal of easing would be welcomed by the mortgage market.

Jamaica’s ongoing discussions with the International Monetary Fund over a potential new programme are being watched carefully by market participants. A credible agreement would provide external validation of the fiscal path and could improve investor confidence in the medium term, with knock-on benefits for the cost of capital — including mortgage rates. That prospect remains ahead, not yet resolved, as December opens.

For the housing sector, the immediate outlook is one of careful stasis: the market is not declining sharply, but neither is it positioned to accelerate. Mortgage rates need to fall by several hundred basis points before the arithmetic of homeownership changes meaningfully for the median Jamaican family. That is a function of macroeconomic stabilisation — which, in December 2012, is still work in progress.