Jamaica’s IMF Programme Takes Hold: Jamaica Homes Monthly Housing & Development Review — July 2013

Publication Date: July 3, 2013 | Coverage Period: June 3 – July 2, 2013 | Category: Monthly Review

Month in Brief

• Jamaica’s Extended Fund Facility with the IMF, signed on May 9, 2013, is now less than two months old — and the first quarterly performance review looms in September, concentrating minds across the public sector.
• The NHT (Special Provisions) Act 2013, mandating an annual transfer of J$11.4 billion from the National Housing Trust to the Consolidated Fund, has triggered a constitutional challenge from a self-employed contributor, with hearings expected in the Supreme Court before year-end.
• Bank of Jamaica holds its policy rate at approximately 6–6.5 percent, but commercial mortgage rates remain stubbornly in the 11–14 percent band, leaving the majority of working Jamaicans priced out of private-sector home financing.
• A ground-breaking ceremony in Westmoreland for the Whitehall Phase 3 development — 590 housing solutions costing some J$390 million — is among the few active affordable housing milestones this quarter.
• Remittances from the diaspora continue to underpin residential demand in outer parishes; Bank of Jamaica data suggest inflows tracking toward US$2 billion for calendar 2013, a vital prop for an otherwise subdued property market.
• The Vision 2030 housing deficit estimate of 100,000-plus units remains unaddressed; sector analysts warn the diversion of NHT surpluses to budget support will deepen the backlog rather than reduce it.

Housing Market Overview

Jamaica’s residential property market enters the second half of 2013 in a state of studied caution. Transaction volumes across parishes — 9,160 transfers were recorded in 2013 as a whole, according to National Land Agency data compiled for the period — reflect a market that is functioning rather than flourishing. St Andrew continues to account for the largest share of transaction value in the Corporate Area, followed by St Catherine, which benefits from its relative land-price advantage and expanding road infrastructure under the Highway 2000 corridor.

Prices at the upper end of the Kingston and St Andrew market have shown modest nominal increases over the past twelve months, but in real terms — adjusted for inflation running at approximately 8–9 percent year-on-year — values are flat to negative. This dynamic advantages sellers of established mid-tier properties in sought-after suburbs such as Stony Hill, Cherry Gardens and Jack’s Hill, where supply remains thin and demand is anchored by returning diaspora buyers and senior public-sector professionals.

In the outer parishes, land prices in Westmoreland, St James and St Elizabeth reflect a different reality: prices have softened on the back of reduced tourist-sector activity and the exit of some speculative investors who had entered during the 2006–2008 boom. Negril and Montego Bay corridor properties, however, retain a floor of overseas-buyer interest that prevents outright price collapse.

Government Policy: The NHT Transfer Controversy

No policy development in the June–July 2013 period has generated more sustained public debate than the NHT Special Provisions Act. The Portia Simpson Miller administration has framed the annual J$11.4-billion extraction as an unavoidable fiscal necessity: without it, Jamaica cannot meet the primary surplus targets embedded in the IMF Extended Fund Facility, and the programme — and with it the country’s access to multilateral financing — would be at risk.

Critics, led by the Jamaica Labour Party opposition but also including trade unions and sections of civil society, make a sharply different argument. The NHT is not a government account, they contend; it is a contributory fund built from mandatory payroll deductions by workers and employers. Redirecting its surpluses to general budget support violates the implicit social contract underlying the Trust’s mandate — providing affordable housing solutions to contributors.

The constitutional challenge filed in the Supreme Court by a self-employed contributor adds legal dimension to what has hitherto been a political argument. If the court finds in the applicant’s favour, the government would face a serious fiscal hole at precisely the moment when adherence to IMF targets is non-negotiable. The Ministry of Finance has so far expressed confidence in the legislation’s constitutional footing, noting that Parliament passed the act through its full readings. Observers, however, note that parliamentary passage does not insulate legislation from constitutional scrutiny.

In a parallel development, the government has indicated it is exploring the possibility of swapping state-owned land for some portion of NHT obligations — a creative accounting approach that, if structured properly, could satisfy fiscal targets while retaining some housing-directed capital within the Trust. Details remain scarce.

Construction Sector

The construction sector in June–July 2013 is performing at subdued but stable levels. Private residential construction has slowed markedly from the mid-2000s peak, with high commercial borrowing rates (11–14 percent) making developer-financed schemes economically marginal for all but the most upscale projects, where buyers can support pricing sufficient to cover financing costs and yield a profit margin.

NHT-supported construction provides the most visible pipeline of affordable new supply. The Whitehall Phase 3 development in Negril, broken ground this quarter at a cost of J$390 million for 590 units, exemplifies the NHT’s role as builder-of-last-resort for lower-income contributors. In Trelawny, 77 units in Hampden have been completed under a very-low-income earner programme announced during the 2013/14 Sectoral Debate by the Minister of Transport, Works and Housing.

