Jamaica Real Estate Roundup — Q3 2017: A Season of Hurricanes and a Market That Endured

• Irma and Maria devastate Caribbean; Jamaica spared direct impact.
• Resort infrastructure intact; tourism sector assessing regional consequences.
• Residential market Q3 activity steady; Kingston transactions improving year on year.
• BOJ easing continues through the summer; mortgage conditions improving.
• Regional crisis will reshape Caribbean tourism; Jamaica’s implications uncertain.

The third quarter of 2017 will be remembered in the Caribbean as one of the most devastating hurricane seasons in the region’s recorded history. Hurricane Irma — a Category Five storm of extraordinary intensity whose sustained winds exceeded 180 miles per hour as it moved through the Leeward Islands in the first week of September — and Hurricane Maria, which struck Dominica and Puerto Rico with catastrophic force in the final weeks of the month, together delivered a level of destruction to the eastern and northern Caribbean that the region had not seen in the modern era. As this edition of the Roundup goes to press, the full extent of the human and economic damage across the affected territories remains unclear, the humanitarian response is at an early stage, and the long-term consequences for the Caribbean tourism industry are a subject of urgent and incomplete assessment. For Jamaica, the quarter’s most significant characteristic is what did not happen: the island was largely spared direct impact from both storms, and its property market, resort infrastructure, and economy enter Q4 2017 in the same gradual recovery trajectory that characterised the first half of the year.

This is not a trivial fact. The Caribbean hurricane season operates on probability distributions that Jamaica has, over the decades, experienced on the wrong side of more than once. The 2017 season’s most powerful storms tracked north and east of Jamaica’s position, and while the island received elevated rainfall and some sea swells associated with the passing systems, nothing in Q3 2017’s weather delivered the kind of structural damage that would have set back the property market’s recovery or undermined the tourism sector’s preparation for the approaching winter peak season. The market’s Q3 2017 story is therefore one that the hurricane context makes legible primarily by contrast.

The Regional Hurricane Catastrophe: Irma and Maria

Hurricane Irma made its Caribbean landfall in the northern Leeward Islands on September 5 and 6, devastating Barbuda — which it left almost entirely uninhabitable — before proceeding through the British Virgin Islands and the United States Virgin Islands, where it produced destruction on a scale that preliminary estimates suggest could require reconstruction investments measured in the billions. St Maarten’s resort economy, shared between the Netherlands and France and built around its accessible beaches and direct air connections from multiple North American and European cities, was severely compromised. The storm then tracked north and west, crossing Cuba’s northern coast before making landfall in the Florida Keys and continuing up Florida’s west coast.

Before the Caribbean had fully begun to absorb the scale of Irma’s impact, Hurricane Maria — also a Category Five at peak intensity — struck Dominica on September 18 with winds estimated to have reached 160 miles per hour, delivering what Dominica’s Prime Minister Roosevelt Skerrit described in near-apocalyptic terms as an assault that had left the island in a condition he had never seen before. Maria then struck Puerto Rico on September 20, producing the power grid failure and infrastructure collapse that would, as the full scope of the damage became clear in the days following, represent one of the most severe single-event humanitarian crises to affect the Caribbean in the modern era.

For Jamaica’s property market, the regional context creates an environment of acute uncertainty about the tourism sector’s near-term dynamics. The established winter tourism circuit in the Caribbean had, in a matter of three weeks in September, lost several of its most significant destinations to damage that will, in the most severe cases, require years to fully repair. The redirection of visitors who had been planning to travel to affected destinations will produce short-term arrivals uplift at Caribbean destinations that were unaffected — of which Jamaica is the largest and most accessible — but the size and duration of this effect, and its implications for the island’s resort capacity and pricing environment, is a matter of genuine uncertainty as this edition is written.

