There is a house in Kingston that has been on the market for two years. The asking price is reasonable — adjusted downward twice from the original listing, corrected for a reality that the seller resisted acknowledging before the market corrected it for them. The garden is tidy. The tile is intact. The title is clean. And still, nobody has bought it. In the summer of 2015, that house is not an anomaly. It is a portrait of a market caught between what sellers remember and what buyers are prepared to pay — between a Jamaica that was and a Jamaica that, slowly, painfully, is being rebuilt.
We are now deep in the middle years of the International Monetary Fund’s Extended Fund Facility programme, the four-year structural adjustment agreement that Jamaica signed in 2013 and that has defined the economic experience of every Jamaican since. The targets are being met. The primary surplus — that punishing measure of how much more the government collects than it spends before debt service — has been maintained at around 7.5 percent of GDP through sustained cuts to public expenditure and improvements in tax collection. By the standards of IMF programme compliance, Jamaica is a model. By the standards of a property market that depends on employment, income growth, and credit availability, the programme has been, necessarily, a form of organised suffering.
GDP grew by just 0.5 percent in fiscal year 2014 and is tracking toward 1.1 percent in 2015. These are numbers that, in an absolute sense, represent growth — but they are growth at a pace so slow that it is almost indistinguishable from standing still. Household incomes are not expanding meaningfully. Consumer confidence, while improved from the crisis lows, remains cautious. And the property market — which is ultimately a bet on the future economic condition of the buyer, not merely on the present condition of the property — is priced accordingly.
Recounting 2014: The Year the Market Hit Its Floor
Any honest assessment of where Jamaica’s property market stands in mid-2015 must begin with a frank account of what happened in 2014. That year was, in the data that matters, the nadir of the post-crisis residential property cycle. The Bank of Jamaica’s hedonic residential real estate index — the quality-adjusted measure that strips out the compositional effects of which properties happen to transact in a given period — recorded average quarterly price decreases in Kingston and St Andrew of approximately 4.4 percent through 2014. In a single year, sellers in Jamaica’s most important residential market collectively lost roughly a fifth of their property’s value relative to 2013 levels, depending on when they bought and where.
This was not a crash in the dramatic, acute sense that the word implies. It was something more insidious: a slow, grinding downward revision of expectations that played out over months of listings that generated no interest, price reductions that generated mild interest but no offers, and eventual transactions at figures that left sellers with a sense not of relief but of defeat. The market was functioning — property was changing hands — but it was functioning in the way that a clearance sale functions: efficiently disposing of inventory at prices that reflect not its potential value but its current lack of buyers.
Why 2014? Because the IMF programme was one year old, the austerity was at its most acute, public sector wages were constrained, consumer credit was expensive, and the economy’s growth rate was insufficient to generate the kind of household confidence that translates into major purchase decisions. Construction sector activity — a leading indicator of property market vitality — remained depressed. New housing starts were minimal. The developers who had built speculatively in the years before 2008 still carried inventory they were struggling to clear. And the buyers who might have absorbed that inventory — the upwardly mobile professional, the returning diaspora member, the public sector worker with NHT contributions — were sitting on their hands.
The Mortgage Rate Trajectory: The One Number That Is Working in Buyers’ Favour
In a market defined by constraint and caution, the one genuinely positive development is the sustained decline in the cost of mortgage finance. Building society rates, which stood at 10.2 percent as recently as 2012, had moved through 10 percent in 2013 and were approaching 9.7 percent through 2014 before the building societies began signalling further reductions. By mid-2015, the standard building society residential mortgage rate is around 9.5 percent, and commercial banks are following with rates in the same territory. The Bank of Jamaica’s policy rate has been eased carefully as inflation has remained subdued and macroeconomic stability has improved.
For the prospective buyer working through the arithmetic of affordability, each 50-basis-point reduction in the mortgage rate represents a material change in what is possible. A J$10 million mortgage at 10 percent over twenty years carries a monthly payment of approximately J$96,500. The same mortgage at 9.5 percent reduces that monthly commitment to about J$93,200. That J$3,300 monthly difference is, for a family earning J$500,000 per month, the difference between qualifying for financing and not — between buying now and waiting.
The National Housing Trust’s loan portfolio remains the dominant force in residential mortgage finance in Jamaica, accounting for something close to half of all formal mortgage credit outstanding. The NHT lends at administered rates that are substantially below commercial market rates — historically between 3 and 6 percent for qualified contributors, depending on income band — and its reach extends into every corner of the formal economy through compulsory contributions from both employers and employees. The NHT is, in effect, a subsidised mortgage programme funded by a payroll tax, and it has been the primary vehicle through which working Jamaicans of modest means have accessed homeownership for four decades.
