Year-End Under the EFF: Jamaica’s Housing Market Closes 2013 in Austerity’s Shadow — January 2014

Publication Date: January 3, 2014 | Coverage Period: December 3, 2013–January 2, 2014 | Category: Monthly Review

Month in Brief

• BOJ holds policy rate steady near 6–7% through year-end period.
• Commercial mortgage rates remain elevated between 11 and 14 percent.
• NHT Consolidated Fund transfer of approximately J$11 billion dominates policy debate.
• Jamaica’s housing deficit holds near 100,000 units entering the new year.
• GDP growth remains near zero as IMF EFF conditionalities constrain public spending.
• Diaspora remittances continue to underwrite informal housing construction across parishes.

Housing Market Overview

Jamaica’s residential property market concluded 2013 in a condition that defied easy optimism. The island’s extended engagement with the International Monetary Fund, formalised through the Extended Fund Facility signed in May 2013, has imposed a fiscal discipline that, while necessary for macroeconomic stabilisation, has suppressed the demand conditions on which a housing recovery depends. Wage restraint across the public sector, combined with elevated commercial borrowing costs, has kept formal home ownership beyond the reach of a significant portion of Jamaica’s working population.

Commercial mortgage rates closed the December period in a range of 11 to 14 percent per annum. Building societies and commercial banks have shown little appetite to compress spreads in the current environment, given both the cost of funds and the elevated credit risk associated with a labour market operating under wage suppression. The result is a bifurcated market: a thin upper tier of formal transactions, and a broad informal base of incremental self-build construction, typically financed through personal savings and diaspora transfers.

Government Policy and the NHT

The dominant housing policy story of 2013 has been the National Housing Trust’s Consolidated Fund transfer. The annual transfer of approximately J$11 billion from NHT resources to the Consolidated Fund has attracted sustained criticism from housing advocates, construction industry representatives, and opposition politicians alike. Funds collected from employers and employees for the specific purpose of housing finance are being diverted to general budget support, at a moment when Jamaica’s housing deficit stands at roughly 100,000 units.

Prime Minister Portia Simpson Miller’s PNP administration has defended the transfer as a necessary instrument of fiscal consolidation under the IMF programme, arguing that macroeconomic stability is a precondition for sustainable housing delivery over the medium term. The NHT’s subsidised rates of 0 to 5 percent for eligible beneficiaries remain intact, but the scale of the transfer relative to annual disbursements has kept the controversy alive through the close of the year.

Construction Sector

Construction activity in the residential segment has been subdued throughout the second half of 2013. Building material costs remain sensitive to exchange rate movements, with the Jamaican dollar continuing to depreciate against the US dollar, raising the landed cost of imported inputs including steel, cement additives, and electrical components. Several developers who anticipated a post-EFF recovery in demand have moderated their launch schedules, preferring to await clearer signals from the Bank of Jamaica on the interest rate trajectory before committing to large inventory positions.

Investment and Market Transactions

Formal property transactions tracked through the National Land Agency have remained at modest levels through the December period. The upper end of the Kingston metropolitan market in areas such as Norbrook, Cherry Gardens, and Barbican has seen continued activity. Tourism-linked residential investment concentrated in Montego Bay, Ocho Rios, and Negril has attracted enquiries from overseas Jamaicans and a narrow band of foreign investors, though the conversion rate from enquiry to transaction remains low.

Diaspora and Remittances

Remittances flowing into Jamaica from the United Kingdom, United States, and Canada continue to serve as the single most important source of informal housing finance outside formal institutional channels. A meaningful share is directed toward housing improvement and incremental construction rather than consumption. The NHT’s Overseas programme, which allows diaspora contributors to accumulate benefits for eventual use upon return to Jamaica, has continued to attract participation.

Affordability

The affordability picture for Jamaican households entering 2014 is, by any measurable indicator, difficult. With commercial mortgage rates at 11 to 14 percent and household incomes under the effective constraint of the public sector wage freeze, the debt service capacity of the median Jamaican household is insufficient to service a mortgage on even modestly priced housing stock. NHT-subsidised rates of 0 to 5 percent represent a genuine affordability bridge for eligible beneficiaries, but the NHT’s capacity to serve the full breadth of the 100,000-unit deficit is structurally limited.

Looking Ahead

As 2014 opens, the trajectory of Jamaica’s housing market remains tightly coupled to the performance of the IMF programme. If compliance with EFF targets is sustained, the medium-term prospect of declining interest rates and gradual improvement in mortgage affordability remains plausible. The more immediate concern for housing stakeholders is the resolution of the NHT transfer question. Whether the government will maintain, reduce, or restructure the Consolidated Fund transfer in the 2014/15 budget will be a significant indicator of where housing sits in the hierarchy of competing priorities under austerity.