Summer Surge: Record Tourism and a Hot Property Market Drive Jamaica’s Mid-Year Boom — August 2017

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

July in Brief

• NHT new benefit parameters active from July 1; islandwide application volumes exceed projections.
• Jamaica 2017 stopover arrivals confirm trajectory toward a new annual record; July at capacity.
• Diaspora summer visits drive property viewings; agents report busiest July in years.
• Corporate Area apartment completions continue to absorb; rental yields sustaining investor demand.
• Self-build sector rebounds strongly as overseas Jamaicans visit and restart family projects.
• North coast short-term rental market posts highest summer occupancy rates in at least five years.

Housing Market

July 2017 delivered on the expectations that had been building in Jamaica’s property market for most of the first half of the year. The convergence of freshly implemented NHT benefit enhancements, peak summer tourism performance, and the annual wave of diaspora visitors who use their summer trips to conduct property business combined to produce what agents and developers across the island describe as the most active July market in at least five years.

Activity was broad-based rather than concentrated in any single segment or geography. The Corporate Area led on transaction value, as is customary, but the volume story of the month belongs to the NHT-financed segment in parishes like St Catherine, St James and St Elizabeth, where the new benefit parameters have translated almost immediately into elevated application traffic and, for scheme units already available for allocation, a rush of submissions from contributors who had been waiting for the July 1 threshold.

In the landed residential sector in Kingston and St Andrew, July saw a continuation of the tight inventory, strong-demand dynamic that has characterised 2017. Well-presented houses in communities like Barbican, Cherry Gardens, Norbrook, Stony Hill and the Constant Spring Road corridor have been receiving strong interest and in several cases moving at or close to asking prices after limited time on the market. This is a meaningful departure from the extended negotiation periods and price softening that characterised the years from 2010 to 2015.

NHT: One Month In

The National Housing Trust’s new benefit framework has now been live for a month, and the initial data, while preliminary, points to a significant and immediate demand response. NHT offices islandwide have processed substantially higher volumes of initial enquiries and new applications than in the equivalent period of 2016, with the Home Improvement Loan product — which saw its ceiling rise from J$1.5 million to J$2.5 million — generating particularly strong interest from existing homeowners seeking to upgrade or extend their properties. The House Lot Loan enhancement has attracted applicants in St Catherine and Clarendon who have been waiting for increased financing to make land purchases viable.

The enhanced Home Grant for long-term lower-income contributors has been described by NHT management as a critical equity measure — one that reaches the segment of the contributor population that has historically been most distant from actual homeownership despite years of contributions. By providing up to J$2.5 million as a grant (non-repayable) to contributors earning below J$12,000 weekly with seven or more years of contribution history, the benefit creates a real homeownership pathway for a cohort that the commercial market could never serve.

The NHT’s Strategic Mandate Review, which accepted submissions through June, is now in the analysis phase. Stakeholders across the housing sector are watching for the review’s findings on questions including the Trust’s role in rental housing, its approach to informal settlement communities, and its long-term product evolution. Publication is expected before the end of 2017.

Record Tourism Season

Jamaica’s 2017 tourism season has confirmed its status as a record-breaking year. The Jamaica Tourist Board’s mid-year data shows stopover arrivals tracking ahead of 2016’s strong performance, and with the peak summer months of July and August now in progress, the annual record appears within reach barring any unforeseen disruption to travel patterns. July has been particularly strong, with Sangster International Airport in Montego Bay and Norman Manley in Kingston both reporting high passenger throughput.

The property market implications of the tourism boom are multi-dimensional. Resort and villa developers on the north coast have seen investment appetite strengthen materially as occupancy data validates the income projections that had underpinned their development theses. In Negril, the announcement of the 1,200-unit workforce housing development for tourism workers — a project that acknowledges the acute shortage of affordable accommodation near the resort — has highlighted the housing market’s role as infrastructure for the tourism economy rather than merely a parallel sector.

Short-term rental platforms, led by Airbnb but supported by VRBO and direct booking operators, are having an exceptional summer. Properties in Montego Bay’s residential communities near the hotel strip, in Ocho Rios, in Port Antonio and along the Negril beach and cliff areas are reporting occupancy rates that their owners had not projected when they first entered the short-term rental market. Tourism Minister Edmund Bartlett’s direct engagement with Airbnb’s leadership earlier in 2017 — when he led a team to the platform’s headquarters — has set the tone for a constructive rather than adversarial regulatory posture toward short-term rentals, at least for now.

