Jamaica Real Estate Roundup — Q4 2016: Hurricane Matthew, a New Government, and a Market Holding Its Course

• Hurricane Matthew floods eastern Jamaica in October; recovery follows.
• Holness JLP government maintaining IMF programme fiscal discipline.
• BOJ easing continues; mortgage conditions slowly improving.
• Christmas diaspora season generates solid residential property interest.
• Market constrained but showing early signs of recovery trajectory.

The fourth quarter of 2016 opened with a natural disaster whose effects on Jamaica were significant but, in the context of the destruction that the same storm delivered to Haiti, relatively contained. Hurricane Matthew — a powerful Category Four storm as it moved through the western Caribbean in the first days of October — made its closest approach to Jamaica on October 3 and 4, delivering heavy rainfall and damaging winds that produced flooding across the island’s eastern and central parishes, compromised road infrastructure, and disrupted agricultural production in the areas most directly affected. The loss of life in Jamaica was mercifully limited, but the agricultural damage — to banana, coconut and root crop production in the hardest-hit areas — was material, and the disruption to the eastern parishes’ communities required a recovery effort whose costs the government was assessing in the weeks following the storm.

Matthew then tracked north and east, making landfall on Haiti’s southwestern peninsula on October 4 as a Category Four hurricane and delivering a level of destruction to the Tiburon Peninsula and the city of Les Cayes that preliminary assessments characterised as one of the most severe weather events in Haiti’s modern history. The humanitarian crisis on Jamaica’s western neighbour — whose proximity meant that the images and reports of the destruction’s scale were immediate and vivid in the Jamaican consciousness — provided a sobering context for the island’s own assessment of its Q4 starting position. Jamaica had experienced a damaging storm; Haiti had experienced a catastrophe. The distinction shaped the quarter’s narrative.

The Post-Matthew Recovery and Property Market Impact

The property market’s direct exposure to Matthew’s impact was concentrated in the affected eastern and central parishes rather than in the Kingston metropolitan area or the western resort corridor, where the storm’s effects were limited to the standard tropical weather disruption of elevated rainfall and gusty conditions. The residential property damage in the most directly affected areas was real — flooding-related structural damage to lower-lying properties, road access disruptions affecting communities in the Blue Mountains and eastern Portland — but it did not rise to the level of market-disrupting systemic damage that a direct major hurricane strike on Kingston or Montego Bay would have produced. By November, the recovery from Matthew’s direct effects was largely complete in the property market’s key sub-markets, and the quarter’s subsequent trajectory was not materially different from what the pre-storm outlook had suggested.

The Holness Government: Economic Management in Mid-Term

The Andrew Holness JLP government, which had won the February 2016 general election with a single-seat majority and had been managing the economy through the remainder of 2016 with the continuity of IMF programme discipline that the international financial community had made clear was non-negotiable, was by Q4 2016 consolidating its economic management approach and beginning to articulate the growth agenda that its electoral platform had promised. The primary surplus targets were being met, the public debt trajectory was responding to the fiscal consolidation as the programme’s architecture intended, and the IMF’s quarterly reviews continued to deliver the positive assessments that reinforced investor confidence.

For the property market, the political context of the Holness government’s mid-term position was relevant primarily through the lens of confidence: the market’s participants read the political environment for signals about the stability and predictability of the policy framework, and Q4 2016’s signals were broadly reassuring. The continuity of fiscal discipline across the political transition from PNP to JLP — the fact that the incoming government had chosen to maintain rather than abandon the programme commitments of its predecessor — was itself a confidence signal whose positive effect on investor and buyer sentiment was real if difficult to quantify.

The Rate Environment

The Bank of Jamaica’s Q4 2016 monetary policy decisions maintained the gradual easing trajectory that had characterised the year. The overnight policy rate continued its descent from the higher levels of the mid-decade period, with the MPC’s communications signalling continued confidence in the inflation moderation path and the sustainability of the easing direction. The commercial banks were responding to the improving rate environment with mortgage product pricing that, while still reflecting the cost of credit in a market emerging from years of tight conditions, was meaningfully below the levels that had prevailed in 2013 and 2014 and was continuing to improve with each quarter’s easing increment.

The NHT’s mortgage programme continued to function as the primary affordable homeownership financing mechanism for Jamaica’s working households. The Trust’s Q4 2016 lending activity reflected the steady demand from its contributor base, and its mortgage rate structure — set by policy rather than by market dynamics and consistently below the commercial rate — meant that NHT financing remained the preferred option for the large majority of first-home buyers whose income profile qualified them for Trust support.

The Christmas Diaspora Season

December 2016’s diaspora visitor season delivered the property market interest that the Christmas period reliably generates. The returning Jamaicans of the North American and British diaspora — whose December visits to the island are among the most important demand-side drivers the residential market has, concentrating purchase-intent buyers with harder-currency savings and deferred decisions into a narrow window — produced a Q4 closing period that was more active than its 2015 counterpart. The exchange rate dynamics that made diaspora savings increasingly powerful in the Jamaican property market, and the improving economic narrative around the fiscal consolidation programme’s progress, were together creating a climate in which diaspora buyers who had been watching and waiting were beginning to move.

The strata apartment market was the particular beneficiary of the diaspora season’s activity. The product’s appeal to the diaspora buyer — the managed environment, the security, the urban location, the rental income potential during periods of absence — made it the preferred format for a buyer cohort that was not planning full-time residence in Jamaica but wanted a property foothold in a market they believed was improving. The pipeline of new strata launches and the completions of earlier projects gave the diaspora buyer of December 2016 more genuine choices than the same buyer had faced in December 2014 or 2015, and the improved choice was translating into improved decision rates.

Residential Market: Constrained but Moving

The broader residential market’s Q4 2016 performance was consistent with the cautious but genuine early recovery that the year as a whole had been describing. Kingston and St Andrew’s established residential communities were generating transaction volumes above the Q4 2015 comparable, the price data for the most sought-after sub-markets was reflecting modest appreciation, and the supply of new residential development — while still well below what the underlying demand would ultimately require — was growing as the improving development economics of the recovering market attracted new project commitments.

Year Close: 2016 in the Rearview

The year 2016 closes with Jamaica’s property market in better condition than it entered it, despite the Hurricane Matthew disruption and the political transition of the February election. The rate environment is improving, consumer confidence is recovering, and the strata development sector is generating the new product that the residential market needs to accommodate its returning demand. The challenges remain significant — the affordable housing deficit, the construction cost environment, the cautious lending standards of a commercial banking sector still managing the legacy of the tighter years — but the direction of travel, as 2016 ends, is positive. The market that enters 2017 is one whose foundations for a more active next several years are substantially in place.

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