IMF Compliance and a Housing Market Waiting for Rate Relief — November 2015

Publication Date: 3 November 2015 | Coverage Period: 3 October – 2 November 2015 | Category: Monthly Review

October 2015 in Brief

• NHT new loan limits (J$5.5 million ceiling, 100bps rate cut) take effect November 1; market absorption underway
• Hurricane season formally ends; construction sector enters high-activity final quarter
• BOJ policy rate reduced further; easing cycle continues in measured steps
• Jamaica current account deficit narrows materially on lower oil import bill
• Fed rate hike now widely expected at December 15–16 FOMC meeting; currency markets pricing it in
• IMF EFF programme on track; another quarterly review passed satisfactorily

Housing Market Overview

Jamaica’s housing market entered November 2015 at an inflection point. The twin forces of structural improvement — the NHT loan ceiling increase and interest rate reduction that became effective on November 1 — and a gradually more supportive macroeconomic environment have created conditions for a more active year-end than 2015’s cautious first half might have suggested. The question now is the pace and breadth of market response to the improved financing conditions.

October saw a sustained pick-up in construction completions as developers raced to deliver units ahead of year-end. Across St. Catherine, Kingston, and the north coast, schemes that had been advancing through the hurricane season are now in their final stages of fit-out and commissioning. This year-end completion surge will translate into increased availability of units for purchase in November and December, coinciding precisely with the newly improved NHT financing parameters.

Buyer sentiment has improved noticeably since the NHT announcement in September. Estate agents and developers report that enquiry-to-viewing conversion rates have increased and that buyers who had been sitting on the fence — deterred by the gap between the old NHT ceiling and property prices — are returning to the market with more purposeful intent. The psychological effect of a concrete policy improvement, particularly one as specific and immediately actionable as a loan ceiling increase with a fixed effective date, has animated a segment of the market that has been dormant.

NHT New Parameters in Effect: The First Days

November 1 marked the first day of operation under the NHT’s new parameters: a maximum loan ceiling of J$5.5 million and interest rates reduced by 100 basis points across all contributor categories. The NHT’s administrative machinery — loan officers, application processing systems, developer approval pipelines — has been recalibrated to the new figures. The first applications under the new regime are being processed.

For the lowest-income contributors — those earning between minimum wage and J$12,000 weekly — the new zero-percent interest rate (reduced from the previous low rate) and the J$5.5 million ceiling combine to provide the most generous terms the NHT has offered this cohort in many years. A contributor in this income band who qualifies for the full ceiling amount and secures a 30-year term faces a monthly capital repayment of approximately J$15,300 — serviceable on a formal weekly wage in the J$20,000–25,000 range when combined with a working partner’s income.

The NHT’s developer approval programme — which certifies housing schemes for NHT buyer participation — is expected to see an uptick in applications as developers seek to position their projects to capture the expanded buyer pool. Schemes approved for NHT participation gain a significant marketing advantage: the ability to tell buyers they can purchase using NHT financing is a powerful sales tool in a market where NHT status is the primary determinant of purchase viability for the majority of the workforce.

Macroeconomic Environment: IMF Programme and Fiscal Progress

Jamaica’s IMF Extended Fund Facility programme — now approaching its third year — continues to advance on its agreed parameters. The most recent quarterly review passed satisfactorily, with Jamaica meeting its primary surplus target, maintaining the public sector wage freeze, and sustaining net international reserves at a level comfortably above the programme floor. The IMF’s characterisation of Jamaica as a model programme participant in the Caribbean has been reinforced by each successive successful review.

The macro dividend of this fiscal discipline is now visible across multiple economic indicators. The current account deficit has narrowed materially — the IMF’s own data shows it fell to approximately 0.6% of GDP in the second quarter of 2015, a dramatic improvement from levels above 10% of GDP in prior years, driven primarily by lower oil import costs and steady growth in tourism and remittance receipts. The Jamaican dollar has been broadly more stable in 2015 than in the preceding two years.

Inflation is running at a manageable pace, supporting the BOJ’s gradual easing stance. The central bank has continued to reduce its policy rate through 2015, with the rate now approaching 5% — a level not seen since before the fiscal crisis of the early 2010s. Each step down in the BOJ rate creates conditions for commercial lenders to edge their own rates lower, a transmission that operates with a lag but is directionally consistent and constructive for the housing market.

Construction: Q4 Peak Activity

The final quarter of the calendar year is typically the most active for Jamaica’s construction sector, as developers seek to complete projects before Christmas shutdowns and the January reset of construction cycles. October was no exception: site activity across the island intensified, with sub-contractors reporting full order books and building materials suppliers noting strong demand.

