Jamaica Real Estate Roundup — Q1 2016: An Election, a Government Change, and the Market in Waiting

• JLP wins February 25 election; Holness becomes Prime Minister.
• Property market pauses during campaign; decisions deferred for clarity.
• Winter tourism season solid despite electoral distraction.
• BOJ easing maintained; rate direction unchanged by political transition.
• New government’s economic intentions: market awaiting early signals.

The first quarter of 2016 will be remembered in Jamaica’s economic and political history primarily as the period in which the Portia Simpson Miller PNP administration — which had governed the island since December 2011 and had through those years overseen the most intensive period of fiscal consolidation in the country’s modern history — was returned to opposition by a single-seat margin in the February 25 general election. Andrew Holness, whose first brief tenure as Prime Minister following the death of Edward Seaga had lasted only weeks in 2011 before the election he called was lost, returned to the post with the JLP majority that the election’s narrow arithmetic had produced and immediately faced the question that the market was waiting to have answered: what would the new government’s economic management look like, and specifically what would it do with the IMF Extended Fund Facility programme that the preceding administration had negotiated and maintained through years of fiscal discipline?

For Jamaica’s property market, the Q1 2016 narrative was shaped by this uncertainty in the characteristic way that election periods shape market behaviour: the buyers who could wait did wait, the developers who could defer their commitment timelines did defer them, and the sellers who could hold their asking prices did hold them against a backdrop of reduced buyer urgency. The market’s underlying dynamics — the improving rate environment the BOJ’s easing cycle was producing, the recovering tourism sector, the strata development pipeline that was building momentum — did not change during the election period, but their expression in market activity was suppressed by the uncertainty premium that close elections impose on participant behaviour.

The Election and Its Property Market Dimensions

The February 25 election result — a JLP majority of one seat in a 63-seat Parliament — was among the closest in Jamaica’s electoral history, and the narrow margin meant that the result’s finality was not immediately obvious on the night of the count. By the following days, however, the result was confirmed and Holness was sworn in as Prime Minister, beginning the process of government formation and early policy signalling that the market’s participants were watching with the close attention of those whose investment and purchase decisions were sensitive to the direction those signals would take.

The early weeks of the new administration — which fell in the final month of Q1 — produced signals that were, from the property market’s perspective, cautiously reassuring. The new government’s initial engagements with the IMF and its early budget communications suggested a posture of programme continuity rather than renegotiation, and the Minister of Finance’s early statements on the fiscal framework confirmed that the primary surplus targets the programme required would be maintained. For a property market that had calibrated its medium-term outlook around the assumption of continued fiscal consolidation, the confirmation of this assumption was a material positive.

Winter Tourism: The Season That Continued Regardless

The January to March period is Jamaica’s winter tourism peak, and the electoral activity of February had a limited direct effect on the sector whose international visitor base was planning its Caribbean holidays on a timeline that domestic Jamaican politics did not significantly influence. The resort operators of Montego Bay, Negril and Ocho Rios continued to receive their winter visitors through the election period with the operating efficiency that the sector’s professionalism sustained regardless of the political noise, and the Q1 2016 arrivals data reflected the improving trajectory that the tourism recovery had been building.

The diaspora visitor segment — whose presence in Jamaica through the January period is a reliable feature of the island’s winter tourism dynamic — brought with it the property market interest that the returning Jamaican visitor characteristically generates. The diaspora buyer who had been watching the Jamaican property market from offshore, accumulating savings and building toward a purchase decision, and who had chosen to time a visit to the island in January or February was, in Q1 2016, encountering a market whose sellers were somewhat more negotiable than they would be in a more active environment — the election uncertainty having temporarily reduced the competitive pressure that a fuller buyer pool would have maintained.

The Rate Environment and Mortgage Markets

The Bank of Jamaica’s monetary policy path through Q1 2016 was unchanged by the election and its aftermath. The MPC’s Q1 decisions maintained the gradual easing trajectory that had characterised the preceding several quarters, with the overnight policy rate continuing its measured descent and the MPC’s communications providing the forward guidance that had become a consistent feature of its approach. The political transition — managed without any market-disrupting rupture in the macro framework — had not produced the kind of exchange rate or inflation pressure that would have complicated the BOJ’s easing path, and the Q1 close found the rate environment on the same improving trajectory it had been on when the quarter opened.

Residential Market: The Deferred Quarter

The residential market’s Q1 2016 transaction volumes reflected the suppression that the election uncertainty had imposed on buyer decision-making. The market’s most rate-sensitive and confidence-sensitive segment — the first-home buyer whose qualifying arithmetic was being improved by the rate easing but whose confidence to commit was susceptible to the uncertainty that the election campaign’s competing economic narratives had created — was notably quieter than the Q1 2015 comparable. The investment buyer and the diaspora buyer — whose longer decision horizons and less election-sensitive calculus made them less deterred by the temporary uncertainty — maintained activity that was closer to the prior year’s level.

The deferred decisions of Q1 2016 represented, from the perspective of Q2’s market, a stored demand that the resolution of the election uncertainty was likely to release. The buyers who had been waiting were, in many cases, not buyers who had changed their minds but buyers who had changed their timing, and the confirmation of the incoming government’s economic direction that Q2 was providing was the trigger that many of them had been waiting for. The Q2 property market would be the primary beneficiary of Q1’s deferral.

Strata Pipeline: Resilient Through the Campaign

The strata apartment segment’s Q1 2016 performance demonstrated the resilience that its longer-horizon buyer base and its investment-driven demand structure gave it. The projects whose pre-sales were underway through the campaign period and the election itself maintained the majority of their enquiry flow and a solid rate of new sales registrations, suggesting that the segment’s buyer population — characteristically more sophisticated about macro risk and more accustomed to managing through uncertainty — was less deterred by the election’s temporary uncertainty than the conventional residential market’s first-home buyer segment.

Quarter Close: The Wait Is Ending

The first quarter of 2016 closes with the election decided, the new government’s macro framework broadly clear, and the property market’s deferred demand beginning to re-engage. The conditions that have been building through the easing cycle — the improving mortgage affordability, the recovering tourism sector, the strata pipeline’s growing product inventory — are intact and have been supplemented by the clarity of the political framework that Q1’s election delivered. The market that enters Q2 2016 is one in which the preconditions for activity improvement are well established, the deferral premium of the election period is unwinding, and the medium-term trajectory, for a property sector whose fundamentals have been quietly improving for several years, is positive.

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