On the Brink of the IMF Deal: Jamaica’s Housing Market in Budget Season — May 2013

Publication Date: 3 May 2013 | Coverage Period: 3 April – 2 May 2013 | Category: Monthly Review

Month in Brief

• IMF Extended Fund Facility negotiations in final stages; Executive Board approval expected any day.
• Budget 2013/14 enacted; fiscal year begins with primary surplus target at demanding level.
• BOJ delivers modest policy rate cut; building societies signal intention to review mortgage rates.
• NHT opens new loan cycle for 2013/14; contributor demand remains strong across all parishes.
• HAJ confirms construction start on Catherine Estates; Negril Whitehall Phase 3 on schedule.
• Residential property inquiries up modestly; market sentiment at best level since 2010.

Housing Market Conditions

April 2013 has produced the most positive reading in Jamaica’s housing market sentiment since the financial crisis of 2008–2009 disrupted the trajectory of the prior decade. The combination of the successful NDX, the new financial year’s opening, the Bank of Jamaica’s first rate move, and the near-certain prospect of an IMF programme has produced a perceptible shift in buyer and developer psychology. The shift is tentative — Jamaica’s housing market has been disappointed before by false dawns — but it is real.

Residential property inquiries in Kingston and St. Andrew are up modestly compared to the same period last year, according to estate agents active in those markets. Viewing appointments have increased; time from listing to serious offer has shortened somewhat for well-priced properties. The upper end of the market — properties above J$30 million — remains illiquid, but the middle segment is showing more activity. Portmore, which NHT financed transactions make liquid regardless of macro conditions, continues to absorb a large share of first-home-buyer activity.

Commercial mortgage rates have not yet fallen significantly. The BOJ’s initial policy rate reduction is modest, and the transmission to retail lending takes time. Building societies have signalled that they are reviewing their mortgage rate structures in light of the improved rate environment, but no formal announcements have yet been made. The expectation of lower rates — widely shared among market participants — is itself a positive influence on sentiment, even before the actual numbers change.

IMF Programme: Final Countdown

The IMF Extended Fund Facility for Jamaica is understood to be in its final stages, with submission to the IMF Executive Board imminent. The programme — understood to involve a facility of approximately US$932 million over four years — commits Jamaica to a sustained fiscal adjustment path, including a primary surplus target, a public sector wage freeze, structural reforms to the tax system and business environment, and the NHT transfer to the Consolidated Fund as one element of the fiscal arithmetic.

For financial markets, the IMF programme’s approval will provide the external anchor that has been lacking since the expiry of the previous standby arrangement. Sovereign risk premiums, already reduced by the NDX, are expected to compress further on formal approval. Credit rating agencies are watching the programme’s conclusion as a potential trigger for positive rating action on Jamaica’s sovereign debt — which, if it materialises, would further reduce the cost of capital for all Jamaican borrowers, including mortgage borrowers.

The programme’s conditions touch the housing sector directly through the NHT transfer provision. The government has committed to the transfer as part of its overall fiscal package; this limits the government’s flexibility to redirect NHT resources towards expanded housing programmes in the near term. Housing advocates note that the structural adjustment — while necessary — requires NHT contributors to bear part of the fiscal burden through the transfer mechanism, a policy choice that will continue to attract criticism.

Government Policy

With the new financial year now underway, the housing ministry has begun implementing its 2013/14 programme. NHT’s new loan cycle has opened, with the Trust’s disbursement targets set broadly in line with 2012/13 actual output. The Trust is also advancing discussions with Food for the Poor about a programme to produce concrete starter units for sale to NHT — an initiative announced in the 2013/14 Sectoral Debate that would, if realised, add a meaningful volume of affordable units to the supply pipeline.

HAJ is maintaining an active project portfolio. Beyond Catherine Estates and Whitehall Phase 3, the Agency is advancing planning for schemes in Manchester, St. Mary, and Portland — parishes that have seen relatively little formal housing programme output in recent years. The geographic spread reflects both the government’s political interest in showing visible progress across the island and the genuine need for affordable housing solutions outside the Kingston metropolitan area.

Construction Activity

Construction activity is showing the first genuine green shoots of the post-NDX period. HAJ has confirmed that Catherine Estates construction has begun in Bernard Lodge, with the scheme targeting lower-income NHT contributors in what is one of St. Catherine’s most accessible locations relative to Kingston employment centres. The project will add several hundred units over its development period.

