Cuba Opens, Caribbean Reconfigures: Jamaica’s Property Market Eyes a New Neighbourhood — January 2015

Publication Date: January 3, 2015 | Coverage Period: December 3, 2014–January 2, 2015 | Category: Monthly Review

Month in Brief

• President Obama announces US-Cuba diplomatic normalisation on December 17; Caribbean geopolitics shift.
• Brent crude oil falls below US$60 per barrel by month-end, the lowest level in over five years.
• Jamaica electricity tariffs begin reflecting lower fuel costs; JPS customers see initial bill reductions.
• Bank of Jamaica signals inflation is tracking below forecast; monetary easing path opening for 2015.
• NHT year-end report shows strong contribution inflows despite economic headwinds.
• Diaspora Christmas visitors generate strong property enquiry pipeline for Q1 2015.

Housing Market

The final weeks of 2014 delivered two developments of historic significance that will shape Jamaica’s housing and investment environment into 2015 and beyond. The first — the continued collapse of global oil prices to below US$60 per barrel — was expected by market watchers who had been tracking the post-OPEC trajectory. The second — President Barack Obama’s announcement on December 17 that the United States would begin the process of normalising diplomatic relations with Cuba after more than half a century of hostility — was a geopolitical surprise of the first order.

For Jamaica’s residential market, the immediate effect of these twin developments is modest but directionally positive. Lower oil prices are beginning to appear in household energy bills, freeing some disposable income. The Cuba announcement has captured the imagination of Caribbean investors and tourism operators in ways that will take time to translate into concrete property market movements, but the conversation about Jamaica’s position in a reconfigured Caribbean has already begun.

Transaction volumes over the December period were characteristically soft — the year-end holiday season reduces active buyer and seller engagement — but enquiry levels from diaspora visitors have been reported as robust. Estate agents serving the diaspora segment note that Christmas-period viewings frequently generate first-quarter purchase decisions, and the pipeline of interested buyers from UK and North American Jamaican communities appears healthy entering January 2015.

Government Policy

The Portia Simpson Miller administration enters 2015 in a stronger macroeconomic position than seemed likely a year ago. Oil-driven disinflation is improving the fiscal arithmetic, with the import bill for petroleum declining and inflationary pressure easing. The IMF Extended Fund Facility programme remains on track, with Jamaica having passed successive quarterly reviews through 2014. The government’s compliance record has been recognised in improved investor confidence and, gradually, in more favourable credit market assessments of Jamaican sovereign debt.

Housing policy discussions heading into the new year are focused on several persistent structural issues: the NHT Consolidated Fund transfer controversy, the gap between NHT loan limits and actual construction costs, and the ongoing building permit processing backlogs at municipal corporations. The Government is expected to use the upcoming 2015–16 budget debate — scheduled for March-April 2015 — to address at least some of these concerns, though fiscal constraints will limit the scope of policy change.

Construction Sector

Lower energy prices are now translating into measurable cost improvements for Jamaica’s construction sector. Diesel fuel, used across site operations from excavation to materials transport, has fallen at the pump in line with international trends. The January construction restart — traditional after the Christmas period — is occurring against a backdrop of modestly improved cost economics that developers describe as the most favourable operating environment in several years.

Concrete production costs, which incorporate both cement and energy inputs, are benefiting from the lower fuel environment. Steel bar pricing reflects international market conditions, which have also softened somewhat as global demand concerns weigh on commodity markets broadly. The cumulative effect for a residential scheme in active construction is meaningful: while not transformative on its own, the cost improvement supports viability calculations that were borderline under previous energy cost assumptions.

The skilled labour constraint persists. Jamaica loses a steady flow of trained construction workers to diaspora employment, particularly to the United Kingdom and Canada through various work permit programmes. This structural supply constraint on skilled tradespeople — plumbers, electricians, tilers, and carpenters — continues to be a limiting factor for project execution timelines.

Major Developments

The NHT is expected to announce its 2015 construction programme priorities in the coming weeks, with indications that St Catherine, St James, and Trelawny will again feature prominently. NHT-financed units represent the most significant source of formal affordable housing supply on the island, and the Trust’s deployment decisions have outsized influence on where and how the housing stock expands.

