- IMF EFF programme third year; fiscal consolidation track record building.
- BOJ easing gathering pace; mortgage costs declining from mid-decade highs.
- Summer tourism steady; arrivals data consistent with improving trajectory.
- Residential market constrained; buyer caution persistent but beginning to ease.
- Strata segment most active; early-mover projects building track record.
The third quarter of 2015 found Jamaica’s property market in the constrained but gradually improving conditions that the third year of the IMF Extended Fund Facility programme had produced. The programme’s fiscal disciplines — the primary surplus requirements, the public sector wage restraint, the controlled public investment envelope — were still the dominant constraint on the household income growth and consumer confidence that the property market’s demand side depended upon. But the cumulative effect of the BOJ’s rate easing, which had been reducing the overnight policy rate from the higher levels of the mid-decade period in the measured steps that the inflation and fiscal framework conditions permitted, was progressively improving the mortgage affordability arithmetic for the segments of the market most sensitive to financing cost changes. The gap between the existing property market and the more active one that the improving fundamentals pointed toward was narrowing, quarter by quarter, in the patient and unhurried way of a market whose recovery was structural rather than cyclical.
The IMF’s Q3 2015 programme review, reflecting the data from the preceding quarter’s fiscal performance, delivered the broadly positive assessment that Jamaica’s programme track record had made routine. The primary surplus targets were being met, the structural reform benchmarks were being addressed, and the Fund’s communications reflected an institution that was satisfied with the programme’s implementation even as it maintained its vigilance about the remaining risks to the consolidation trajectory. For the property market, the IMF’s continued positive assessment was a background positive — one of the macro confidence factors whose presence was insufficiently remarkable to move markets but whose absence would have been immediately and severely negative.
The Rate Environment: Cumulative Improvement
The Bank of Jamaica’s Q3 2015 monetary policy decisions continued the gradual easing that had been the defining feature of the BOJ’s post-2014 policy approach. The overnight policy rate’s Q3 level represented a meaningful improvement over where it had been at the start of the easing cycle, and the commercial banks’ mortgage pricing had been tracking the policy rate’s movement with the lag and spread adjustments that competitive dynamics and risk management requirements produced. The household that had been assessing its qualifying capacity for a residential mortgage through the year found, by the end of Q3 2015, that the numbers were more manageable than they had been in Q3 2014, and the improving trend was creating the expectation of further improvement that was, for some buyers, a reason to wait for more rather than commit to the improvement already delivered.
The NHT’s mortgage programme remained the most accessible homeownership financing option for the large majority of Jamaica’s working households. The Trust’s below-market mortgage rates — set by policy rather than by the commercial banking system’s cost of funds — meant that the NHT contributor whose accumulated entitlement had reached qualifying level was accessing financing at rates that the commercial market was not yet able to match. The Trust’s Q3 2015 lending volumes reflected the steady demand from its qualifying contributor base, and the gap between the volume of demand and the volume of supply — particularly at the entry-level price points where the affordable housing deficit was most acute — remained the sector’s most persistent policy challenge.
Tourism: The Summer Season
The July to September period delivered a summer tourism performance that was consistent with the improving trajectory the sector had been building. The North American summer travel market’s demand for Caribbean destinations was being captured by Jamaica’s resort operators at rates above the Q3 2014 comparable, and the airlift expansion that the preceding several years’ route additions had produced was facilitating the seat availability that the improving demand required. The Montego Bay resort corridor was the primary beneficiary of the summer arrivals, with the all-inclusive format’s known-cost appeal to the family market proving particularly effective in the competitive Caribbean tourism market that the summer season created.
The tourism sector’s Q3 performance mattered to the property market through the employment income and consumer spending it generated in the resort-dependent parishes and through the investment confidence it provided for the resort-area residential market. The properties adjacent to the Montego Bay resort corridor — the gated residential communities, the villa developments, the emerging short-term rental stock that was being integrated into the online platform ecosystem — were benefiting from the improving tourism economics in ways that made them more attractive to the investment buyer than they had been in the softer tourism years of 2014.
Kingston Residential: Patient Market, Patient Buyers
The Kingston residential market’s Q3 2015 dynamic was one of patient participants on both sides of the transaction. Sellers who had been hoping for a price recovery that the improving fundamentals had been promising for several years were maintaining their asking prices against a buyer pool that was less numerous and less urgent than the sellers’ aspirations required. Buyers who were improving their qualifying position with each quarter’s rate easing increment were in many cases still finding the gap between their current qualifying capacity and their preferred property’s asking price too large to bridge without the additional months of savings accumulation and entitlement building that the next several quarters would provide.
The result was a market in which transaction volumes were below what the underlying demand suggested they should ultimately be, and in which the time-on-market for quality residential property was longer than sellers preferred and buyers, in a less patient mood, would have required. The market was not broken — transactions were completing, financing was being approved, buyers were committing — but it was operating at a pace that reflected the constraints of the austerity years rather than the potential of the improving conditions that those constraints were progressively loosening.
Strata: The Segment That Kept Building
The strata apartment sector’s Q3 2015 story was one of the early-mover projects building their track records and the wider developer community beginning to engage with the concept seriously. The Kingston strata schemes that had been pioneering the format through 2013 and 2014 were, by Q3 2015, either approaching or delivering their first completions, and the evidence those completions provided — the build quality, the management performance, the occupancy rates of the completed rental units, the initial data on resale transactions — was the commercial proof of concept that the second wave of developers needed to commit to the format with confidence.
The Q3 2015 strata pipeline’s most significant characteristic was its geographic and price-point diversification. Where the earliest strata projects had been concentrated in a narrow band of Kingston locations and price points, the emerging Q3 2015 pipeline was beginning to show developers testing the concept at different locations — the suburban corridors of St Andrew, the resort-adjacent areas of the northern coast — and at different price points that extended the potential buyer base beyond the early-adopter professional segment that the first projects had served.
Quarter Close: The Patience of Recovery
The third quarter of 2015 closes with Jamaica’s property market in the condition that the patient observer who understands the structural dynamics of the sector would expect: improving, but slowly; constrained, but less so than a year ago; and building toward the more active market that the conditions being assembled — the declining rates, the recovering tourism, the growing strata supply, the accumulating diaspora purchasing power — will, in the years ahead, produce. The austerity years’ constraints are real, but they are finite, and the property market of Q3 2015 is closer to their end than it is to their beginning.
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