Jamaica’s Property Market Through Q3

Abstracting from the dramatic regional context of the final month of the quarter, Jamaica’s Q3 2017 property market performed in a manner consistent with the gradual recovery trajectory that had characterised the first half of the year. The July to August period — which represents the pre-storm portion of Q3 — delivered transaction volumes and price trends in Kingston and St Andrew’s residential market that were modestly above the Q3 2016 comparable, reflecting the continuing positive effect of the BOJ’s rate easing on mortgage affordability and the slowly improving consumer confidence that the macro data’s improving character was generating.

The Kingston residential market’s Q3 2017 dynamic was one of steady improvement without exuberance. The most sought-after neighbourhoods of upper St Andrew — the established residential communities whose quality housing stock and locational premiums make them the reference points for the top of the conventional residential market — were generating activity consistent with a market in which sellers were achieving reasonable prices and buyers were committing with greater confidence than in the preceding two or three years. The detached house at the premium end was not moving quickly by the standards of the more active markets that would follow in later years, but it was moving, and the price achieved was above what a comparable property would have generated in 2015 or 2016.

The strata apartment market’s Q3 2017 contribution to the residential sector was growing in importance. The projects whose pre-sales had been underway through 2016 and into 2017 were advancing through their construction programmes, and the segment’s growing visibility — the construction cranes on Kingston’s skyline, the showroom presentations, the developer communications — was normalising the concept for a buyer population that had, as recently as 2014 and 2015, been relatively unfamiliar with strata ownership in the Jamaican context. The normalisation was translating into improved sales velocity on new launches and a secondary market for completed strata units that was generating its first real data on resale values.

Summer Tourism: Before the Storms

The July and August portion of Q3 — the North American and European summer holiday peak — had delivered tourism performance consistent with the improving trajectory that the annual data had been building since 2015. Montego Bay’s resort hotels reported occupancy levels and revenue-per-room data above the comparable summer 2016 period, reflecting the expanded airlift that new route additions and frequency increases had produced and the growing attractiveness of Jamaica as a value-accessible premium destination for the North American family market. The all-inclusive resort operators in particular had been benefiting from the growth in demand for the known-cost convenience of the inclusive format that the improving consumer confidence environment was generating.

September’s performance was inevitably disrupted by the hurricane activity. The combination of Irma’s passage through the northern Caribbean and the subsequent Maria had produced booking cancellations and rerouting across the region as travellers responded to the uncertainty with the caution that the severity of the storms warranted. Jamaica’s resort operators confirmed that the September disruption had affected their numbers, though the island’s intact infrastructure and the rapid resumption of normal airlift operations had limited the impact compared to what the severely affected destinations were experiencing.

The BOJ and Credit Conditions

The Bank of Jamaica’s Q3 2017 monetary policy communications maintained the measured tone of an institution managing a gradual easing cycle in conditions that the external environment — the hurricane season, the global interest rate environment, the commodity price dynamics — made more complex than a domestic inflation trajectory alone would have done. The overnight policy rate continued on its downward path through the quarter, and the MPC’s communications signalled that the conditions for continued gradual easing remained in place notwithstanding the regional disruption of September’s hurricane events.

Looking Toward Q4: Uncertainty and Opportunity

The fourth quarter of 2017 opens with Jamaica’s property market in a better position than it has been at any point in the preceding five years, and with a regional context whose consequences for the island are genuinely uncertain. The tourism sector’s Q4 performance will be shaped by the speed at which Caribbean visitors who had been planning to travel to affected destinations rebook to Jamaica, the capacity of Jamaica’s resort infrastructure to absorb additional demand on short notice, and the degree to which the global travel trade’s attention to Jamaica’s ‘open for business’ status generates incremental long-haul bookings that the affected destinations’ absence from the market makes more available.

For the property market, Q4’s outlook is one of continued gradual improvement in the residential segments driven by the improving rate environment and consumer confidence, with the additional tailwind of a diaspora Christmas season that the improving economic narrative and the exchange rate dynamics should make more active than its recent counterparts. The full assessment of what the 2017 hurricane season’s regional consequences mean for Jamaica’s property market will require at least another quarter’s data to begin to be legible. What is clear, as this quarter closes, is that Jamaica enters that period of uncertainty with its fundamentals intact and its trajectory positive.

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