Brexit Looms for UK Diaspora as Jamaica’s Property Market Eyes a Changing Landscape — June 2016

Publication Date: 3 June 2016 | Coverage Period: 3 May–2 June 2016 | Category: Monthly Review

May in Brief

• Jamaica’s residential property market records its strongest month-on-month volume gains since 2013 as Project Housing mobilisation accelerates across St. Catherine, Clarendon and St. Elizabeth.
• NHT processes record levels of loan applications in May; first Project Housing scheme site handovers to developers completed in St. Catherine.
• UK’s EU membership referendum campaign reaches its most intense phase, with the 23 June vote now less than three weeks away; sterling volatility rising.
• Commercial mortgage rates fall to approximately 9.0–9.2%, the lowest level in five years; building societies compete aggressively for quality borrowers.
• Jamaica’s tourism sector reports record May visitor arrivals; Montego Bay and Ocho Rios resort property enquiries up 15% year-on-year.
• Bank of Jamaica signals continued monetary accommodation; BOJ’s easing bias expected to persist through the remainder of 2016.

Housing Market: Best Conditions in Years

Jamaica’s property market enters June 2016 in the strongest position it has occupied since before the 2014 slowdown. The combination of a new, housing-focused government, the NHT’s expanded lending capacity, declining commercial mortgage rates and an improving macroeconomic backdrop has produced a sustained recovery in both transaction volumes and buyer confidence that market professionals describe as the most encouraging environment in at least three years.

May’s performance data, now beginning to feed into estate agent and NHT reporting, shows year-on-year volume improvements across most market segments and most parishes. The affordable segment — properties priced below J$12 million — has been the primary driver, as Project Housing’s public profile encourages first-time buyers who had previously felt the market was beyond their reach to re-engage. The mid-market segment in Kingston and its commuter parishes is also performing well, supported by professional household income growth and the easing mortgage rate environment. Premium and resort properties are more mixed, with North American buyer interest strong but UK buyer activity somewhat cautious given the approaching referendum.

Project Housing: First Site Handovers

The Holness administration’s Project Housing programme has moved from announcement to physical delivery at a pace that has surprised even optimistic observers. The first site handovers to approved private developers were completed in St. Catherine in late May, with ground-breaking ceremonies at two locations in the parish signalling that the programme’s implementation machinery is functioning. Ministry of Housing officials have indicated that a further four sites in Clarendon and St. Elizabeth will complete handover by the end of June, with construction commencement expected at all sites before year-end 2016.

The NHT’s role as end-buyer financier for Project Housing units has generated a surge in new loan applications. The Trust is reported to be processing applications at the highest monthly volume in its history, as the combination of Programme Housing eligibility, the J$5.5 million loan ceiling and improving borrower financial profiles creates a broad pool of qualified first-time buyer demand. The Trust’s management has indicated that processing capacity has been scaled up to accommodate the increased volume without compromising due diligence standards.

Mortgage Market: Rates at Multi-Year Lows

Commercial mortgage rates in Jamaica have reached their lowest levels in approximately five years. Building societies are now offering rates in the 9.0–9.2% range to well-qualified borrowers, and commercial banks have also trimmed their mortgage pricing in response to competitive pressure and an improving cost of funds. The Bank of Jamaica’s sustained accommodative monetary stance — with the deposit facility rate effectively near zero and the BOJ’s own signalling indicating no near-term tightening intention — has provided the conditions for this sustained easing in retail lending rates.

For NHT contributors, the improvement in commercial bank rates narrows the gap between NHT preferential lending and market-rate borrowing, but the NHT advantage remains decisive. An NHT loan at 2–3% versus a commercial mortgage at 9–10% represents a cost-of-capital differential that translates into tens of thousands of Jamaican dollars in monthly payment savings, making NHT eligibility the single most important factor in housing affordability for the broad middle of Jamaica’s workforce.

The Brexit Referendum: A Cloud on the Horizon

The United Kingdom’s referendum on European Union membership, scheduled for 23 June 2016, is the most significant external uncertainty facing Jamaica’s property market as this edition goes to press. With the vote just three weeks away, the campaign has reached its most intense phase, and polling data shows the contest between “Remain” and “Leave” remains extremely close — within the margin of error of most published surveys.

