NHT Benefits Launch, Market Responds: Jamaica’s Property Sector Enters Its Busiest Mid-Year in a Decade — July 2017

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

June in Brief

• NHT enhanced benefit package takes effect July 1; enquiry surge recorded at Trust offices islandwide.
• Jamaica’s 2017 tourism season on course for record stopover arrivals; north coast fully booked.
• Corporate Area apartment completions absorb quickly; developer sentiment at multi-year high.
• Bank of Jamaica data: remittances through May 2017 tracking ahead of 2016 annualised pace.
• Self-build construction slows modestly in June rains; formal sector activity sustained.
• NHT Strategic Mandate Review submissions close; report expected by year-end.

Housing Market

The housing market has entered July 2017 with a sense of occasion. The National Housing Trust’s enhanced benefit package — announced in the March budget by Finance Minister Audley Shaw and effective as of this morning, July 1 — represents the single most significant expansion of NHT financing parameters in several years, and its immediate effect on activity at the Trust’s offices islandwide has been substantial. In the days leading up to the launch date, NHT offices in Kingston, Montego Bay, Spanish Town, Portmore and across the other parishes reported elevated foot traffic and phone enquiries from contributors eager to understand exactly what the new limits mean for their purchasing plans.

The broader residential market through June displayed the characteristics of a sector with compressed inventory relative to demand. In Kingston’s established residential communities, well-priced properties have been moving with a speed not seen in several years, with multiple-offer situations reported on occasion — a feature of demand that has been accumulating during the low-activity years of the IMF adjustment period and is now releasing. The Corporate Area apartment segment has continued its strong run, with completions in several developments absorbed by waiting buyers who had registered interest during the pre-sales phase.

NHT: New Benefits in Force

The July 1 NHT benefit changes are the defining policy event for Jamaica’s housing market in the first half of 2017. The revisions — which increase the Home Improvement Loan ceiling to J$2.5 million, raise the House Lot Loan limit to J$2.5 million, and provide enhanced Home Grants for long-term lower-income contributors — have been welcomed by the full spectrum of housing sector stakeholders. The commitment to 100 percent financing for NHT scheme units, reaffirmed during the budget, remains a fundamental feature of the Trust’s product that distinguishes it from any commercial alternative.

For first-time buyers who have been deferring decisions while awaiting the new parameters, the launch creates both opportunity and urgency. The NHT’s scheme inventory is limited, and the ratio of applicants to available units in desirable parishes has historically been high. The benefit changes are expected to broaden the pool of financially viable applicants, which will intensify competition for scheme allocations in the near term. Developers partnering with the NHT on scheme delivery will be watching the uptake data closely as an indicator of the depth of the demand pool for new housing supply.

Tourism and the Property Market

Jamaica’s tourism sector is having an exceptional year. The Jamaica Tourist Board’s data through May indicates that stopover visitor arrivals are running materially ahead of the same period in 2016 — itself a strong year — and the summer forward booking picture for the July–September period is described by hoteliers and villa operators as the best in recent memory. The Montego Bay Sangster International Airport has been operating at high capacity, and the Air Jamaica gap that opened when the national carrier was restructured has been filled by a growing roster of international carriers that now serve Jamaica from multiple North American and European gateways.

For the property market, the tourism boom has both direct and indirect consequences. The direct impact is on the north coast villa and short-term rental market, where strong occupancy is validating investment cases that owners and operators have been building over the past two to three years. Airbnb properties in Montego Bay, Negril, Ocho Rios and Portland are posting summer occupancy rates that surpass the projections many owners made when they first listed their properties. The indirect impact is on the broader sentiment around Jamaica as a destination — when the island is seen internationally as a premier Caribbean resort, the halo effect on property attractiveness to diaspora and international buyers is measurable, if hard to quantify precisely.

