Waiting for the Verdict: Jamaica Homes Monthly Housing & Development Review — August 2013

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

Month in Brief

• Jamaica’s first IMF EFF quarterly review approaches in September 2013, and the July data picture is largely reassuring: the primary surplus is tracking ahead of target, and the Jamaica dollar has stabilised relative to its February 2013 lows.
• Commercial bank average mortgage rates remain in the 10–14 percent range; building societies average approximately 10 percent — rates that place new private-sector housing beyond the reach of most formally employed Jamaicans.
• The Bank of Jamaica keeps its policy signal rate at approximately 6–6.5 percent, but the transmission to lending rates remains weak, a persistent structural feature of Jamaica’s concentrated banking sector.
• NHT contributions continue to build at record pace as formal employment holds relatively stable, but the J$11.4-billion annual statutory transfer to the Consolidated Fund remains the dominant constraint on the Trust’s lending capacity.
• The Jamaica Diaspora Conference season has wrapped, with reported real estate transactions facilitated at events in New York and South Florida exceeding US$10 million — consistent with prior years and confirming diaspora demand as a bedrock of market stability.
• Informal housing and squatting in Kingston’s Western and Eastern corridors continues to grow, exposing the gap between formal supply and the needs of Jamaica’s lowest-income households.

Housing Market Overview

Jamaica’s property market through July 2013 continues the pattern established in the first half of the year: low velocity, stable-to-soft pricing, and a bifurcation between the Corporate Area market and outer-parish conditions. Kingston and St Andrew continue to attract the bulk of formal transaction activity, with St Catherine’s Old Harbour and Portmore corridor asserting itself as the primary volume market for NHT-financed first-time buyers.

There is a tentative sense among senior agents and valuers that the market has found its floor. Properties listed at realistic asking prices — reflecting current fundamentals rather than 2007 expectations — are achieving sales within two to three months of listing. Overpriced listings, by contrast, are sitting for six months or more. This divergence suggests that price discovery is functioning, but that vendor psychology has not fully adjusted to the post-boom, post-NDX reality.

The upper tier of the market — J$40 million and above in the Kingston area — retains notable resilience. Properties in Cherry Gardens, Norbrook, Barbican and the upper stretches of Stony Hill Road are attracting a narrow but persistent pool of buyers: returning diaspora professionals, corporate executives and the small number of high-net-worth individuals whose wealth is sufficiently liquid to operate outside the constrained mortgage market. Cash transactions, or transactions funded by overseas financing, dominate at this price point.

The mid-tier market — J$8 million to J$25 million — is the most constrained segment. These properties are too expensive for NHT financing alone and too risky for commercial mortgage lenders given current employment and income volatility. Buyers at this price point often require a combination of NHT loans, informal family contributions and, increasingly, personal savings accumulated over multiple years of austerity-era belt-tightening.

Government Policy: Mortgage Insurance and Fiscal Consolidation

The most significant housing-related policy signal from the July period is the Cabinet’s consideration of amendments to the Mortgage Insurance Act, understood to be in advanced preparation for formal promulgation in the autumn. The proposed amendments would raise the percentage of appraised property value covered by Mortgage Indemnity Insurance from the current level to 97 percent, and reduce the minimum deposit requirement from 15 percent to 10 percent of property value.

If enacted, these amendments would meaningfully improve access to commercial mortgage financing for first-time buyers. A household purchasing a J$10-million property currently needs J$1.5 million as a deposit (15 percent); under the proposed amendment, J$1 million (10 percent) would suffice. For households in the J$60,000–80,000 monthly income bracket, this reduction in the upfront capital barrier could be the difference between accessing the market and remaining in rental accommodation indefinitely.

The broader fiscal context remains constraining. The Ministry of Finance has signalled that the public capital expenditure budget — which funds infrastructure enabling new housing development, including road access, water supply and sewage systems — will remain compressed through the 2013/14 financial year. IMF conditionality requires the government to maintain a primary surplus of approximately 7.5 percent of GDP, and there is limited room to expand capital spending without threatening programme compliance.

The Housing Agency of Jamaica (HAJ) and the Urban Development Corporation (UDC) both operate under tight budget envelopes. HAJ’s pipeline of new housing schemes is modest by historic standards; the UDC’s urban regeneration work in downtown Kingston and selected inner-city communities has slowed appreciably from the ambitious plans articulated earlier in the PNP administration’s first year.

Construction Sector

Construction activity in July 2013 is sustained primarily by two categories of work: public-sector housing schemes (NHT, HAJ) and private residential construction by individual landowners undertaking self-build projects. Formal developer-driven construction — the multi-unit residential schemes that characterise a buoyant market — is largely absent from the current landscape outside of a handful of high-end townhouse and apartment projects targeting the upper segment.

Building materials prices have remained elevated relative to pre-2008 levels, reflecting both imported inflation (cement, steel, glass) and the Jamaica dollar’s depreciation trajectory. The J$/US$ rate, which stood at approximately J$100 to the US dollar at the start of 2013 before slipping further following the National Debt Exchange, has stabilised in recent weeks but remains a persistent cost pressure for developers and self-builders who rely on imported materials. Local cement production from Caribbean Cement provides some buffer, but key structural materials remain heavily import-dependent.