Diaspora Summer

August is the month in which Jamaica’s diaspora is most visibly present on the island. Jamaicans based in the United States, Canada and the United Kingdom return in large numbers for family visits, events and, for many, the practical business of managing property interests that they cannot attend to year-round. For the property market, this diaspora influx — concentrated in July and August but extending into September — is one of the most significant demand events of the calendar year.

Agents working with diaspora clients report that 2017’s summer has been active. Property viewings in July were at their highest level in several years, and the range of properties being considered spans both the investment-minded purchase (apartments for rental yield, north coast villas for short-term rental income) and the personal-use purchase (family homes in established Kingston communities or the buyer’s parish of origin). The Trump administration’s immigration posture, which had generated anxiety at the start of the year, appears to have modulated into a background concern rather than a paralyzing uncertainty for the majority of diaspora buyers — perhaps because the worst-case scenarios have not materialised in the first seven months of the administration.

Remittance flows through June — the most recent month for which Bank of Jamaica data is available — have remained resilient. The annualised trajectory through the first half of 2017 suggests that full-year remittances will be broadly in line with or modestly ahead of 2016 levels, a relief for the hundreds of thousands of Jamaican households that depend on these transfers for housing maintenance, construction and daily consumption.

Construction Activity

The self-build sector has rebounded strongly from the June rainy-season lull. Hardware retailers across the island, particularly in parishes with large diaspora-family populations, report a surge in materials purchases in July — a consistent seasonal pattern that reflects overseas family members funding and physically participating in construction projects during their annual visits. The combination of diaspora capital and NHT financing is the self-build sector’s primary funding cocktail, and both are currently flowing.

Formal sector construction activity has continued at pace on Corporate Area apartment projects and north coast hospitality and ancillary developments. The pipeline of projects that moved to foundation stage in the March–May period is now in various stages of structural completion, and several developments are expected to reach completion and handover in Q4 2017, providing important additions to housing supply in the Corporate Area’s tightest submarkets.

Macro Environment

Jamaica’s macroeconomic position at the mid-year point of 2017 is the strongest it has been in a generation, by several meaningful metrics. The primary fiscal surplus — maintained for multiple consecutive fiscal years — has set the foundation for a gradual decline in the debt-to-GDP ratio that for decades was among the most debilitating features of Jamaica’s economic landscape. The IMF’s EFF programme is in its final stages, and Jamaica’s performance has been uniformly cited as an exemplary case of programme adherence. The Bank of Jamaica’s monetary policy framework has provided stable, low interest rates for an extended period without generating the inflation that such conditions might have been expected to produce in a less disciplined fiscal environment.

The exchange rate has held in the J$128–132 range against the US dollar through the first half of the year — a degree of stability that is particularly important for property developers whose input costs include imported materials priced in dollars. GDP growth, expected to be in the 1.5–2.0 percent range for the full year 2017, is modest but consistent, and the tourism sector’s exceptional performance provides an upside contributor that could push the final number toward the higher end of that range.

Affordability

Notwithstanding the market’s current momentum, affordability remains the defining structural challenge of Jamaica’s housing sector. The NHT benefit enhancements of July 1 have meaningfully expanded the parameters of what is financeable for contributors at various income levels, but they have not closed the gap between supply costs and what the largest cohort of aspiring homeowners can actually pay. Construction costs, while more stable than in some comparable markets, have been rising modestly. Land prices in urban and peri-urban areas have appreciated at rates that NHT loan limits, even at their newly expanded levels, cannot always bridge without supplementary financing.

The medium-term solution to Jamaica’s housing affordability challenge lies in supply expansion, primarily through the release of public land for residential development, the acceleration of the NHT’s own scheme delivery pipeline, and the creation of incentive frameworks that attract private developers to genuinely affordable price points. The Holness government has signalled its commitment to all three, but translating political commitment into completed units that buyers can occupy is a process that extends well beyond a single budget cycle or policy announcement.

Looking Ahead

As Jamaica’s market enters the second half of August, the momentum built through an exceptional first seven months of 2017 appears durable. The demand catalysts — new NHT benefits, record tourism, active diaspora, low interest rates — are all in operation simultaneously, a confluence that the market has not experienced in this combination before. The key risks to the positive outlook are on the supply side: whether the NHT can deliver schemes at the pace that the enlarged applicant pool demands; whether Corporate Area apartment completions continue to absorb at the rates of the first half; and whether Jamaica’s macroeconomic stability — the foundation on which all of this market confidence rests — is maintained as the IMF programme concludes and Jamaica must demonstrate the capacity to sustain fiscal discipline independently. The balance of the evidence as of August 3, 2017 is that Jamaica’s housing market is in the best shape it has been for at least a decade, and that the conditions for continued improvement into the year-end are firmly in place.