Publication Date: 3 October 2013 | Coverage Period: 3 September – 2 October 2013 | Category: Monthly Review
Month in Brief
- The Bank of Jamaica held its overnight policy rate steady at approximately 6.0 per cent, signalling a cautious monetary stance as the economy remains constrained by IMF Extended Fund Facility conditionality agreed in May 2013.
- Parliamentary debate on the NHT’s J$11 billion annual transfer to the Consolidated Fund intensified, with trade unions formally petitioning the Ministry of Finance to reverse what they term an unconstitutional raid on workers’ housing savings.
- New residential permit approvals in Kingston and St Andrew fell to their lowest quarterly rate in three years, according to data released by the Kingston and St Andrew Corporation, reflecting subdued developer confidence.
- The National Housing Trust announced a minor upward revision to its income eligibility thresholds for the open-market scheme, though mortgage rates for contributors remained at 0–5 per cent depending on income band.
- Remittance inflows for August 2013 reached an estimated US$160 million, a figure that the Planning Institute of Jamaica noted continues to underpin consumer spending and informal housing investment in rural parishes.
- The Real Estate Board of Jamaica issued a public advisory urging prospective buyers to verify agent registration amid a reported increase in unlicensed property transactions in Portmore and Spanish Town.
Housing Market Overview
Jamaica’s residential property market enters the final quarter of 2013 in a state of subdued equilibrium — technically functional, yet visibly constrained by the fiscal architecture imposed by the May 2013 IMF Extended Fund Facility agreement. With the government committed to a primary surplus target of 7.5 per cent of GDP, disposable income across the middle class has contracted, and the appetite for new property purchases, while not extinguished, has been noticeably tempered.
In Kingston’s upscale residential corridors — Cherry Gardens, Norbrook, Stony Hill — asking prices for executive homes remain firm, supported by thin supply and the purchasing power of the professional class and returning diaspora buyers. Prices in this segment have held in the range of J$35–J$65 million for a well-appointed four-bedroom property, a level broadly consistent with the preceding twelve months. However, transaction velocity has slowed, with agents reporting that properties which might have moved in 60–90 days a year ago are now sitting for 120 days or more as buyers adopt a wait-and-see posture ahead of budget revisions expected later in the financial year.
The middle-market segment — homes priced between J$8 million and J$25 million in communities such as Portmore, Spanish Town Road and the expanding peripheral zones of St Catherine — tells a more difficult story. Here the combination of commercial mortgage rates ranging from 11 to 14 per cent per annum, stagnant real wages and the psychological weight of ongoing austerity has translated into genuine demand suppression. First-time buyers, who might once have stretched to secure a modest townhouse on the strength of a dual-income household, are increasingly choosing to defer. The National Housing Trust remains the principal lender of last resort for this cohort, but NHT’s own mortgage disbursement capacity is under pressure given the annual Consolidated Fund transfer obligation.
In rural Jamaica — Manchester, St Elizabeth, Portland — land sales for residential development continue at a modest pace, often driven by remittance-funded buyers rather than formal mortgage finance. These transactions are largely invisible in official statistics, representing a parallel housing economy that operates outside the regulated banking and NHT system.
Government Policy
The dominant policy story of this period is the ongoing controversy surrounding the NHT’s annual transfer of approximately J$11 billion to the government’s Consolidated Fund. This mechanism, introduced as an emergency fiscal measure concurrent with the IMF EFF agreement in May 2013, has rapidly become the most contested housing policy issue in Jamaica.
The National Workers Union and the Jamaica Confederation of Trade Unions have both written to the Ministry of Finance arguing that the transfer fundamentally contradicts the mandate of the NHT, which was established under the National Housing Trust Act to receive compulsory payroll contributions from employers and employees and to deploy those funds exclusively for affordable housing. The unions’ position is legally coherent: the NHT Act does not provide explicit authority for the transfer of surplus funds to the Consolidated Fund for general budgetary purposes.
The government’s counter-argument, advanced most recently by Prime Minister Portia Simpson-Miller, is that fiscal consolidation is a national imperative that transcends sectoral interests, and that a stable macroeconomic environment is itself a prerequisite for sustainable housing investment. Finance Minister Peter Phillips has reiterated that the transfer is a time-limited measure aligned with the four-year EFF programme, though critics note that no legislative sunset clause accompanies the mechanism.
The Ministry of Water, Land, Environment and Climate Change has been developing revisions to the National Land Policy, with particular attention to urban density standards that would allow higher-density residential development on existing serviced lots in Kingston. Progress, however, has been slow, reflecting the capacity constraints of a public service operating under fiscal austerity.
Construction Sector
Jamaica’s construction sector is operating well below the level required to meaningfully address the estimated 100,000-unit housing deficit that has accumulated over decades. Data from the Statistical Institute of Jamaica for the first half of 2013 indicate that construction’s contribution to GDP growth remained marginally negative, consistent with the broader pattern of economic stagnation that has characterised the post-2008 period.
Private sector developers face a challenging environment. Cement prices remain elevated — a bag of Portland cement retailing at approximately J$800–J$850 — while the depreciation of the Jamaican dollar against the US dollar has increased the cost of imported building materials including steel reinforcing bar, electrical fittings and plumbing fixtures. For a typical two-bedroom starter home in suburban Kingston, construction costs are estimated at J$4.5–J$6.5 million including land, a figure that places new construction beyond the reach of the majority of Jamaicans working in the formal economy at median wages.