In November 2015 — just beyond the date of this writing, but already signalled and anticipated — the NHT will raise its maximum loan ceiling to J$5.5 million and cut its interest rates by 100 basis points. This is significant. The previous ceiling of J$4.5 million, unchanged for years, had been eroded by inflation and construction cost increases to the point where it could no longer finance the purchase of a modest but decent townhouse in most parts of the Kingston Metropolitan Area. The revised ceiling restores the NHT’s relevance to the new-build market in a meaningful way.
What Is Actually Moving, and Where
The residential property market in Jamaica in mid-2015 is not uniformly stagnant, even if the headline story is one of slow-moving inventory and cautious buyers. The geography of activity reveals a pattern that is instructive.
St Catherine continues to account for a disproportionate share of new residential construction and NHT-financed transactions. The parish’s attraction is simple: land is cheaper than in Kingston, transport links to the capital have improved, and the community infrastructure — schools, healthcare, commercial centres — is adequate for the households who are the NHT’s core market. Portmore, that sprawling dormitory community on the western shore of Kingston Harbour, has grown to a population that rivals many Caribbean capitals, and it continues to expand through the construction of affordable housing schemes that would not be financially viable at Kingston land prices.
Kingston and St Andrew, meanwhile, show the two-speed dynamic that characterises many property markets in transition. The upper market — houses above J$20 million in Cherry Gardens, Barbican, Norbrook, Jacks Hill, and the gated developments in the hills above New Kingston — is quiet but not dead. These properties transact slowly in any environment, and their buyers are less sensitive to mortgage rate movements than to macroeconomic confidence more broadly. When a purchaser is writing a significant portion of the price in cash, the mortgage rate is an input, not a constraint. The upper market is waiting, essentially, for a catalyst — for a visible moment when Jamaica’s economic trajectory becomes undeniable rather than merely probable.
The middle market — the J$8-18 million townhouse, the apartment in a managed complex, the freestanding three-bedroom in an established neighbourhood — is where the tension between seller expectations and buyer capacity is most acute. These properties are financed. Their buyers need mortgages. Their buyers are working Jamaicans whose disposable income has been compressed by six years of fiscal austerity and economic stagnation. The market will clear this segment when one of two things happens: either seller expectations fall further to meet buyer capacity, or buyer capacity improves through income growth or financing cost reduction. In mid-2015, the evidence suggests that both processes are slowly at work — but slowly enough that the house in Kingston remains, for now, unsold.
The Debt That Weighs on Everything
To understand Jamaica’s property market in 2015, you must understand Jamaica’s debt. At the peak of the fiscal crisis — around 2012-2013, when the government was negotiating its IMF programme — Jamaica’s public debt stood at approximately 150 percent of GDP. That is a number that belongs in the same conversation as Greece, not the Caribbean. It represented decades of fiscal indiscipline, of borrowing to fund current expenditure, of debt exchanges that restructured obligations without addressing underlying imbalances, and of an interest burden so heavy that the government was devoting more than half of its revenue to debt service before a single dollar was spent on healthcare, education, or infrastructure.
The IMF programme is reducing that ratio, but slowly. Every year of primary surplus above the debt service requirement reduces the stock of debt as a proportion of a growing economy. But the process takes years — years during which the government’s fiscal space remains constrained, public investment remains suppressed, and the public sector workers who represent a significant component of the formal mortgage market remain on wage freezes or minimal salary increments. The housing market cannot fully recover until the economy recovers. The economy cannot fully recover until the debt burden eases. And the debt burden will not ease overnight.
This is not a counsel of despair. The trajectory is correct. The programme is working. But it is working on a timescale that property markets find frustrating — one where improvement is real but pace is glacial, and where the gap between the economist’s reassurance and the broker’s empty diary remains wide.
The Role of the Diaspora in a Slow Market
Jamaica’s diaspora — millions strong, concentrated in North America and the United Kingdom — represents the most significant source of external capital flowing into the island economy. Remittances in 2014-2015 are running at approximately US$2 billion annually, a figure that represents something between 13 and 15 percent of GDP and that has proven remarkably resilient through economic cycles. When the domestic economy weakens, remittances tend to increase as family members abroad respond to the need at home. When global economy weakens, as it did in 2008-2009, remittances fall — but the Jamaican diaspora’s commitment to maintaining flows to family has historically provided some buffer against the worst fluctuations.
For the property market, the diaspora’s role is structural rather than cyclical. The Jamaican professional in London who has been paying into NHT for fifteen years and has accumulated a significant balance of contributions is a motivated property buyer — but only when conditions on the island meet a threshold of confidence. That threshold has not been convincingly crossed in 2015. The exchange rate, while not in crisis territory, has continued its gradual depreciation. The crime statistics remain challenging. And the economic growth rate, while positive, is insufficiently impressive to trigger the kind of “time to buy Jamaica” sentiment that moves diaspora capital from remittance into investment.
