The Acceleration: Post-Reform Jamaica Enters 2017 With a Property Market Running at Pace

The Diaspora Channel Deepens

Remittance inflows to Jamaica for the twelve months ending March 2017 were tracking above US$2.2 billion, sustaining a level of diaspora financial engagement that was increasingly manifesting as direct property investment rather than merely consumption support. The mechanism had become familiar over the preceding three years, but its scale was deepening: Jamaican nationals in the United States, Canada, and the United Kingdom were transferring capital to family members in Jamaica with the explicit purpose of property acquisition, and were increasingly acquiring properties in their own names through attorneys appointed under power of attorney.

The north coast’s short-term rental market was the most visible expression of this trend. Properties in the Ocho Rios hinterland, in the beach communities east of Montego Bay, and along the emerging tourism corridor around Treasure Beach — rebuilt and resilient after Matthew — were being acquired by diaspora investors who had identified the gap between Jamaica’s tourism growth trajectory and its supply of quality short-term accommodation. The economics, calculated in US dollar terms, were increasingly compelling: acquisition prices that remained low relative to comparable Caribbean markets, combined with rental yields that the growth of short-stay platforms had made achievable without on-the-ground management infrastructure.

What This Means

The first quarter of 2017 confirmed that Jamaica’s property market has entered a new phase — not recovery, which implies something tentative and fragile, but expansion, which implies something with its own internal momentum. The structural conditions that have produced this expansion — low rates, stamp duty removal, diaspora capital, tourism growth, BPO employment, improving fiscal credibility — are not cyclical accidents. They are the products of policy choices made over the preceding four years that have, cumulatively, changed the structural setting in which property transactions occur.

The risks to the outlook are real but identifiable. A US dollar interest rate cycle that raises the cost of diaspora mortgage borrowing would reduce one demand stream. A hurricane season worse than 2016’s would test the insurance and resilience of the southern coastal market. Political constraints on the one-seat parliamentary majority could slow the legislative agenda. And the pace of price appreciation in the premium segment is beginning to attract the kind of commentary that precedes, in other markets, a corrective plateau. For now, the data supports continuing expansion. The question is not whether 2017 will be a good year for Jamaica’s property market. It is whether it will be a very good year.

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jamaica-homes.com | Market Analysis | Q1 2017

Developer Confidence at a Post-Crisis High

Perhaps the most consequential development of the first quarter was not the transaction volumes or the price movements but the shift in developer behaviour. The number of new residential development applications lodged with the National Environment and Planning Agency in the first quarter was the highest recorded in the post-crisis period. Schemes ranging from ten-unit gated communities in upscale residential corridors to hundred-and-fifty-unit affordable housing developments in the outer KMA were entering the planning pipeline at a pace that, if it translated to completions, would begin to address the accumulated supply deficit of the 2008–2014 years.

Developer financing, which had been the most severely constrained element of the supply chain during the tight-money years, was also showing signs of normalisation. Commercial banks were approving construction loans at rates and on terms that made project economics viable at price points the market could actually absorb. The era of developers financing construction out of presales deposits and personal equity — because institutional construction finance was simply not available on workable terms — was giving way to a more conventional development-finance environment in which banks competed for well-structured schemes from credible developers. The shift was gradual but measurable, and its consequence — more schemes, better capitalised, able to proceed to completion without depending on presales to fund foundations — would be felt in supply volumes over the following two to three years.

The Diaspora Channel Deepens

Remittance inflows to Jamaica for the twelve months ending March 2017 were tracking above US$2.2 billion, sustaining a level of diaspora financial engagement that was increasingly manifesting as direct property investment rather than merely consumption support. The mechanism had become familiar over the preceding three years, but its scale was deepening: Jamaican nationals in the United States, Canada, and the United Kingdom were transferring capital to family members in Jamaica with the explicit purpose of property acquisition, and were increasingly acquiring properties in their own names through attorneys appointed under power of attorney.

