Tourism and Commercial Property
The second quarter’s macro backdrop was shaped by a tourism sector that was approaching a record year. Visitor arrivals through June were running ahead of the corresponding 2016 period, which had itself been a strong year by historical standards. The Tourism Product Development Company was tracking a hotel construction and renovation pipeline — north coast all-inclusive expansions, Kingston boutique hotel openings, and several announced new-build resort projects in parishes including Portland and Westmoreland — that represented the largest committed investment in Jamaican tourism infrastructure since the pre-crisis years.
The commercial property market in Kingston and Montego Bay was responding to the same underlying drivers. Office vacancy rates in both cities had fallen to their lowest levels since 2008, driven by a combination of BPO expansion, financial sector growth, and the general commercial activity associated with an economy growing at above one percent annually and attracting investment. Retail property, which had been the most structurally challenged segment through the austerity years, was beginning to see renewed leasing activity in the major commercial corridors, reflecting a consumer spending environment supported by remittances, employment growth, and — for the first time in many years — real wage growth in some sectors of the formal economy.
What This Means
The second quarter of 2017 completed the evidence base for what the first quarter had suggested: Jamaica’s property market is in an expansion phase with genuine depth. The absorption of new residential supply at rates above developer projections is the clearest single indicator of the health of the underlying demand. It means the market is not dependent on a thin stratum of high-income buyers and diaspora investors — it is being driven by a broad base of owner-occupier demand that the structural reforms of 2013 to 2016 have made financeable.
The risks entering the second half of the year are seasonal and structural. Hurricane season peaks between August and October, and the memory of Matthew is recent. The US Federal Reserve’s rate normalisation cycle is raising the cost of dollar borrowing for diaspora buyers, though slowly enough that the effect has not yet been material. And the rate of price appreciation in the premium segment — fifteen to twenty percent year-on-year — is beginning to compress yields in ways that will eventually constrain investment demand if the trend is sustained. The market is not overheating by the metrics available. But it is running warm, and the second half will test whether the pace is sustainable.
jamaica-homes.com | Market Analysis | Q2 2017
The NHT Responds to the Market
The National Housing Trust’s response to the market conditions of the second quarter included a long-awaited revision to its individual loan limit — the first such revision in three years. The increase, which moved the ceiling upward to reflect the appreciation in residential property prices that had occurred since the previous adjustment, extended the NHT’s reach into the mid-market segment and brought a cohort of properties that had drifted above the previous limit back within reach of NHT-financed buyers. The effect was twofold: it increased the pool of eligible buyers for mid-market properties, and it reinforced the NHT’s role as the price-setter in its lending band, keeping the market’s affordable middle anchored to a predictable financing framework rather than drifting toward the pure commercial-rate environment that would have made mid-market ownership inaccessible to a larger share of NHT contributors.
The Trust’s broader activity reflected the market’s energy. Mortgage approvals in the first half of 2017 were tracking materially ahead of the corresponding period in any post-crisis year. The pipeline of new applications being lodged suggested that the second half would sustain the pace. Among the trends observable in the approval data was a notable increase in the proportion of applications from first-time buyers in the eighteen-to-thirty-five age cohort — the demographic that had been locked out of ownership through the high-rate years and was now, with rates low and stamp duty gone, entering the market in force for the first time in some cases and earlier in their lives than any cohort since the pre-crisis generation.
Tourism and Commercial Property
The second quarter’s macro backdrop was shaped by a tourism sector that was approaching a record year. Visitor arrivals through June were running ahead of the corresponding 2016 period, which had itself been a strong year by historical standards. The Tourism Product Development Company was tracking a hotel construction and renovation pipeline — north coast all-inclusive expansions, Kingston boutique hotel openings, and several announced new-build resort projects in parishes including Portland and Westmoreland — that represented the largest committed investment in Jamaican tourism infrastructure since the pre-crisis years.
The commercial property market in Kingston and Montego Bay was responding to the same underlying drivers. Office vacancy rates in both cities had fallen to their lowest levels since 2008, driven by a combination of BPO expansion, financial sector growth, and the general commercial activity associated with an economy growing at above one percent annually and attracting investment. Retail property, which had been the most structurally challenged segment through the austerity years, was beginning to see renewed leasing activity in the major commercial corridors, reflecting a consumer spending environment supported by remittances, employment growth, and — for the first time in many years — real wage growth in some sectors of the formal economy.
What This Means
The second quarter of 2017 completed the evidence base for what the first quarter had suggested: Jamaica’s property market is in an expansion phase with genuine depth. The absorption of new residential supply at rates above developer projections is the clearest single indicator of the health of the underlying demand. It means the market is not dependent on a thin stratum of high-income buyers and diaspora investors — it is being driven by a broad base of owner-occupier demand that the structural reforms of 2013 to 2016 have made financeable.
The risks entering the second half of the year are seasonal and structural. Hurricane season peaks between August and October, and the memory of Matthew is recent. The US Federal Reserve’s rate normalisation cycle is raising the cost of dollar borrowing for diaspora buyers, though slowly enough that the effect has not yet been material. And the rate of price appreciation in the premium segment — fifteen to twenty percent year-on-year — is beginning to compress yields in ways that will eventually constrain investment demand if the trend is sustained. The market is not overheating by the metrics available. But it is running warm, and the second half will test whether the pace is sustainable.
jamaica-homes.com | Market Analysis | Q2 2017
The schemes that developers launched on the back of 2014’s returning confidence are completing into a market that absorption can no longer be taken for granted — because it is happening faster than anyone projected.
