The North Coast and the Resort Premium
Away from the KMA, the third quarter’s most striking price movements were occurring along the northern coast in the resort corridor that stretches from Ocho Rios through Runaway Bay to Montego Bay. Tourism’s strong performance in 2016 — stopover arrivals running ahead of the previous year’s already-strong numbers — was translating into demand for land and hospitality property that was straining a supply side that had not seen significant new product since the pre-2008 hotel development cycle. Beachfront land values in well-located sections of the corridor were being reported at fifteen to twenty percent above their twelve-month-ago assessments, a rate of appreciation that was compressing yields for investors and raising questions about the sustainability of the trajectory.
The demand was not exclusively institutional. Jamaican nationals living abroad, particularly those in the North American and United Kingdom diaspora communities, had identified north-coast properties as a viable short-term rental asset in the growing vacation-let market. The proliferation of short-stay platforms had made it possible for a diaspora investor to acquire a two-bedroom villa or apartment on the north coast, furnish it to the standard expected by international visitors, and generate rental income that — in US dollar terms — covered the maintenance cost while the property appreciated in Jamaican dollar terms. The model was not new, but its accessibility had increased materially with the growth of the relevant platforms, and the number of north-coast properties entering the short-term rental market in 2016 was measurably higher than in any previous year.
What This Means
The summer of 2016 answered the question that the spring budget had posed. The stamp duty reform was real, and its effects were real — visible in conveyancing queues, in NHT disbursement data, and in the composition of buyers now completing transactions that had previously stalled at the cost-of-acquisition stage. The middle market was the most responsive segment, which is consistent with theory and with the pre-reform analysis that first-time buyers at full loan-to-value were the cohort most constrained by the transaction cost burden.
The EFF’s conclusion removes one variable from the market’s risk framework and substitutes another: instead of asking whether Jamaica will pass the next IMF review, participants are now asking whether the domestic fiscal rules will hold when they are tested by an adverse shock. That test has not yet come. The economy is growing, the fiscal position is strong, and the rate environment is supportive. But Jamaica’s history is long enough that no one in the market is incautious about the next twelve to eighteen months. Hurricane season has not yet concluded, and the fourth quarter will bring its own uncertainties. For now, however, the data supports confidence.
jamaica-homes.com | Market Analysis | Q3 2016
The EFF Concludes: Jamaica Stands on Its Own
The third quarter brought the formal conclusion of the Extended Fund Facility, the four-year IMF programme that had provided the external discipline around which Jamaica’s fiscal and economic recovery had been organised since May 2013. The programme had been completed with sixteen consecutive quarterly reviews passed — a record in the history of Jamaica’s engagements with the Fund. The government’s stated position was that the fiscal discipline embedded in the EFF would be continued under a domestic Fiscal Responsibility Framework, legislation that had been drafted and introduced with the explicit purpose of maintaining the credibility gains of the programme period without the external oversight mechanism that had underpinned them.
Property market participants were watching this transition with interest that went beyond academic curiosity. The rate environment that had made mortgage finance accessible over the preceding three years was itself a product of the EFF’s success: falling inflation, falling risk premia, and falling bond yields had translated into falling lending rates at commercial banks and a stable NHT lending rate. The question that the market was quietly asking as the programme concluded was whether those rates would hold absent the programme’s anchor. The early evidence from the secondary bond market was reassuring: Jamaican sovereign spreads did not widen materially in the weeks following the EFF’s conclusion, suggesting that investors viewed the transition to domestic fiscal rules as credible. The property market’s rate environment, for now, remained intact.
The North Coast and the Resort Premium
Away from the KMA, the third quarter’s most striking price movements were occurring along the northern coast in the resort corridor that stretches from Ocho Rios through Runaway Bay to Montego Bay. Tourism’s strong performance in 2016 — stopover arrivals running ahead of the previous year’s already-strong numbers — was translating into demand for land and hospitality property that was straining a supply side that had not seen significant new product since the pre-2008 hotel development cycle. Beachfront land values in well-located sections of the corridor were being reported at fifteen to twenty percent above their twelve-month-ago assessments, a rate of appreciation that was compressing yields for investors and raising questions about the sustainability of the trajectory.