Several private-sector residential developments in the Kingston Metropolitan Area that had been in planning approval stages through 2014 are expected to progress to construction in 2015, encouraged by the improved energy cost outlook and continued demand for mid-market housing from NHT-eligible buyers who combine NHT financing with developer purchase terms.

Infrastructure

Road rehabilitation work under the Government’s parish road improvement programme is expected to resume in January across multiple parishes after the festive season pause. Water and sewerage infrastructure in newer residential areas continues to be a development constraint, with NWC capacity in fast-growing St Catherine communities lagging behind population growth driven by housing scheme approvals.

Investment Climate

Jamaica enters 2015 with its most positive investment narrative in several years. The combination of IMF programme compliance, falling oil prices, a manageable exchange rate, and the prospect of gradual monetary easing creates conditions that international investors and diaspora buyers find incrementally more compelling. Sovereign spreads on Jamaican debt have tightened over the past year, reflecting improved risk assessments. Property market investors tracking yield versus risk will find the 2015 starting position meaningfully improved relative to 2013 or 2014.

Diaspora Market

The Christmas-period diaspora wave has generated what estate agents describe as the strongest enquiry pipeline in recent years. Buyers from the United Kingdom report continued interest in retirement and holiday property in Jamaica, with the pound’s relative strength against the Jamaican dollar providing good purchasing power for sterling-denominated buyers. North American diaspora members, benefiting from their own domestic economic recovery and relatively stable employment markets, are also active in the enquiry pool.

Manchester and Portland remain perennial diaspora favourites for their climate, relative tranquillity, and community feel. St James attracts buyers seeking proximity to tourism infrastructure and rental income potential. Portland, with its distinctive landscape and growing reputation for eco-tourism, is attracting a newer generation of diaspora buyers interested in lifestyle property with income potential.

Affordability

The early months of 2015 are producing tangible affordability improvements for Jamaican households, primarily through lower electricity costs. JPS customers are beginning to see billing reductions that reflect the fuel component adjustments, and motor fuel prices at the pump have fallen materially from mid-2014 levels. For households that spend significant sums on transportation — particularly those in outer parishes who depend on private vehicles or frequent public transport use — the saving is real and recurring.

The Bank of Jamaica’s inflation trajectory, now tracking below earlier forecasts, is the key variable to watch. If lower inflation is sustained through the first quarter of 2015, the conditions for a policy rate cut will begin to meet the BOJ’s stated criteria. Any reduction in the policy rate would create pressure on commercial banks to begin moving mortgage pricing, with even modest reductions in headline mortgage rates having material effects on affordability at the margin.

Regional Context: The Cuba Dimension

President Obama’s December 17 announcement of diplomatic normalisation between the United States and Cuba has been the dominant regional story in Caribbean policy circles. For Jamaica, the development carries both direct and indirect implications. Directly, any significant shift in American tourism and travel patterns that channels visitors through or to Cuba will affect the competitive dynamics of Caribbean tourism broadly — Jamaica included. Cuba’s geographic position, cultural richness, and extraordinary historic urban environment in Havana represent an offer that will attract significant US visitor interest once access normalises.

Indirectly, a more economically open Cuba changes the investment geography of the Caribbean. International capital that has historically been channelled toward other Caribbean destinations may be redirected toward Cuban opportunities. Jamaica’s response, appropriately, is to focus on its own competitive strengths: an established legal framework, English-language environment, developed tourism infrastructure, and proximity to North American markets. Property investors in Jamaica will be watching the Cuba story closely but are advised to assess Jamaica’s fundamentals on their own merits rather than relative to a Cuban market that remains years from full commercial opening.

Looking Ahead

The opening months of 2015 carry genuine promise for Jamaica’s housing sector. Oil prices below US$60 are providing tangible cost relief. The Bank of Jamaica is signalling a loosening bias as inflation falls. The IMF programme remains on track. The budget debate in March-April will be a crucial test of policy ambition for the housing sector — whether the Government uses the improved macro environment to address the NHT’s structural constraints or defers reform to a later cycle. For buyers entering the market in 2015, the strategic message is to act on the improved fundamentals while maintaining realistic expectations about the pace of price movement in a market still navigating significant structural constraints.

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