Public-sector infrastructure investment — roads, water systems, drainage — which typically catalyses private residential development, has been constrained by fiscal compression under the IMF programme. Capital expenditure cuts have fallen disproportionately on infrastructure, with the government protecting wages and debt service at the expense of new capital formation. This represents a structural risk for medium-term housing supply: without serviced land and infrastructure, even a recovery in private-sector appetite for development cannot easily translate into new units.

Investment Landscape

For investors in Jamaican property, the prevailing environment in mid-2013 presents a classic distressed-market dilemma: assets are available at prices that reflect economic stress, but the catalysts for appreciation are not yet in view. The IMF programme, if successfully executed, should in theory compress the fiscal deficit, stabilise the Jamaica dollar, reduce inflation and — eventually — allow the Bank of Jamaica to ease monetary conditions. That transmission mechanism, from programme compliance to housing-market recovery, is however measured in years rather than months.

For domestic institutional investors — insurance companies, pension funds and the unit trust sector — Jamaican real estate remains an attractive long-duration inflation hedge in a context where government paper yields, while elevated, are subject to restructuring risk. The National Debt Exchange completed in February 2013 reconfigured the domestic bond landscape, and some institutional money is gravitating toward property as a result.

Commercial real estate in Kingston’s New Kingston financial district and along Constant Spring Road shows modest occupancy resilience, underpinned by demand from financial services firms, government agencies and professional practices. Vacancy rates are elevated relative to the 2007 peak but are not in freefall.

Diaspora Dimension

Jamaica’s overseas community — estimated at upward of one million Jamaicans in the United States, United Kingdom and Canada — remains the most important external demand driver for the residential property market. Bank of Jamaica data tracking remittance inflows suggest that 2013 inflows are pacing at roughly US$1.9–2.0 billion for the calendar year, representing approximately 16 percent of GDP. While not all remittance income is directed toward property, a meaningful share — estimated informally at 15–20 percent of inflows — is channelled into land purchases, home construction and home improvement.

Diaspora buyers tend to concentrate in specific geographies: Kingston and St Andrew for proximity to family; Montego Bay and Negril for lifestyle and eventual retirement; and rural parishes for ancestral land retention. They bring non-negotiable advantages to the Jamaican market — foreign-currency earnings, lower sensitivity to domestic interest rates (since many purchase cash or with overseas mortgages) and a long investment horizon that smooths out short-term volatility.

The challenge for the housing industry is converting diaspora interest into formalised transactions. Many overseas buyers remain cautious about legal processes, survey costs, National Land Agency timelines and the risk of informal occupation of purchased land. Estate agents and developers who have invested in diaspora outreach — through the annual Jamaica Diaspora Conference and targeted marketing in London, New York and Toronto — report meaningfully higher conversion rates than those relying solely on walk-in domestic enquiries.

Affordability Pressures

Affordability remains the defining challenge of Jamaica’s housing market. A household earning the national median income of approximately J$40,000–50,000 per month cannot service a commercial mortgage at current rates for a property valued at more than J$4–5 million — a sum that secures very little in the Kingston metropolitan area and only modest solutions in secondary towns.

NHT mortgage rates — ranging from zero percent for the lowest-income contributors to five percent for higher earners — represent the only genuinely affordable financing route for the working majority. The Trust’s maximum loan ceiling of J$4.5 million (at the time of writing) is however insufficient to cover the cost of new construction in many areas, leaving contributors reliant on NHT finance to either purchase in remote locations or undertake self-build programmes of uncertain quality and regulatory compliance.

The diversion of J$11.4 billion annually from the NHT to the Consolidated Fund is therefore not merely a political controversy — it has direct affordability consequences. That sum, retained within the Trust, could finance approximately 2,500–3,000 additional mortgage loans per year at current average loan values, directly reducing the housing backlog. Critics of the transfer are not wrong to frame the policy as a housing-affordability issue as much as a constitutional one.

Looking Ahead

The next sixty days will be dominated by two related preoccupations: preparation for the first IMF quarterly review, expected in September 2013, and the ongoing fiscal consolidation that underpins programme compliance. If Jamaica passes the first review — as government officials have expressed confidence it will — market sentiment should receive a modest positive signal, reinforcing the case for holding rather than liquidating property assets during this period of economic compression.

On the policy front, the NHT constitutional case will progress through the courts, and the government’s land-swap proposal for NHT obligations warrants close monitoring. Any arrangement that keeps housing capital within the Trust while satisfying fiscal targets would be broadly welcomed by the sector.

For buyers, the current environment — low transaction volumes, motivated sellers, stable if not improving prices — represents one of those periodic windows in which patient, informed purchasers can acquire quality assets at reasonable valuations. The upside is conditional on programme success and eventual economic recovery; the downside is managed by the long-term inelasticity of demand for well-located Jamaican residential property. In a country with a hundred-thousand-unit housing deficit, the fundamentals of eventual value appreciation remain intact.