For Jamaica’s property sector, the Brexit risk scenario is material but concentrated. The principal mechanism of concern is sterling: financial market consensus holds that a Leave vote would trigger a significant depreciation of the pound against the US dollar and other major currencies, potentially reducing the UK purchasing power of Jamaican property — priced in Jamaican dollars, typically benchmarked against the US dollar — by a meaningful margin. A property that costs the equivalent of £150,000 today at current exchange rates might require £170,000 or more to purchase following a sterling depreciation, effectively raising the cost of Jamaican real estate for UK buyers.

Beyond the exchange rate, a Leave vote could generate uncertainty in the UK labour market and in UK household financial confidence, potentially reducing the savings and investment capacity of UK-based Jamaicans. The United Kingdom hosts one of the largest and most financially active components of the Jamaican diaspora, concentrated in London, Birmingham, Coventry, Nottingham and Manchester. Their continued participation as buyers, investors and remittance senders in Jamaica’s housing economy matters for the market’s resilience.

Agents serving the UK diaspora market in Jamaica report that a number of buyers have explicitly deferred completion of property transactions until after the referendum result is known. This represents a temporary softening in a normally active market segment. The longer-term implications depend entirely on which way the vote goes, and on the speed and nature of any post-referendum economic adjustment in the UK. Jamaica property professionals, while monitoring the situation carefully, note that the island’s domestic fundamentals are robust enough to sustain the market through a period of UK uncertainty.

Construction Activity

Construction output through May was the strongest since the market recovery began. Project Housing sites in St. Catherine are in mobilisation; private developer schemes in Kingston and on the north coast are in various stages of construction; and HAJ programme works continue across multiple parishes. The skills constraint flagged in previous editions — a shortage of trained masons, carpenters and other trades — remains a concern, and the Heart/NSTA Trust’s vocational training capacity is reportedly being scaled in response to government direction. In the near term, contractors are managing the constraint through a combination of overtime, subcontracting and some limited importation of expertise.

Infrastructure and Regional Developments

The Holness administration’s capital expenditure programme is beginning to reach the project mobilisation stage. Road improvements in St. Catherine, Clarendon and sections of the north coast are prioritised for early spending, consistent with their significance both as economic stimulus and as enablers of the housing development pipeline that Project Housing requires. Developers with land in these corridors are reporting accelerated interest from buyers who anticipate improved connectivity driving capital values.

In Montego Bay, the ongoing development of the city’s commercial core and the continued strength of the tourism-driven residential market are generating new apartment and villa development proposals. Several schemes targeting short-term rental income alongside residential use are in planning consultation, reflecting the growing appeal of the Airbnb and villa rental model among both local and international investors in Jamaica’s tourist markets.

Diaspora and International Investment

North American diaspora investment remains the dominant external demand source for Jamaica property, and it has strengthened through the spring of 2016. Several resort parish developers report their highest levels of North American enquiry since 2012. The US economy’s continued solid performance, the strength of the dollar against the Jamaican dollar, and the new government’s pro-investment profile are the principal drivers.

Caribbean regional investment interest — from Trinidad, Barbados and other CARICOM members — has also grown modestly, driven by perceptions that Jamaica’s economic stabilisation and political certainty under the new administration make it a more attractive destination for regional capital than some alternatives. This intra-Caribbean investment flow remains small relative to the diaspora channels but is a positive signal for the market’s diversification.

Macroeconomic Context

Jamaica’s macroeconomic fundamentals continue to provide a supportive backdrop. The IMF EFF remains in compliance. Inflation is subdued, running well below the 5.5–7.5% target band, giving the BOJ continued room to maintain its accommodative stance. Brent crude oil, at approximately US$45–50 per barrel in late May, has recovered from the January trough but remains at historically low levels that benefit Jamaica’s energy import bill. The Jamaican dollar is stable at approximately J$124–125 per US dollar. Real GDP growth for 2016 is on track to meet or modestly exceed the 1.9% forecast for the fiscal year.

Looking Ahead

The 23 June UK referendum is the single most important near-term external variable for Jamaica’s property market, and its outcome will shape the trajectory of UK diaspora investment for months afterward. Whatever the result, Jamaica’s domestic fundamentals — a committed housing delivery government, declining mortgage rates, expanding NHT capacity and a recovering economy — provide a resilient foundation for the market’s continued improvement. Project Housing’s first physical construction starts, expected before year-end, will be a milestone moment for the housing sector and for the Holness administration’s credibility. The summer of 2016 promises to be a defining period for Jamaica’s property market — both in what it delivers domestically and in how it navigates the external uncertainties gathering on the horizon.