Three Good Years: Jamaica’s Property Market Closes 2015 With a Confidence That Feels, For Once, Earned

Jamaica ends 2015 having sustained three consecutive years of GDP growth, thirteen consecutive clean IMF quarterly reviews, and a property market that has absorbed the accumulated latent demand of a lost decade. The election year ahead is the first test of whether the recovery that the EFF built can survive the political pressures that elections always impose.

Highlights

• Full-year GDP approximately +0.9%; third consecutive year of EFF-era positive growth
• Transaction volumes reach highest level since 2006; prices up 10–15% across KMA
• Dollar closes year near J$125/US$; depreciation pace stable, orderly
• Transfer tax reform builds political momentum ahead of 2016 election
• Commercial property: BPO sector at 40,000 workers; new office supply arriving
• IMF EFF final year begins; programme scheduled to conclude mid-2017

The number that mattered most at year-end was not the GDP print, or the debt-to-GDP trajectory, or even the volume of transactions registered at the National Land Agency’s offices. It was the tone. The conversations at December’s property industry gatherings — the round-table discussions, the year-in-review panels, the informal conversations at the bar after the formal proceedings — had a quality that veterans of the sector recognised but had not encountered with any regularity since the years before Lehman Brothers. People were making plans. Not the cautious, hedge-everything, keep-the-exit-visible plans of the recovery years, but the forward-looking, how-do-we-build-this-pipeline plans that characterise a sector operating in a genuinely expanding market.

The full-year GDP print of approximately 0.9 percent was, in some respects, below the trajectory that the EFF’s original projections had anticipated for the third year of the programme. The constraints on growth were structural rather than cyclical: the fiscal primary surplus requirement continued to extract purchasing power from an economy that needed investment rather than austerity, the BPO sector’s expansion was approaching the limits of the available labour pool at current wage rates, and the infrastructure deficit — roads, utilities, water — was adding cost to every development project that attempted to open new land. But the direction was right, and the pattern of sustained positive growth was itself a signal to the market that the recovery was durable.

Transaction volumes for the full year had reached their highest level since 2006 — not the speculative peak of the mid-boom years, when easy credit and rising expectations had driven turnover to levels that could not be sustained, but the organic, demand-driven volumes of a market where qualified buyers were finding affordable supply and completing transactions at prices that reflected genuine value. Residential prices across the Kingston Metropolitan Area had appreciated ten to fifteen percent during the year, a pace that was beginning to attract commentary about affordability from economists and housing policy analysts who had spent the preceding decade worrying about the opposite problem.

The transfer tax reform debate had acquired a new urgency in the final quarter of the year as both political parties began positioning for the election expected in 2016. The Jamaica Labour Party, which had made tax reform a consistent element of its economic platform, was promising a reduction in transfer tax and stamp duty as part of its fiscal package. The governing PNP, reluctant to be seen as the party of high transaction costs in an election year, was signalling a willingness to review the transfer tax structure within the constraints of the EFF primary surplus commitment. The question was timing: any transfer tax reduction would reduce revenue in the short term, and the fiscal space to absorb that reduction would not exist until the EFF programme had run its course and the debt-to-GDP ratio had declined sufficiently to provide a buffer.

The commercial property market entered 2016 in a structurally different position than it had occupied at any point in the preceding decade. BPO employment had reached 40,000 workers, and the first purpose-built facilities designed for modern outsourcing operations had completed construction in New Kingston and were occupied. The old debate — about whether the BPO sector could sustain its growth trajectory without better infrastructure, whether Jamaica’s electricity costs would undermine competitiveness, whether the labour pool was deep enough to support continued expansion — had not been resolved, but it had been answered for now by the sector’s continued expansion in the face of those constraints. The question for 2016 was whether the election, and whatever economic policies followed it, would support or disrupt the conditions that the BPO sector required.

What This Means

Jamaica’s property market closes 2015 in the best condition it has occupied in nearly a decade. The recovery is real, it is broad-based, and it is supported by the structural improvements — declining interest rates, growing formal employment, an expanding construction pipeline, returning diaspora capital — that experience suggests are durable rather than cyclical. The election year ahead introduces uncertainty, as it always does, about the policy environment that follows the vote. The transfer tax question is the property market’s most important near-term policy variable, and the answer it gets from whichever government takes office after the election will determine whether the market’s current momentum accelerates, holds, or stalls. Over the next six to eighteen months, the combination of election outcome, post-EFF fiscal framework, and transfer tax policy will set the parameters within which Jamaica’s property market makes the transition from recovery to expansion. The foundation is as solid as it has been in a generation. What is built on it now is the question.

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