Jamaica’s Tightest Budget in a Generation Puts the Housing Dream on Hold — August 2014

Publication Date: 3 August 2014 | Coverage Period: 3 July – 2 August 2014 | Category: Monthly Review

July in Brief

• Diaspora season reaches peak activity; north coast property sales and enquiries strongest since 2011
• Global oil prices showing early signs of softening from mid-year peaks; potential modest relief for construction input costs
• NHT continues scheme delivery across St Catherine, St James, and Clarendon; waiting lists remain long
• Exchange rate near J$113–114 per US$1; diaspora property purchasing power remains elevated
• Unemployment near 14–15%; wage growth absent in real terms; domestic affordability unchanged
• IMF programme tracking: Jamaica approaches second full year of EFF with continued compliance record

Housing Market

July delivered the year’s most active property market, as the diaspora summer peak drove enquiry volumes to levels not consistently seen since the pre-adjustment period. The north coast — Montego Bay, Ocho Rios, Negril, and the growing retirement community in Port Antonio — saw the most pronounced uplift in activity, with real estate practitioners reporting viewings at their highest rate of 2014 and a meaningful number of transactions progressing toward completion.

The domestic market continued its 2014 pattern: steady but uninspiring. NHT scheme allocation continues to generate the most genuine excitement in the local market, as the receipt of a scheme offer represents a life-changing event for recipient families. Outside of NHT-eligible transactions, the Kingston commercial mortgage market remains quiet, with qualified borrowers deterred by rates that remain in the 10–14% range at major lending institutions.

The mid-year assessment of Jamaica’s housing market reveals a sector that has proven more resilient than some predicted under the weight of IMF austerity, but one that is also falling further behind on the structural housing deficit. The gap between housing supply and housing need continues to widen modestly each year, as new household formation outpaces formal and informal construction combined. This is not a crisis in the short term — Jamaica’s housing sector rarely presents as acute crisis, preferring instead to absorb pressure through overcrowding, subdivision of existing structures, and continued expansion of informal settlement — but the cumulative toll is significant.

Government Policy

As Jamaica approaches the second anniversary of its IMF Extended Fund Facility, the programme’s housing sector implications are more legible than they were in the uncertain early months. The NHT Consolidated Fund transfer — J$11.4 billion annually — has been a consistent and substantial drain on the Trust’s capital available for housing investment. Over the programme period, the aggregate transfer to the Consolidated Fund will represent a very large sum that, absent the fiscal necessity, might have funded tens of thousands of additional housing units or substantially increased loan limits to reflect construction cost realities.

The government’s position remains that the macroeconomic adjustment is the precondition for eventual housing improvement, and that running the primary surplus required by the IMF is the foundation of a lower-debt, lower-inflation, lower-interest-rate Jamaica that will ultimately serve homeownership aspirations more effectively than any short-term housing programme expansion could. This is a credible medium-term argument, but the medium term is experienced by real families as years of deferred aspiration.

The HAJ continues its multi-community regularisation mandate, with particular focus on communities in Kingston and St Andrew where informal settlement is most dense and where the social and economic costs of insecure tenure are most acute. Progress is measured in the steady accumulation of individual titles rather than dramatic programmatic announcements, but the cumulative effect over years is substantial.

Construction Activity

July’s construction activity was at mid-season levels, with hurricane season caution dampening the kind of structural starts that characterise the dry-season peak. Contractors and self-builders with projects underway continued their work, but new major starts were limited as the statistical heart of the hurricane season — August and September — approaches.

A tentative positive development in the cost environment deserves note: global oil prices, which have underpinned high construction input costs throughout 2014, showed some signs of softening from their mid-year peaks as the summer progressed. From the approximately US$110–115 per barrel levels seen earlier in the year, prices have edged somewhat lower. If this trend continues — and it is far too early to assume it will — it could provide modest relief to the transport and manufacturing cost components embedded in construction materials. For now, the effect is at the margin, and contractors report no material change in overall project cost estimates.

The NHT’s scheme construction programme presses ahead within its budget parameters. Active sites in St Catherine, St James, and Clarendon are progressing through various stages, from foundation work to finishing on units approaching completion and handover. The NHT’s project management capacity has been stretched by the combination of reduced capital and maintained programme ambition, but the Trust’s institutional experience with scheme delivery provides operational resilience.

Major Developments

The diaspora season has generated a cohort of property decisions that will translate into transactions over the coming months as legal processes complete. Purchase agreements signed in July will typically take three to six months to reach title transfer, meaning that the August–November period will see the processing of many deals negotiated during the summer visits. This creates a sustained pipeline of activity that extends the effective season beyond the physical presence of diaspora visitors on the island.

