Publication Date: 3 July 2015 | Coverage Period: 3 June – 2 July 2015 | Category: Monthly Review
June 2015 in Brief
- IMF Extended Fund Facility programme review confirms Jamaica’s continued fiscal compliance
- Government primary surplus targets being met; fiscal credibility slowly rebuilding
- BOJ policy rate moves marginally lower; commercial rates still elevated at 9–12%
- NHT transfer debate sharpens ahead of mid-fiscal year review
- Hurricane season begins; coastal and flood-prone property insurance costs a concern
- Net international reserves at US$2.4 billion, comfortably above IMF programme target
Housing Market Overview
At the midpoint of 2015, Jamaica’s housing market presents a picture of structural resilience constrained by persistent affordability barriers. The fundamental drivers of housing demand — a growing working-age population, ongoing urbanisation, household formation by millennials entering the property market, and remittance flows from an engaged diaspora — remain in place. What is missing is the financing infrastructure that would translate latent demand into actual transactions at scale.
June brought no dramatic change to market conditions, but the backdrop continued to improve incrementally. Jamaica’s IMF programme — the Extended Fund Facility signed in 2013 and now approximately two years into its implementation — has been characterised by a degree of fiscal discipline that was not universally predicted at the outset. The country has passed its quarterly reviews, met its primary surplus targets, and maintained the wage freeze conditions that are central to the programme’s fiscal arithmetic. This track record is beginning to have a discernible effect on investor confidence and on the trajectory of domestic interest rates.
Transaction activity in June was moderate. The Kingston Metropolitan Area and the Greater Portmore corridor in St. Catherine accounted for the bulk of formal market activity. North coast markets, while seasonally quieter as the summer tourist season builds, recorded steady enquiries from diaspora buyers and from Jamaican professionals seeking lifestyle properties.
IMF Programme: Two Years of Compliance and the Macro Dividend
Jamaica’s reputation as an IMF programme “model student” is now a recognised characterisation in international financial circles. The country entered the Extended Fund Facility in early 2013 following the National Debt Exchange — a domestic debt restructuring that imposed haircuts on bondholders but preserved Jamaica’s banking system and avoided an outright default. In the two years since, successive quarterly reviews have been passed with minimal conditions, a record that was not guaranteed given Jamaica’s chequered history with IMF programmes stretching back several decades.
The macro dividend of this compliance is beginning to materialise. Net international reserves stand at approximately US$2.4 billion — substantially above the IMF programme’s minimum target — providing a cushion against external shocks. The fiscal deficit has narrowed materially. Inflation is running at a manageable level. The BOJ’s interest rate, while still elevated in absolute terms, has begun a gradual downward drift from its post-NDX peaks.
For the housing market, the macro dividend takes the form of gradually improving financing conditions. Commercial mortgage rates, while still in the 9–12% range, are expected to move downward as the BOJ’s easing cycle advances. Each percentage point reduction in commercial mortgage rates expands the pool of Jamaican households that can qualify for a loan to purchase a home. At current income and property price levels, even a 100 basis point reduction would meaningfully expand the viable buyer pool.
NHT Under Scrutiny: The Transfer That Defines a Policy
The National Housing Trust’s annual transfer to the Consolidated Fund remains the most politically contested dimension of Jamaica’s housing policy. The J$11.4 billion that the NHT is authorised to transfer annually represents approximately one in four dollars of the Trust’s annual surplus — funds that critics argue belong to the 1.3 million Jamaican workers who have been contributing 2% of their gross wages to the NHT throughout their working lives.
The JLP opposition has made the NHT transfer a centrepiece of its critique of the PNP government’s economic management. The argument — that workers’ housing contributions are being raided to cover the government’s fiscal shortfall — resonates with a broad electorate that is sceptical of institutional competence and sensitive to the perception that contributions made in good faith are not being deployed for their intended purpose. The PNP government, for its part, maintains that the transfer is a legally authorised component of fiscal strategy and that the NHT remains fully capable of fulfilling its housing mandate.
What is clear is that the transfer constrains the NHT’s capacity to raise its loan ceiling — an intervention that would directly expand housing market access. The NHT’s management is acutely aware of the pressure from housing advocates, developers, and the broader public to increase the J$4.5 million ceiling. The mathematics are straightforward: a ceiling increase to J$5.5 million or higher, combined with the Trust’s preferential interest rates, would make a materially larger universe of properties accessible to NHT contributors without commercial top-up loans.