The north coast’s short-term rental market was the most visible expression of this trend. Properties in the Ocho Rios hinterland, in the beach communities east of Montego Bay, and along the emerging tourism corridor around Treasure Beach — rebuilt and resilient after Matthew — were being acquired by diaspora investors who had identified the gap between Jamaica’s tourism growth trajectory and its supply of quality short-term accommodation. The economics, calculated in US dollar terms, were increasingly compelling: acquisition prices that remained low relative to comparable Caribbean markets, combined with rental yields that the growth of short-stay platforms had made achievable without on-the-ground management infrastructure.

What This Means

The first quarter of 2017 confirmed that Jamaica’s property market has entered a new phase — not recovery, which implies something tentative and fragile, but expansion, which implies something with its own internal momentum. The structural conditions that have produced this expansion — low rates, stamp duty removal, diaspora capital, tourism growth, BPO employment, improving fiscal credibility — are not cyclical accidents. They are the products of policy choices made over the preceding four years that have, cumulatively, changed the structural setting in which property transactions occur.

The risks to the outlook are real but identifiable. A US dollar interest rate cycle that raises the cost of diaspora mortgage borrowing would reduce one demand stream. A hurricane season worse than 2016’s would test the insurance and resilience of the southern coastal market. Political constraints on the one-seat parliamentary majority could slow the legislative agenda. And the pace of price appreciation in the premium segment is beginning to attract the kind of commentary that precedes, in other markets, a corrective plateau. For now, the data supports continuing expansion. The question is not whether 2017 will be a good year for Jamaica’s property market. It is whether it will be a very good year.

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jamaica-homes.com | Market Analysis | Q1 2017

With stamp duty gone and a new IMF precautionary arrangement in place, Jamaica’s property market enters 2017 carrying momentum it has not felt since before the global financial crisis. The question is no longer whether the market is recovering. It is how far it can run.

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• IMF Precautionary Stand-By Arrangement approved November 2016; US$1.64 billion available
• New SBA preserves external credibility anchor as EFF successor; markets respond positively
• Q1 conveyancing pipeline at record January-March levels; NHT disbursements elevated
• Residential prices in KMA premium segment up fifteen to twenty percent year-on-year
• Developer confidence at highest since 2006; new scheme launches multiply across parishes
• Remittance inflows sustained above US$2.2 billion; diaspora property demand structurally embedded

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The document that changed Jamaica’s relationship with the International Monetary Fund in November 2016 did not attract the same headlines as its predecessor had in May 2013. There were no cabinet photographs of ministers shaking hands with IMF directors, no prime ministerial addresses to the nation about the weight of the obligations being assumed. A Precautionary Stand-By Arrangement is, by its nature, a quieter instrument: it provides a credit line of US$1.64 billion that Jamaica has the right to draw down in the event of an external shock but is not required to use, and it brings with it the quarterly review discipline that keeps the fiscal framework under international scrutiny. Jamaica signed it and moved on. The markets, which had been watching closely, took the absence of drama as confirmation of credibility.

For the property market, the new arrangement resolved — at least provisionally — the uncertainty that had shadowed the second half of 2016: what would follow the EFF, and would whatever followed it preserve the rate environment on which the market’s recovery had been built? The answer, delivered through the quiet mechanism of a precautionary facility, was yes. Jamaica retained its IMF relationship, retained the quarterly review discipline, and retained the credibility signal that relationship provided to investors and lenders. Treasury bill rates, which had drifted slightly in the months of EFF transition uncertainty, stabilised and began to ease again as the first SBA reviews proceeded without incident.

The first quarter of 2017 opened with a conveyancing pipeline that attorneys described, without apparent exaggeration, as the fullest January-to-March they had seen in more than a decade. The combination of stamp duty’s abolition — now fully embedded in buyer expectations and pricing behaviour — and the low-rate mortgage environment was generating a level of first-time buyer activity that had not been seen since the peak years of the previous decade’s expansion. Unlike that expansion, which had been driven in part by speculative investor demand and inadequate lending standards, the current wave appeared to be genuinely owner-occupier led. Buyers were completing on properties they intended to live in, and at prices supported by income and mortgage capacity rather than speculative expectation of further capital gains.