But something is changing, slowly. The IMF programme’s track record of compliance is being noticed. The international financial press — the Financial Times, the Economist — has run positive assessments of Jamaica’s fiscal discipline that reach the diaspora communities and gradually shift their perception of the island’s trajectory. Every positive article in the international press about Jamaica’s economic programme is, in a small but real way, a marketing tool for the Jamaican property market. It tells the Jamaican in Croydon or Scarborough or Brixton that the island is getting its house in order — and that the house they might buy there might be worth buying.
Commercial Property: A Slightly Different Story
The residential analysis above should not obscure a somewhat more active picture in commercial real estate. New Kingston continues to function as Jamaica’s primary office and commercial district, and the demand for Grade A office space in the corridor between Knutsford Boulevard and Oxford Road has remained more resilient than residential demand. Several significant commercial developments — mixed-use complexes incorporating office, retail, and residential components — have been completed or are under construction in this zone, a sign that institutional and corporate demand for quality commercial space has not evaporated even in a weak macroeconomic environment.
The retail sector tells a more complicated story. Malls and retail centres in Kingston and the resort towns have seen occupancy rates fluctuate as consumer spending patterns evolve — squeezed incomes produce more selective retail behaviour, and the growth of informal commercial activity in plazas and strip centres has competed with formal retail. But the fundamentals of commercial property demand — the need for businesses to have premises, for retailers to have stores, for financial services firms to have offices — are tied to economic activity in ways that will recover as the economy recovers. Commercial property is, in this sense, a lagging indicator of the economic recovery rather than a leading one.
What Must Happen in 2016
This observer does not offer forecasts lightly. The property market’s recent history is full of premature optimism — of analysts who called the bottom a year too early and were embarrassed by the data that followed. But the structural conditions for 2016 are sufficiently distinctive that a directional view is warranted.
The IMF programme will be in its final year in fiscal year 2016/17. Jamaica will be approaching the exit from its most sustained and demanding engagement with the Fund in the modern era. The institutional memory of what fiscal discipline requires will be embedded more deeply in the government’s operational reality than at any previous point. And the exit from the programme — if managed well — will represent a genuine watershed moment for investor and diaspora confidence.
Mortgage rates will continue to fall. The BOJ has room to ease further, and the banks and building societies — facing a competitive environment for deposits in which falling policy rates have compressed their net interest margins — will be under pressure to pass rate reductions through to borrowers in order to grow their loan books. A standard building society mortgage at or approaching 9 percent by the end of 2016 is a realistic expectation — and would represent the most affordable cost of formal mortgage credit in Jamaica in at least a generation.
The NHT ceiling increase, coming in November 2015, will expand the effective buyer pool for mid-market residential property in a way that takes some months to feed through into transaction data but will be visible in volume statistics by the second half of 2016. Combined with the rate reductions, the NHT’s improved parameters represent the single most significant stimulus to first-home-buyer demand that the market has seen in several years.
And GDP growth will — finally, credibly — accelerate past the 1 percent mark and continue upward toward 1.5 and potentially 2 percent. That is still not fast growth by historical or regional standards. But it is growth that will begin to translate into employment creation, income growth, and the kind of household confidence that makes a major purchase decision feel manageable rather than reckless.
The house in Kingston that has been sitting unsold for two years? In 2016, it finds a buyer. Not at the original asking price. Not even at the first reduced price. But at a price that reflects a market that has finally, definitively, found its floor — and is beginning the slow ascent from it. The seller will not be celebrating. But they will be moving forward. And that, in a property market that has spent too long standing still, is a form of progress worth recognising.
The Long Game
Jamaica’s property market rewards patience above almost any other virtue. It always has. The geography is finite, the title constraints are real but navigable, and the underlying demand from a growing population and an engaged diaspora is structural and durable. The market that emerges from this period of austerity and adjustment will not be the same market that entered it in 2008 — it will be leaner, more transparent, more dependent on formal financing, and more connected to the global property investment community. Those are changes that, in the long run, make the market stronger and more investable.
The builders who held on. The investors who kept their Kingston apartments rather than selling into a weak market. The diaspora families who continued to remit, continued to maintain the old family home, continued to talk about the retirement property they will one day buy — they have been, without knowing it, preserving the foundations of a recovery that is now becoming visible.
2016 is the year the scaffolding starts to come down. The structure beneath it, tested by years of austerity and adjustment, is sounder than many expected. The house is not beautiful yet. But it is standing. And in Jamaica’s property market, after everything this decade has delivered, that is the essential thing.
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