The demand was not exclusively institutional. Jamaican nationals living abroad, particularly those in the North American and United Kingdom diaspora communities, had identified north-coast properties as a viable short-term rental asset in the growing vacation-let market. The proliferation of short-stay platforms had made it possible for a diaspora investor to acquire a two-bedroom villa or apartment on the north coast, furnish it to the standard expected by international visitors, and generate rental income that — in US dollar terms — covered the maintenance cost while the property appreciated in Jamaican dollar terms. The model was not new, but its accessibility had increased materially with the growth of the relevant platforms, and the number of north-coast properties entering the short-term rental market in 2016 was measurably higher than in any previous year.
What This Means
The summer of 2016 answered the question that the spring budget had posed. The stamp duty reform was real, and its effects were real — visible in conveyancing queues, in NHT disbursement data, and in the composition of buyers now completing transactions that had previously stalled at the cost-of-acquisition stage. The middle market was the most responsive segment, which is consistent with theory and with the pre-reform analysis that first-time buyers at full loan-to-value were the cohort most constrained by the transaction cost burden.
The EFF’s conclusion removes one variable from the market’s risk framework and substitutes another: instead of asking whether Jamaica will pass the next IMF review, participants are now asking whether the domestic fiscal rules will hold when they are tested by an adverse shock. That test has not yet come. The economy is growing, the fiscal position is strong, and the rate environment is supportive. But Jamaica’s history is long enough that no one in the market is incautious about the next twelve to eighteen months. Hurricane season has not yet concluded, and the fourth quarter will bring its own uncertainties. For now, however, the data supports confidence.
jamaica-homes.com | Market Analysis | Q3 2016
Three months after stamp duty’s abolition, the transaction data is arriving. The market is absorbing the reform at speed — and revealing which segments were most constrained by the cost that has now been removed.
- Third-quarter conveyancing volumes highest in a decade; attorneys report pipeline backlogs
- Middle-market residential — J$8–25M band — leads volume surge by wide margin
- NHT reports record mortgage disbursements through August; approval rates elevated
- IMF EFF formally concludes; Jamaica exits with fiscal responsibility legislation in place
- GDP growth tracking above one percent for fourth consecutive year
- North-coast resort corridor land values rise fifteen to twenty percent in twelve months
Summer in Jamaica’s property market has historically been a season of enquiry rather than execution — buyers who visited during the tourist months made their mental notes and returned home to the diaspora, commencing the wire-transfer negotiations that would eventually result in a completed sale somewhere in the October-to-March window. The summer of 2016 disrupted this pattern. Attorneys’ firms that had structured their staffing around the customary slow third quarter found themselves managing queues of completions in July and August that more properly belonged to a January conveyancing calendar. The reason was not difficult to identify: buyers who had watched the stamp duty reform from a distance were now closing transactions they had been holding in abeyance since the budget announcement, and the supply of pent-up completions proved larger than anyone had estimated.
The data, where it could be gathered from the National Land Agency’s registration statistics, confirmed the anecdotal picture. Transfer registrations in the Kingston Metropolitan Area for July and August were running materially ahead of the corresponding months in both 2015 and 2014 — not marginally ahead, as one might expect from the normal drift of a recovering market, but ahead by a quantum that spoke of suppressed demand releasing. The middle-market segment, the band between eight and twenty-five million Jamaican dollars that had been identified in the spring as the primary beneficiary of the stamp duty change, was leading the surge by a wide margin. First-time buyers who had been approved for mortgages but had been deterred by the additional transaction cost burden were completing in numbers that the NHT’s own mortgage disbursement figures were beginning to reflect.
