NHT Benefits Launch on the Horizon: Jamaica’s Property Market Positions for a Summer Uplift — June 2017

Publication Date: June 3, 2017 | Coverage Period: May 3–June 2, 2017 | Category: Monthly Review

May in Brief

• NHT July 1 benefit changes drive forward-buying momentum among prospective applicants.
• Tourism arrivals for first four months of 2017 tracking well ahead of same period last year.
• IMF staff completes review of Jamaica’s EFF programme; performance cited as exemplary.
• Kingston apartment pre-sales volumes reach strongest levels since pre-2008 market peak.
• St Catherine land market active as infrastructure improvements extend commuter range.
• Short-term rental (Airbnb) properties along north coast reporting strong summer forward bookings.

Housing Market

Jamaica’s property market entered May with a confidence that has become increasingly self-sustaining. The combination of improving macroeconomic conditions, low interest rates and the approaching July 1 NHT benefit enhancements has created a window in which buyers who had been delaying decisions are making moves. The result is a market that is active across multiple segments and several parishes simultaneously — a breadth of activity that distinguishes the current environment from the more episodic recoveries of prior years.

In the Corporate Area, the apartment segment continues to lead. Kingston’s new apartment supply — concentrated in New Kingston, Half Way Tree, Liguanea and areas adjacent to the University of the West Indies — has found consistent buyer demand from young professionals, returning diaspora and institutional investors seeking rental yield. Completed units in well-managed developments have attracted tenants at rents that provide yields in a range competitive with other Jamaican asset classes, adding an investor rationale to the owner-occupier demand already present in the market.

The landed residential market in established Kingston communities has seen more moderate activity. Three- and four-bedroom houses in communities like Barbican, Cherry Gardens, Norbrook and Hope Pastures remain highly sought after but transact at a pace constrained by the limited stock of well-maintained, appropriately priced homes. Sellers in these communities are under limited pressure to discount from asking prices, and the market remains a sellers’ one in terms of quality supply.

Government Policy and IMF Context

The IMF’s Extended Fund Facility programme, which has been the defining framework of Jamaica’s economic management since 2013, has been executing its penultimate reviews with Jamaica in strong compliance. Fund staff have publicly praised Jamaica’s fiscal discipline — a rare distinction for a country with such a difficult debt history — and the primary surplus target has been met consistently. For the housing market, this matters because IMF compliance has kept Jamaica’s credit profile stable, maintained investor confidence and preserved the BOJ’s capacity to hold rates at levels supportive of mortgage borrowing.

The NHT’s July 1 benefit changes — which had been the centrepiece of the March budget from a housing perspective — are now less than a month away, generating a final pre-launch surge of buyer planning activity. NHT offices across the island report elevated enquiry volumes as would-be borrowers seek to understand which products they will qualify for under the new limits and what their monthly repayment obligations will be. Financial advisers and mortgage brokers have noted a corresponding increase in consultations from clients mapping out their post-July purchasing strategies.

Construction and Development

The construction sector has maintained its upward trajectory through May. Formal-sector projects across the Corporate Area and north coast are advancing, and the self-build sector — which typically slows in the wetter months of May and June — has remained more active than seasonal norms would suggest, possibly reflecting the desire of self-builders to advance their projects before anticipated price pressures in materials later in the year.

The north coast hotel development pipeline is generating significant ancillary construction activity. Contractors who have secured subcontracts on major resort expansion projects report full order books, and skilled tradespeople in the construction sector have found themselves in demand in ways not seen for several years. This employment dynamic is itself a positive signal for the residential property market, as construction workers who have accumulated NHT contributions are increasingly among those seeking to apply their benefits.

Short-Term Rentals and Tourism Property

The growth of the short-term rental market, driven primarily by Airbnb but also by VRBO and independent operators, has become an increasingly significant sub-theme in Jamaica’s real estate conversation. Properties in Montego Bay, Negril, Ocho Rios and Portland communities such as Fairy Hill and Drapers have been converted to short-term rental use at a rate that has begun to tighten the supply of longer-term rental accommodation available to local residents and workers in those areas.

This is a dynamic that Jamaica shares with other tourism-dependent island economies across the Caribbean and Mediterranean. The regulatory framework for short-term rentals in Jamaica has not yet been comprehensively updated to address the Airbnb era, and stakeholders in the tourism sector, residential rental market and local government are beginning to discuss what an appropriate framework might look like. For now, the market operates in a regulatory grey zone that permits rapid growth but leaves questions about zoning, taxation and consumer protection unresolved.

Regional Development

St Catherine remains the parish where the volume dimension of Jamaica’s housing supply challenge is most visible. With the largest population outside Kingston and the greatest concentration of NHT-affordable land that is accessible to Kingston employment via Highway 2000, St Catherine’s residential development pipeline is the most consequential in terms of units deliverable at scale in the near term. Portmore’s expansion has been a decades-long story; the newer frontier is the communities north of Spanish Town along the route to Bog Walk and Linstead, where land availability is greater but infrastructure constraints have historically limited development.

Diaspora

The diaspora dimension of Jamaica’s housing market has settled into a steadier pattern as the initial shock of Trump’s election recedes into a more durable background anxiety. Jamaican community organisations in the United States report that members who have legal status are less immediately concerned than those with precarious documentation, and the latter group’s situation varies considerably by state and individual circumstance. Net remittance flows, the metric that matters most for the macro impact on Jamaica, have not deteriorated materially, and the Bank of Jamaica’s monitoring data through April suggests that transfers from the US, UK and Canada are tracking broadly in line with 2016 levels.

Diaspora investment in Jamaica property has remained a feature of the market. UK-based buyers, whose purchasing power in Jamaican-dollar terms has been constrained by the post-Brexit-referendum sterling weakness, have been somewhat less active than in prior years. US-based buyers — who benefit from the strong USD — have maintained their interest, particularly in resort-area properties that offer both a holiday home use case and a potential rental income stream.

Affordability

The approaching NHT benefit changes will improve affordability at the margin for those who qualify under the expanded parameters. However, the structural affordability challenge for the middle-income segment — households whose incomes place them above NHT grant thresholds but below the level at which a commercial mortgage for a Kingston property is comfortably serviceable — has not been fundamentally addressed by the budget measures. The government’s private sector partnership agenda and its public land release commitments represent the medium-term supply-side response, but their delivery timelines remain uncertain.

Looking Ahead

July 2017 will be the most significant month for the housing market in the first half of the year, driven primarily by the NHT benefit changes taking effect on the first of the month. The immediate post-launch period will be characterised by a surge in NHT enquiries and applications, and developers and agents are positioning to accommodate the resulting demand. Beyond the NHT catalyst, the summer tourism season — which 2017 is shaping up as an unusually strong vintage of — will sustain north coast activity. The macro picture remains broadly supportive, and the IMF programme’s successful trajectory provides an institutional anchor for continued investor confidence in Jamaican assets, including property.

Follow Jamaica Homes on Youtube @jamaicahomes and Instagram @jamaica_homes and on Facebook @jamaicahomes Send us a message or email us at onlinefeedback@jamaica-homes.com or editor@jamaica-homes.com