In the north coast market, there is increasing activity in the condominium and apartment segment as an alternative to standalone villas for diaspora retirement buyers. The lower maintenance burden and security features of condominium living are appealing to buyers who will spend only part of the year in Jamaica and require a property that can be left unoccupied for extended periods. This segment — still relatively small in Jamaica relative to markets like Barbados or the Cayman Islands — is growing modestly as developers respond to evidenced demand.

Infrastructure

The August infrastructure picture is one of seasonal consolidation. Road works and utility extension projects that were underway earlier in the year are completing or pausing in advance of the September–October hurricane season peak. The National Works Agency’s preparation activities for potential storm damage response are underway, including pre-positioning of repair materials and equipment in strategic parish locations.

The government’s long-term infrastructure ambitions — including the proposed extension of expressway networks and the development of improved port facilities that would benefit the logistics sector and, indirectly, residential development in surrounding communities — remain largely in the planning and feasibility stage under the constrained fiscal environment. These projects will require either significant own-source capital in a post-adjustment environment or external financing that is not accessible at reasonable terms in the current period.

Investment Climate

Jamaica’s overall investment climate has improved modestly from the nadir of the debt-crisis period, as the IMF programme’s credibility and the government’s consistent performance against targets have gradually rebuilt confidence among institutional and foreign investors. Tourism investment — new hotel construction, resort renovation, and visitor experience infrastructure — is the most visible expression of this tentatively improving sentiment, and the north coast is its geographic focus.

The property market benefits from tourism investment indirectly: hotel workers need housing, contractors involved in resort construction earn and save, and the visibility of active tourism development signals confidence in Jamaica’s economic trajectory. These secondary effects are modest but real, and they contribute to the relative buoyancy of north-coast residential markets relative to the Kingston metropolitan area’s more domestically-driven dynamics.

Diaspora

The 2014 diaspora season is drawing toward its end as August’s school year preparations pull North American and British Jamaicans back to their adopted countries. The transactions initiated during the peak period will continue processing, and the remittance flows that accompany diaspora visits — often including substantial transfers for housing-related purposes — will continue at their steady annual pace of approximately US$2 billion.

The diaspora’s sustained commitment to Jamaican property, even in an environment of domestic economic difficulty, is one of the most reliable features of the island’s housing market. It reflects a depth of cultural connection and long-term commitment to return that economic headwinds have consistently failed to extinguish. For the Jamaican property market, the diaspora is not merely a segment — it is an anchor.

Affordability

A mid-year affordability assessment confirms what the individual monthly data have consistently suggested: 2014 has not been a year of improvement in housing affordability for domestic Jamaican buyers. Commercial mortgage rates remain at 10–14%; wages have not grown in real terms; construction costs have risen with the exchange rate; and NHT loan limits have not been adjusted to reflect current cost realities. The structural housing deficit has widened slightly, and the NHT waiting lists have grown.

Against this, the IMF programme — if it delivers on its long-term objectives — creates the conditions for eventual improvement. Lower debt, lower inflation, and ultimately lower interest rates would transform the affordability landscape. But this remains a prospective story, and the current generation of aspiring Jamaican homeowners is living the immediate reality of a market that is very difficult to access without NHT eligibility.

Regional Context

The broader Caribbean economic context in mid-2014 reflects a region in gradual adjustment. The US economy’s continued if unspectacular recovery — providing jobs and remittance capacity for the large Caribbean diaspora in North America — is a positive backdrop. US interest rates remain historically low, and while the Federal Reserve’s tapering signals an eventual normalisation, the timeline for any meaningful rate increase remains open. For Caribbean countries with USD-pegged currencies or significant dollar-denominated debt, the Fed’s path matters significantly.

Looking Ahead

The remainder of 2014 will be shaped by three principal factors for Jamaica’s housing sector. First, the hurricane season’s behaviour through August and September: a season without major direct strikes on Jamaica would allow the second-half construction window to be productive, while significant storm damage would absorb repair resources and add to household financial stress. Second, the trajectory of the IMF programme: the next quarterly review will be watched closely, as continued compliance maintains the macro credibility that underpins any eventual improvement in financing conditions. Third, the early signals for the 2015/16 budget cycle: whether the government will revise NHT loan limits, adjust the Consolidated Fund transfer arrangement, or introduce new housing support mechanisms will begin to be telegraphed in the months ahead.

For now, Jamaica’s housing sector closes out the first half of 2014 having endured what it was asked to endure — performing its essential social function of putting roofs over Jamaican heads under difficult conditions, through the combined efforts of the NHT, the HAJ, the private development sector, and above all the remarkable self-building Jamaican family that has always been the real foundation of the island’s housing stock. The challenge of 2015 — which will be shaped in the policy decisions of the months ahead — is to begin creating conditions in which that endurance can be replaced by something closer to flourishing.

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