The energy cost environment remains highly favourable for the construction sector. Global crude oil prices have not rebounded from the lows of August–September and are holding in the US$45–55 per barrel range as of early November. For a sector that runs heavy equipment, generators, and a logistics chain dependent on diesel fuel, this represents a materially lower cost base than anything seen since 2009–2010. The savings are flowing into improved margins for contractors and, in a competitive market, into modestly lower costs for developers and ultimately buyers.

The major development pipeline includes ongoing NHT and HAJ schemes in St. Catherine’s Portmore and Old Harbour communities, private gated developments in St. Andrew’s elevated neighbourhoods, mixed-use and residential projects in New Kingston, and resort-adjacent residential communities on the north coast. The breadth and geographic spread of this pipeline reflects a housing market that, while constrained by affordability, is not inactive.

Affordability: Where the Market Stands

With the NHT’s new parameters now in effect, Jamaica’s housing affordability picture has improved at the margin. The J$5.5 million ceiling and lower interest rates provide a meaningful uplift for buyers in the NHT segment. Commercial mortgage rates, while still elevated at 9–11%, are edging lower. Household energy costs are down, freeing up disposable income. Oil prices are at multi-year lows, moderating construction cost inflation.

Yet the structural affordability challenge remains substantial. A new two-bedroom unit in a well-located, adequately serviced community in the Kingston Metropolitan Area or St. Catherine is typically priced above J$8–10 million — significantly above the new NHT ceiling. The buyer must therefore either contribute savings, secure commercial co-financing at market rates, or accept a location further from employment centres where prices are lower but commuting costs and time are higher. None of these options is without cost or trade-off.

The housing deficit — estimated at 100,000–120,000 units — is not going to be closed by a loan ceiling increase, however welcome. Closing the deficit requires a sustained programme of affordable housing supply at the scale of tens of thousands of units per year, funded by a combination of NHT investment, private development, and public infrastructure that enables communities to be built where land is available and priced accessibly. That programme remains aspirational. The NHT improvement is a meaningful step; the journey is longer.

Diaspora and International Investment

Diaspora engagement continues at a steady pace in November. The autumn is a period when North American-based Jamaicans — particularly those in New York, Toronto, and South Florida — make property decisions, often driven by end-of-year financial planning considerations. The NHT overseas contributor programme means that diaspora buyers who have maintained their contributions are now entitled to apply under the improved parameters, with the J$5.5 million ceiling available to them on the same terms as Jamaica-resident contributors.

The UK diaspora market has shown solid interest through the year. The pound sterling’s strength against the Jamaican dollar — hovering near J$175–180 per pound — continues to make Jamaica property purchases exceptionally compelling for UK-based buyers in price-per-square-foot terms. An apartment that would cost £400,000–500,000 in a modest London neighbourhood can be replicated in Jamaica’s best residential communities for a fraction of that cost in local currency equivalent.

Regional Context and the Looming Fed Decision

The US Federal Reserve’s December 15–16 FOMC meeting is now the dominant external variable in regional financial markets. Market pricing as of early November assigns a high probability — in excess of 70% by most estimates — to a 25 basis point increase in the Fed funds rate at that meeting. Such a move would represent the first US interest rate increase since June 2006 and the beginning of a US monetary tightening cycle that will shape global capital flows for years.

For Jamaica, the direct impact of a Fed rate hike is primarily through the exchange rate and capital flows. A stronger US dollar environment creates pressure on the Jamaican dollar, as investors globally reduce emerging market currency exposure in favour of USD-denominated assets. The BOJ and the Ministry of Finance are monitoring these dynamics closely. Jamaica’s reserves position — approximately US$2.4 billion in net international reserves — provides a buffer, but the BOJ will need to manage the exchange rate pass-through to domestic inflation carefully if JMD depreciation accelerates.

For the Caribbean region more broadly, a Fed rate increase will tighten financing conditions for sovereign borrowers and potentially slow the capital inflows that have supported tourism investment. The timing — if December — means the immediate impact will fall in the first quarter of 2016, when the construction and real estate season is typically quieter. Jamaica and its Caribbean neighbours are as well-prepared as they have been in recent memory to manage the transition, having spent 2015 building reserves and credibility.

Looking Ahead

Jamaica’s housing market closes 2015 in meaningfully better shape than it opened the year. The NHT ceiling increase and rate cut — now in effect — are the most significant near-term positives. The construction sector’s year-end push will determine inventory levels going into 2016. The BOJ’s easing trajectory, while gradual, is supportive. Global oil prices, if sustained at current levels, will continue to benefit the construction sector and household finances. The outstanding risk — the Fed rate hike and its exchange rate implications — is manageable but cannot be dismissed. On balance, the foundations for a modestly more active housing market in 2016 are being laid now, block by block.