- New residential scheme completions in H1 2017 exceed full-year totals for 2015 and 2016
- Presale absorption rates at some KMA schemes exceed ninety percent before practical completion
- NHT raises individual loan limit for first time in three years; expanded eligibility follows
- Tourism visitor arrivals tracking toward record annual total; hotel pipeline reactivates
- Commercial real estate vacancy rates fall to post-2008 lows in Kingston and Montego Bay
- Budget 2017–18 maintains primary surplus; IMF SBA reviews proceeding on schedule
There is a particular moment in a property cycle, usually visible only in retrospect, when the supply pipeline catches up with pent-up demand and the two curves cross. Jamaica appears to have reached that moment in the second quarter of 2017. The schemes that developers had launched and financed in the renewed confidence of 2014 and 2015, designed around assumptions about a market in gentle recovery, were completing in 2017 into something rather more vigorous: a market in which presale lists filled in days, in which practical completion was followed almost immediately by occupation, and in which the question estate agents found themselves most frequently answering was not “what is available?” but “when is the next phase?”
Residential scheme completions in the Kingston Metropolitan Area and its surrounding parishes for the first half of 2017 already exceeded the full-year totals for both 2015 and 2016. This was not a function of an increase in the speed of construction, which remained constrained by labour and materials costs. It was a function of the planning and financing decisions made in the 2014 to 2016 window being translated into physical product at a faster pace than had been anticipated when those decisions were made. The pipeline that developers had assembled was longer than the industry’s own projections had suggested, and it was arriving in a market that had, in the interim, built up a head of buyer demand that the stamp duty reform and the low-rate environment had only partially released.
Presale absorption rates — the proportion of units committed by buyer deposits before a scheme reaches practical completion — had become the most closely watched metric in the residential development sector by mid-year. At the better-located and better-marketed schemes in the Kingston Metropolitan Area, presale rates of above ninety percent before practical completion were being reported. Developers who had structured their financing models around presale thresholds of sixty to seventy percent, consistent with the cautious assumptions appropriate to a post-crisis market, found themselves in the unusual position of managing waitlists for subsequent phases rather than nurturing a depleted pool of hesitant buyers.
The NHT Responds to the Market
The National Housing Trust’s response to the market conditions of the second quarter included a long-awaited revision to its individual loan limit — the first such revision in three years. The increase, which moved the ceiling upward to reflect the appreciation in residential property prices that had occurred since the previous adjustment, extended the NHT’s reach into the mid-market segment and brought a cohort of properties that had drifted above the previous limit back within reach of NHT-financed buyers. The effect was twofold: it increased the pool of eligible buyers for mid-market properties, and it reinforced the NHT’s role as the price-setter in its lending band, keeping the market’s affordable middle anchored to a predictable financing framework rather than drifting toward the pure commercial-rate environment that would have made mid-market ownership inaccessible to a larger share of NHT contributors.
The Trust’s broader activity reflected the market’s energy. Mortgage approvals in the first half of 2017 were tracking materially ahead of the corresponding period in any post-crisis year. The pipeline of new applications being lodged suggested that the second half would sustain the pace. Among the trends observable in the approval data was a notable increase in the proportion of applications from first-time buyers in the eighteen-to-thirty-five age cohort — the demographic that had been locked out of ownership through the high-rate years and was now, with rates low and stamp duty gone, entering the market in force for the first time in some cases and earlier in their lives than any cohort since the pre-crisis generation.
Tourism and Commercial Property
The second quarter’s macro backdrop was shaped by a tourism sector that was approaching a record year. Visitor arrivals through June were running ahead of the corresponding 2016 period, which had itself been a strong year by historical standards. The Tourism Product Development Company was tracking a hotel construction and renovation pipeline — north coast all-inclusive expansions, Kingston boutique hotel openings, and several announced new-build resort projects in parishes including Portland and Westmoreland — that represented the largest committed investment in Jamaican tourism infrastructure since the pre-crisis years.
The commercial property market in Kingston and Montego Bay was responding to the same underlying drivers. Office vacancy rates in both cities had fallen to their lowest levels since 2008, driven by a combination of BPO expansion, financial sector growth, and the general commercial activity associated with an economy growing at above one percent annually and attracting investment. Retail property, which had been the most structurally challenged segment through the austerity years, was beginning to see renewed leasing activity in the major commercial corridors, reflecting a consumer spending environment supported by remittances, employment growth, and — for the first time in many years — real wage growth in some sectors of the formal economy.
What This Means
The second quarter of 2017 completed the evidence base for what the first quarter had suggested: Jamaica’s property market is in an expansion phase with genuine depth. The absorption of new residential supply at rates above developer projections is the clearest single indicator of the health of the underlying demand. It means the market is not dependent on a thin stratum of high-income buyers and diaspora investors — it is being driven by a broad base of owner-occupier demand that the structural reforms of 2013 to 2016 have made financeable.
The risks entering the second half of the year are seasonal and structural. Hurricane season peaks between August and October, and the memory of Matthew is recent. The US Federal Reserve’s rate normalisation cycle is raising the cost of dollar borrowing for diaspora buyers, though slowly enough that the effect has not yet been material. And the rate of price appreciation in the premium segment — fifteen to twenty percent year-on-year — is beginning to compress yields in ways that will eventually constrain investment demand if the trend is sustained. The market is not overheating by the metrics available. But it is running warm, and the second half will test whether the pace is sustainable.
jamaica-homes.com | Market Analysis | Q2 2017
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