Though capital gains were happening too. Residential prices in the premium segments of the Kingston Metropolitan Area — Norbrook, Cherry Gardens, Barbican, upper St. Andrew generally — were being reported by estate agents at levels fifteen to twenty percent above their year-earlier equivalents. The appreciation was not confined to the upper end: the middle-market band that had been most directly unlocked by the stamp duty reform was also showing price growth, though at more moderate rates of eight to twelve percent that remained, for now, within the range that income growth and mortgage affordability could support.

Developer Confidence at a Post-Crisis High

Perhaps the most consequential development of the first quarter was not the transaction volumes or the price movements but the shift in developer behaviour. The number of new residential development applications lodged with the National Environment and Planning Agency in the first quarter was the highest recorded in the post-crisis period. Schemes ranging from ten-unit gated communities in upscale residential corridors to hundred-and-fifty-unit affordable housing developments in the outer KMA were entering the planning pipeline at a pace that, if it translated to completions, would begin to address the accumulated supply deficit of the 2008–2014 years.

Developer financing, which had been the most severely constrained element of the supply chain during the tight-money years, was also showing signs of normalisation. Commercial banks were approving construction loans at rates and on terms that made project economics viable at price points the market could actually absorb. The era of developers financing construction out of presales deposits and personal equity — because institutional construction finance was simply not available on workable terms — was giving way to a more conventional development-finance environment in which banks competed for well-structured schemes from credible developers. The shift was gradual but measurable, and its consequence — more schemes, better capitalised, able to proceed to completion without depending on presales to fund foundations — would be felt in supply volumes over the following two to three years.

The Diaspora Channel Deepens

Remittance inflows to Jamaica for the twelve months ending March 2017 were tracking above US$2.2 billion, sustaining a level of diaspora financial engagement that was increasingly manifesting as direct property investment rather than merely consumption support. The mechanism had become familiar over the preceding three years, but its scale was deepening: Jamaican nationals in the United States, Canada, and the United Kingdom were transferring capital to family members in Jamaica with the explicit purpose of property acquisition, and were increasingly acquiring properties in their own names through attorneys appointed under power of attorney.

The north coast’s short-term rental market was the most visible expression of this trend. Properties in the Ocho Rios hinterland, in the beach communities east of Montego Bay, and along the emerging tourism corridor around Treasure Beach — rebuilt and resilient after Matthew — were being acquired by diaspora investors who had identified the gap between Jamaica’s tourism growth trajectory and its supply of quality short-term accommodation. The economics, calculated in US dollar terms, were increasingly compelling: acquisition prices that remained low relative to comparable Caribbean markets, combined with rental yields that the growth of short-stay platforms had made achievable without on-the-ground management infrastructure.

What This Means

The first quarter of 2017 confirmed that Jamaica’s property market has entered a new phase — not recovery, which implies something tentative and fragile, but expansion, which implies something with its own internal momentum. The structural conditions that have produced this expansion — low rates, stamp duty removal, diaspora capital, tourism growth, BPO employment, improving fiscal credibility — are not cyclical accidents. They are the products of policy choices made over the preceding four years that have, cumulatively, changed the structural setting in which property transactions occur.

The risks to the outlook are real but identifiable. A US dollar interest rate cycle that raises the cost of diaspora mortgage borrowing would reduce one demand stream. A hurricane season worse than 2016’s would test the insurance and resilience of the southern coastal market. Political constraints on the one-seat parliamentary majority could slow the legislative agenda. And the pace of price appreciation in the premium segment is beginning to attract the kind of commentary that precedes, in other markets, a corrective plateau. For now, the data supports continuing expansion. The question is not whether 2017 will be a good year for Jamaica’s property market. It is whether it will be a very good year.

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jamaica-homes.com | Market Analysis | Q1 2017

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