In the private sector, the improvement in sentiment has not yet translated into a significant pipeline of new permits, but the direction is positive. Several developers with land holdings in upper St. Andrew, St. James, and the St. Catherine developmental corridor are reporting renewed interest from construction financiers, and a small number of schemes that were paused in late 2012 are being reactivated. Cement imports — the leading indicator — have ticked up marginally, a modest but positive signal.

Infrastructure

The Highway 2000 extension programme continues to advance. Improved road connectivity between Kingston and the western St. Catherine corridor is expanding the practical catchment area for residential development serving Kingston’s workforce. Areas that were considered inconveniently remote from commercial centres five years ago are now viable locations for housing schemes, given reduced travel times. This infrastructure effect — expanding the supply of developable land relative to employment centres — is a structural positive for housing affordability over the medium term.

Investment Climate

The investment climate for Jamaican real estate is at its best point since 2010. The combination of the NDX, the imminent IMF programme, and the beginning of a rate-easing cycle has improved sentiment among domestic and diaspora investors. Properties that were unmarketable at their 2011 asking prices are finding renewed interest at adjusted levels, and the bid-ask spread — which widened significantly during the period of fiscal uncertainty — is beginning to narrow.

Foreign investment in Jamaica’s tourism-adjacent real estate — villas and condominiums in Montego Bay, Ocho Rios, and Negril — is also showing signs of recovery, with several projects that stalled during the 2009–2012 period now being revived. The tourism sector’s continued strength as a foreign exchange earner provides the economic foundation for investment in these sub-markets.

Diaspora and Remittances

First-quarter 2013 remittance data from the Bank of Jamaica confirms that flows remain strong, with the annualised rate consistent with the approximately US$2 billion level that has become the baseline. Diaspora engagement with the Jamaican property market is increasing, driven both by the improved macro outlook and by the generational dynamic of an older diaspora that is increasingly considering retirement or semi-retirement options in Jamaica.

The NHT and building societies have been exploring mechanisms to make mortgage products more accessible to diaspora members, who currently face structural barriers to accessing Jamaican mortgage finance from abroad. Progress on this front has been slow, but the commercial logic is compelling: the diaspora represents a significant pool of dollar-denominated savings that could, if properly channelled, materially expand the funding base for Jamaican housing finance.

Affordability Analysis

Housing affordability is at an inflection point. Mortgage rates remain elevated — commercial lenders have not yet passed through the BOJ’s initial easing — but the trajectory has changed. The NHT’s loan limits remain at approximately J$4.5 million, still insufficient to cover the full cost of a basic unit in most markets, but the gap between NHT financing and total acquisition cost may narrow as construction cost inflation moderates in the improved macro environment.

For the roughly 100,000 to 120,000 households in the housing deficit, the improvements underway in the macro environment will take time to reach them in the form of affordable and available solutions. The government’s fiscal adjustment has been necessary but has also, unavoidably, constrained the pace of social housing output. The challenge for the coming year is to demonstrate that the investment in fiscal stability is translating into tangible housing improvements for the families who need them most.

Regional Context

The Caribbean housing sector is showing mixed signals. Trinidad and Tobago, with its energy revenues, continues to invest in public housing at a scale that Jamaica cannot match. Barbados faces its own fiscal pressures. The CARICOM region as a whole remains characterised by housing deficits, limited mortgage market depth, and heavy reliance on self-build and remittance-financed construction. Jamaica’s NDX-led fiscal adjustment, if successful, could serve as a model for the region — demonstrating that sustainable macro management is the foundation on which affordable housing finance must be built.

Looking Ahead

The next issue of this review is expected to be able to report the formal approval of Jamaica’s IMF Extended Fund Facility, the completion of the macro stabilisation framework, and the early stages of a monetary easing cycle. For the housing sector, these developments will set the stage for what could be the beginning of a sustained recovery in activity and affordability.

The near-term outlook for Jamaica’s housing market is the most constructive it has been in three years. Market participants — developers, lenders, buyers, and the government — all have reasons to be cautiously optimistic. The structural challenges are large and will not be resolved quickly, but the macroeconomic foundations for a housing market recovery are, for the first time since 2010, being put in place. The second half of 2013 will be the first test of whether that foundation translates into tangible improvements in housing supply, accessibility, and affordability for Jamaican families.