The NHT itself was operating under conditions it had not encountered since the early 2000s. Loan disbursements through August were tracking ahead of the full-year 2015 total, driven by a combination of the stamp duty reform, which made effective loan-to-value calculations more favourable, and the low-interest-rate environment that had persisted through the EFF years. The institution’s capacity to process applications at the pace at which they were arriving had become a limiting factor in the market’s expansion: not a constraint on demand, but a bottleneck in supply of approved credit.
The EFF Concludes: Jamaica Stands on Its Own
The third quarter brought the formal conclusion of the Extended Fund Facility, the four-year IMF programme that had provided the external discipline around which Jamaica’s fiscal and economic recovery had been organised since May 2013. The programme had been completed with sixteen consecutive quarterly reviews passed — a record in the history of Jamaica’s engagements with the Fund. The government’s stated position was that the fiscal discipline embedded in the EFF would be continued under a domestic Fiscal Responsibility Framework, legislation that had been drafted and introduced with the explicit purpose of maintaining the credibility gains of the programme period without the external oversight mechanism that had underpinned them.
Property market participants were watching this transition with interest that went beyond academic curiosity. The rate environment that had made mortgage finance accessible over the preceding three years was itself a product of the EFF’s success: falling inflation, falling risk premia, and falling bond yields had translated into falling lending rates at commercial banks and a stable NHT lending rate. The question that the market was quietly asking as the programme concluded was whether those rates would hold absent the programme’s anchor. The early evidence from the secondary bond market was reassuring: Jamaican sovereign spreads did not widen materially in the weeks following the EFF’s conclusion, suggesting that investors viewed the transition to domestic fiscal rules as credible. The property market’s rate environment, for now, remained intact.
The North Coast and the Resort Premium
Away from the KMA, the third quarter’s most striking price movements were occurring along the northern coast in the resort corridor that stretches from Ocho Rios through Runaway Bay to Montego Bay. Tourism’s strong performance in 2016 — stopover arrivals running ahead of the previous year’s already-strong numbers — was translating into demand for land and hospitality property that was straining a supply side that had not seen significant new product since the pre-2008 hotel development cycle. Beachfront land values in well-located sections of the corridor were being reported at fifteen to twenty percent above their twelve-month-ago assessments, a rate of appreciation that was compressing yields for investors and raising questions about the sustainability of the trajectory.
The demand was not exclusively institutional. Jamaican nationals living abroad, particularly those in the North American and United Kingdom diaspora communities, had identified north-coast properties as a viable short-term rental asset in the growing vacation-let market. The proliferation of short-stay platforms had made it possible for a diaspora investor to acquire a two-bedroom villa or apartment on the north coast, furnish it to the standard expected by international visitors, and generate rental income that — in US dollar terms — covered the maintenance cost while the property appreciated in Jamaican dollar terms. The model was not new, but its accessibility had increased materially with the growth of the relevant platforms, and the number of north-coast properties entering the short-term rental market in 2016 was measurably higher than in any previous year.
What This Means
The summer of 2016 answered the question that the spring budget had posed. The stamp duty reform was real, and its effects were real — visible in conveyancing queues, in NHT disbursement data, and in the composition of buyers now completing transactions that had previously stalled at the cost-of-acquisition stage. The middle market was the most responsive segment, which is consistent with theory and with the pre-reform analysis that first-time buyers at full loan-to-value were the cohort most constrained by the transaction cost burden.
The EFF’s conclusion removes one variable from the market’s risk framework and substitutes another: instead of asking whether Jamaica will pass the next IMF review, participants are now asking whether the domestic fiscal rules will hold when they are tested by an adverse shock. That test has not yet come. The economy is growing, the fiscal position is strong, and the rate environment is supportive. But Jamaica’s history is long enough that no one in the market is incautious about the next twelve to eighteen months. Hurricane season has not yet concluded, and the fourth quarter will bring its own uncertainties. For now, however, the data supports confidence.
jamaica-homes.com | Market Analysis | Q3 2016
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