The major active private developments in this period are concentrated in a small number of projects. Gore Developments has continued site preparation for a residential scheme in the Portmore corridor. Island Homes and associated entities have maintained activity on townhouse developments in the New Kingston fringe and in Mandeville, where demand from the bauxite and professional services sectors provides a more resilient buyer base than Kingston’s interest-rate-sensitive middle class.
The NHT’s own construction programme — which represents the government’s primary tool for housing delivery to low- and moderate-income earners — has proceeded at a measured pace. The Trust is reported to have approximately 2,500–3,000 units in various stages of development across the island, though the annual transfer obligation to the Consolidated Fund raises legitimate questions about the Trust’s capacity to accelerate this programme.
Investment Climate
For sophisticated investors, Jamaica’s residential property market presents a bifurcated picture in September–October 2013. At the upper end, there is selective interest from overseas Jamaicans and regional investors who view Kingston’s premium residential stock as undervalued relative to comparable Caribbean markets. Yields on prime rental properties in New Kingston and the corporate area — driven by the demand from diplomatic staff, multinational executives and returning residents — remain attractive at approximately 6–8 per cent gross, comparing favourably to US treasury yields and Caribbean regional alternatives.
However, the broader investment case for Jamaica real estate is complicated by macroeconomic uncertainty. The Jamaican dollar has been under sustained depreciation pressure — the exchange rate has moved from approximately J$95 to the US dollar at the start of 2013 to approximately J$104–J$106 by late September, representing a real erosion of asset values for US dollar-denominated investors. The Bank of Jamaica’s sterilisation interventions have slowed but not reversed this trend.
Commercial real estate investment, particularly in the Kingston waterfront and New Kingston business district, has attracted attention from regional institutional investors, though financing constraints and Jamaica’s elevated country risk premium continue to discourage the scale of investment the market requires. The Jamaica Stock Exchange remains an alternative vehicle for real estate exposure, with a small number of listed companies providing indirect property market participation.
Diaspora Perspective
Jamaica’s diaspora — estimated at between 2.5 and 3 million people resident in the United Kingdom, the United States and Canada — continues to be a meaningful force in the local property market, particularly in parish capitals and retirement-oriented communities. Remittance flows for 2013 are tracking towards approximately US$2 billion for the full year, a figure that dwarfs foreign direct investment and represents a critical source of foreign exchange for the Jamaican economy.
For diaspora property buyers, the current environment presents a genuine opportunity cost calculation. The depreciation of the Jamaican dollar means that US dollar savings purchase more in local currency terms than they did twelve months ago. A returning resident or diaspora investor with US$80,000 in savings is now able to access the Jamaican property market at a noticeably improved exchange rate compared to 2012. Several estate agencies have begun specifically marketing to diaspora buyers, offering turnkey purchase services that manage the practical complexities of acquiring property from overseas, including title searches, legal conveyancing, and property management after purchase.
The challenge, however, is that the housing stock most attractive to diaspora buyers — well-located homes with reliable utilities, security and modern finishes — remains relatively thin, and competition for this stock has increased as more diaspora buyers recognise the window created by dollar depreciation.
Affordability Analysis
The affordability crisis in Jamaican housing is structural and deepening. A household earning the median Jamaican wage of approximately J$35,000–J$45,000 per month — whether employed in teaching, nursing, the civil service or the lower rungs of the private sector — faces an almost insuperable barrier to homeownership through commercial mortgage finance. At current commercial rates of 11–14 per cent per annum, a J$6 million mortgage over 25 years would require monthly servicing payments of approximately J$65,000–J$80,000, well in excess of median household income and above the 35 per cent debt-service ratio that most lenders require.
The NHT partially addresses this gap through subsidised mortgage rates of 0–5 per cent for qualifying contributors. An NHT mortgage of J$4.5 million at 3 per cent over 30 years would require monthly payments of approximately J$19,000 — achievable for a dual-income household at median wages, but still representing a significant proportion of disposable income after food, utilities and transport.
The fundamental problem is that NHT mortgage limits — which cap out at around J$4.5–J$5.5 million depending on the scheme — are increasingly misaligned with actual construction costs. The gap between what NHT will lend and what a modest new home actually costs must be bridged by personal savings or supplementary commercial borrowing, both of which are beyond the reach of the lower quintiles of the formal workforce. This misalignment is itself a consequence of the sustained underinvestment in the NHT’s capital base that the Consolidated Fund transfers represent.
Looking Ahead
As Jamaica moves into the final quarter of 2013, the housing sector faces a period of managed stagnation rather than recovery. The IMF EFF programme provides fiscal stability at the cost of the domestic demand compression that drives housing market activity. The Consolidated Fund transfer from the NHT will remain the defining political controversy in housing policy until either the government finds alternative fiscal buffers or the trade union movement succeeds in forcing legislative review.
The key variables to monitor in the coming months include the pace of Jamaican dollar depreciation and its effect on construction costs, the quantum of NHT mortgage disbursements in the third quarter, and whether the government’s mid-year budget review — expected in November — will make any concession on the housing front. For the private development sector, the signal that matters most is the trajectory of commercial lending rates: any reduction from current levels of 11–14 per cent would materially improve project feasibility and could catalyse a modest recovery in middle-market housing starts. That reduction, however, appears unlikely before mid-2014 at the earliest.
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