The Jamaica Master Builders Association and related trade bodies have noted a pickup in enquiries for renovation and extension work, reflecting a trend seen in constrained markets worldwide: when households cannot afford to move, they improve in place. This renovation activity does not add to housing supply, but it sustains construction employment and the building materials supply chain at a time when new-build volumes are insufficient to do so alone.

Investment Landscape

The IMF programme’s first quarter of operation has produced a modestly encouraging macroeconomic backdrop for property investors. The Jamaica dollar, after the sharp depreciation that followed the National Debt Exchange in February 2013, has found a degree of stability. Inflation, while still elevated, is not accelerating. The fiscal deficit is narrowing in line with programme targets. These are conditions under which investment risk, while still significant, is at least bounded and measurable.

For long-horizon investors — particularly those with access to foreign exchange — the current period presents structural opportunity. Sellers who accumulated property during the 2004–2008 boom are increasingly willing to negotiate, having recognised that the conditions that produced those valuations are unlikely to recur in the near term. Land in peri-urban areas around Kingston, St Andrew and St Catherine — well-located but currently undeveloped — can be acquired at prices that carry attractive optionality for the eventual economic recovery.

The tourism real estate corridor along Jamaica’s north coast — particularly the Montego Bay to Falmouth stretch, anchored by the Falmouth pier’s cruise operations — is showing selective signs of investor interest, though the quantum of new luxury development remains modest relative to comparable Caribbean markets such as Barbados and the Cayman Islands. Jamaica’s perceived risk premium, rooted in long-standing concerns about crime and governance, continues to direct some regional investment capital to competing destinations.

Diaspora Dimension

The July period encompasses the tail of the Jamaica Diaspora Conference season, which annually brings several thousand overseas Jamaicans to the island for networking, investment showcases and cultural reconnection. Real estate consistently ranks among the top investment categories at diaspora events, and the 2013 edition has been no exception. Industry participants report that transactions facilitated at and around the conference have exceeded US$10 million in aggregate value, consistent with prior years.

The diaspora buyer profile is evolving. A decade ago, the dominant diaspora purchaser was a first-generation migrant buying retirement property or ancestral land. Today, a growing cohort of second-generation Jamaican-Americans, Jamaican-Britons and Jamaican-Canadians — born or raised overseas but maintaining strong cultural and familial ties to the island — is entering the market. This cohort is more analytically sophisticated, more likely to seek professional advice, and more willing to consider investment-grade urban and commercial property alongside the traditional suburban or rural residential purchase.

The legal and logistical challenges facing diaspora buyers have not materially improved in the past year. Title registration delays at the National Land Agency, the complexity of FINSAC-era land title arrangements in some parishes, and the difficulties of managing property remotely all continue to create friction. Several diaspora-focused property management companies have emerged to address the remote-management gap, and their services are finding a willing market.

Affordability Pressures

The affordability crisis in Jamaica’s housing market has three distinct but interrelated dimensions that the July 2013 data reinforce. First, there is a price-to-income problem: housing costs, even for NHT-quality solutions, are high relative to median Jamaican incomes. Second, there is a financing problem: only NHT offers genuinely accessible mortgage rates, and its lending capacity is constrained by the Consolidated Fund transfer. Third, there is a supply problem: the 100,000-plus unit deficit represents a structural imbalance between housing need and available inventory that cannot be resolved by financing alone.

Building societies, which historically served the mid-income mortgage market at rates averaging around 10 percent, are maintaining reasonable loan volumes but face a challenging operating environment. Their deposit base is under pressure from competition with government securities, whose yields — even after the National Debt Exchange — remain attractive to risk-averse retail savers.

Rental markets in Kingston and Montego Bay are increasingly under supply pressure as potential first-time buyers who cannot access mortgage finance remain in rented accommodation for longer. Rents in Kingston’s lower-middle-income suburbs — areas such as Dunrobin, Portmore, and parts of Spanish Town — have crept up as demand for rental units exceeds available supply. This is a secondary consequence of the affordability crisis: it worsens conditions for the very households that cannot afford to buy.

Looking Ahead

August 2013 will be dominated by anticipation of the first IMF quarterly review in September. Programme compliance through the first four months of the EFF has been broadly maintained, and the Jamaican government is expected to pass this initial test. A successful first review would release the next tranche of IMF funds and send an important confidence signal to bilateral and multilateral creditors, including the Inter-American Development Bank and the World Bank, both of which have committed balance-of-payments support contingent on programme progress.

For the housing sector specifically, the anticipated Mortgage Insurance Act amendments will be closely watched. If promulgated in the autumn as expected, they would provide a meaningful demand stimulus at the critical first-time buyer end of the market — potentially the most significant housing-policy positive of the year in an otherwise constrained environment.

The NHT constitutional case continues its progress through the courts, and a preliminary ruling on admissibility is possible before year-end. The outcome will determine whether the J$11.4-billion annual transfer remains a permanent feature of the fiscal architecture or faces legal challenge that forces a renegotiation of the government’s housing-versus-austerity calculus. Either way, it will shape the medium-term outlook for NHT lending capacity and, by extension, for affordable housing supply in Jamaica.