Corporate Area Apartment Market

The Kingston apartment market has been the engine of the Corporate Area’s property performance through the first half of 2017. Demand from young professionals, returning residents and investors seeking rental yield has kept absorption rates strong at completed developments, and the pre-sales pipelines for projects scheduled for delivery in 2018 and 2019 are more subscribed than they have been at equivalent stages in prior cycles. Developers report that buyer profiles are diversifying: in addition to the NHT-plus-commercial-top-up buyer that has been the primary purchaser type, there is growing participation from buyers with fully foreign-currency-financed purchases, typically diaspora members who have accumulated savings abroad and are purchasing in cash or near-cash terms.

St Catherine and the Suburban Market

The suburban and peri-urban market in St Catherine has continued to be the volume anchor of Jamaica’s residential new supply. NHT schemes in and around Portmore, Greater Portmore and communities accessible via Highway 2000 remain the primary vehicle through which large numbers of Jamaican families access homeownership. The challenge for this market has always been less about buyer demand — which is robust and well-evidenced by oversubscribed ballots — and more about the pace at which the NHT and its private sector partners can deliver completed, habitable units that match the specifications and price points that buyers were promised at ballot stage.

Diaspora

The Bank of Jamaica’s remittance data through May 2017, published with the standard two-month lag, provides a meaningful baseline for assessing the first half of the year. Transfers from the United States have not shown the deterioration that some analysts feared at the start of the year in the immediate aftermath of Trump’s inauguration. The structural resilience of remittance flows — driven by established, legally settled diaspora members with long-standing family obligations to Jamaica — appears to have provided a buffer against the instability that more precarious community members feared. That said, the monitoring of these flows will need to continue through the second half of the year, as the Trump administration’s immigration enforcement agenda has not been abandoned; it has merely encountered legal and logistical obstacles that have delayed implementation.

The UK diaspora’s contribution to Jamaica’s remittance and property investment picture continues to be shaped by Brexit. The pound sterling has stabilised somewhat from the immediate post-referendum lows of July 2016, but it remains well below its pre-referendum level against both the US dollar and the Jamaican dollar. UK-based Jamaicans considering property purchases in Jamaica are managing this currency headwind as best they can, though it has unquestionably made UK-origin financing of Jamaican property purchases more challenging than it was two years ago.

Construction Activity

The construction sector’s performance through June reflects the seasonal influence of the early rainy season, which typically dampens self-build activity in May and June but has less impact on formal sector projects where site management can accommodate wet-weather working. Formal sector contractors engaged on Corporate Area apartment projects and north coast resort developments report sustained activity levels. The self-build sector, meanwhile, is expected to rebound strongly in July as the summer season brings overseas family members home to Jamaica, many of whom use holiday visits to advance family building projects.

Macro Backdrop

Jamaica’s macroeconomic environment as July opens is as supportive of the property market as it has been at any point in the past decade. The Bank of Jamaica’s policy rate, at historically low levels, continues to anchor a mortgage market in which commercial rates of 8–9 percent for Jamaican-dollar facilities represent genuine improvement over the double-digit rates that prevailed through much of the 2000s. Inflation has remained moderate. The exchange rate — approximately J$128–132 per US dollar — has been relatively stable. GDP growth, while not spectacular, is positive and consistent with the gradual recovery narrative that has characterised Jamaica’s economy since the IMF programme’s fiscal discipline began to generate dividends.

Looking Ahead

August is expected to be one of the busiest months of the year for Jamaica’s housing market. The convergence of the freshly launched NHT benefit changes, the peak summer tourism season, the return of diaspora visitors who typically conduct property viewings during August trips to the island, and a construction sector that comes out of its rainy-season pause creates a powerful demand cocktail. The key questions going into the second half of 2017 are whether the supply side — developers, the NHT, and the self-build sector — can match the volume of demand now present in the market, and whether the macro conditions that have underpinned confidence will remain intact. On both counts, the balance of probabilities as of today favours continued positive momentum.