Construction Sector Mid-Year Outlook
The construction sector enters the second half of 2015 with a modestly improved cost structure relative to 2014. Oil prices, while volatile, have held broadly in the US$55–65 per barrel range since January, providing a degree of cost predictability that developers and contractors have used to improve project economics. The hurricane season, which runs through November, introduces weather-related risk to construction timelines and costs — a risk that is particularly acute for coastal and low-lying developments.
Building materials costs remain a concern. Cement, largely supplied through Caribbean Cement Company, continues to be priced at levels that reflect both Jamaica’s scale disadvantage and the monopolistic structure of the local cement market. Hardware and finishing materials imported from the United States and China are subject to exchange rate pass-through, with the Jamaican dollar having depreciated approximately 15–20% against the US dollar over the past two to three years.
Despite these cost pressures, private developers remain active. The lower-cost-of-capital environment that NHT loans provide for qualifying buyers creates a built-in market segment for developers who design projects with NHT-eligible price points in mind. Communities priced between J$6 million and J$10 million — within reach of an NHT loan supplemented by modest savings or a smaller commercial top-up — represent the sweet spot of the current market.
Investment Climate and Finance
Jamaica’s improving fiscal credibility has not yet translated into a significant tightening of the spread between government borrowing costs and commercial mortgage rates. The transmission mechanism from BOJ policy rate reductions to commercial mortgage pricing involves multiple intermediaries — commercial banks, building societies, credit unions — each with their own cost structures, risk assessments, and competitive dynamics. The process is gradual.
However, there are early signs that competition in the mortgage market is beginning to intensify modestly. Building societies, which are the primary NHT-complementary lenders for top-up mortgages, have been monitoring BOJ signals closely. Some institutions are beginning to explore promotional rates and flexible structures to attract borrowers in the NHT co-financing segment. This competitive pressure, while still nascent, is a positive development for the housing market.
Diaspora Flows and Summer Activity
The summer months traditionally see an uptick in diaspora visitors to Jamaica, and with visits often come property enquiries and purchases. Jamaicans based in the United States, United Kingdom, and Canada return during July and August to visit family, and a proportion of these visits include viewings of properties for investment or retirement planning purposes. Real estate agents report an increase in diaspora-motivated enquiries beginning in late June.
The US dollar’s strength against the Jamaican dollar continues to make Jamaica an attractive destination for USD-earning buyers. At approximately J$117–120 per US dollar, a property priced at J$15 million costs a US-based buyer approximately US$125,000–130,000 — a price point that is below the median home price in many US metropolitan areas and represents compelling value for a Caribbean property in a culturally familiar setting.
Regional Context
Across the Caribbean, the US Federal Reserve’s widely anticipated interest rate tightening — expected by most market observers before the end of 2015 — is beginning to influence capital flows. Caribbean nations with large US dollar borrowing requirements and external debt denominated in US dollars are monitoring the Fed closely. For Jamaica, the primary channel of impact from a Fed rate hike would be through the exchange rate: a stronger US dollar environment typically exerts downward pressure on emerging market and commodity-exporting currencies, which could put modest pressure on the Jamaican dollar.
The CARICOM region’s broader housing challenges mirror Jamaica’s in many respects. High construction costs relative to median incomes, inadequate financing infrastructure for lower-income households, and chronic underinvestment in affordable housing supply characterise most Caribbean nations. Jamaica’s NHT model — a contributory fund providing subsidised mortgages — is one of the more advanced institutional responses to this challenge in the region, though its current constraints illustrate the difficulty of sustaining housing finance institutions under fiscal pressure.
Looking Ahead
The second half of 2015 will be shaped by the trajectory of BOJ interest rates, the sustainability of low global oil prices, and the political dynamics around the NHT transfer. Any upward revision to the NHT loan ceiling — which the Trust’s management is understood to be actively considering — would be a significant positive for the housing market. Hurricane season risk will influence insurance costs and construction timelines. The IMF programme’s continued compliance will remain the backbone of macroeconomic stability that the housing market depends on. Carefully calibrated, the conditions exist for modest housing market improvement in the months ahead.
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