The Boom That Earns Its Name: Jamaica’s Property Market Closes 2017 at a Generational High

The Developer Pipeline: A New Cycle Announced

The fourth quarter brought a cluster of developer announcements that collectively constituted the largest residential pipeline announced in a single quarter since the 2005–2007 cycle. Schemes ranging from gated townhouse communities in upper St. Andrew to large-scale affordable housing developments in the outer KMA and the major secondary cities were announced, with construction start dates ranging from early 2018 to late 2019. The announcement pipeline was itself a confidence signal: developers do not publicly announce schemes without having made the financing and planning decisions that precede them, and the volume of announcements in Q4 2017 implied a level of developer conviction that had not been visible since before the crisis.

The affordable housing segment was attracting renewed attention from both private developers and the public sector. The Housing Agency of Jamaica’s pipeline for 2018 included schemes that had been planned during the austerity years and deferred for financing reasons, now being reactivated with NHT co-financing on terms that made their economics viable. Private developers who had identified the gap between NHT loan limits and middle-market prices were designing schemes explicitly calibrated to the NHT lending ceiling — units priced to maximise affordability within the Trust’s financing parameters rather than to extract maximum revenue from the premium market.

What This Means

Jamaica closes 2017 with a property market that has, by the most generous reading of the data, completed its recovery and entered a new expansion cycle. The structural conditions underpinning this cycle — low rates, fiscal discipline, stamp duty reform, diaspora investment, tourism growth, BPO employment — are not new. They are the same conditions that have been present since 2014, compounding in their effects. What 2017 added was the proof that those conditions were durable enough to sustain the expansion across an election year, a hurricane near-miss, and the gradual normalisation of US interest rates. The durability, more than any single quarterly number, is the significant finding.

The risks for 2018 are the risks of a market running at pace. Price appreciation in the premium segment at eighteen to twenty-two percent annually is not, over the long run, sustainable relative to income growth and rental yields. The developer pipeline being announced for 2018 and 2019 will eventually supply a market that has been supply-constrained, and when that supply arrives the price trajectory will moderate. The IMF transition — from the current SBA to whatever arrangement succeeds it — will be watched for signals about the rate environment. And the one-seat parliamentary majority, which has constrained the government’s legislative programme since 2016, may or may not survive the full parliamentary term. But these are the concerns of a market that has earned the right to have them. The boom is real.

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jamaica-homes.com | Market Analysis | Q4 2017

Tourism Breaks Records; Property Follows

The year’s macro backdrop was shaped by a tourism sector that delivered what its five-year strategic plan had targeted and that most industry analysts had doubted was achievable on schedule. Visitor arrivals for 2017 — stopover and cruise combined — reached a record that had not been approached since data collection began, with stopover numbers in particular reflecting a quality of tourism product and a volume of air access that the investment of the preceding decade was finally producing. The contribution to GDP, to employment, and to the commercial activity of the parishes along the northern coast was correspondingly substantial.

For the property market, tourism’s record performance was most directly expressed in the north-coast land and resort property segment. Beachfront and near-beach land values in the Montego Bay, Ocho Rios, and Negril corridors continued to appreciate at rates that made them the fastest-moving segment in the country by price growth, if not by volume. Hotel operators who had deferred new-build decisions during the lean years were now entering into development agreements and construction contracts that would bring new rooms to market over the following two to three years. The construction employment those projects generated — and the residential demand that construction workers’ incomes produced — was feeding the housing markets of the parishes adjacent to the major resort zones.

The Developer Pipeline: A New Cycle Announced

The fourth quarter brought a cluster of developer announcements that collectively constituted the largest residential pipeline announced in a single quarter since the 2005–2007 cycle. Schemes ranging from gated townhouse communities in upper St. Andrew to large-scale affordable housing developments in the outer KMA and the major secondary cities were announced, with construction start dates ranging from early 2018 to late 2019. The announcement pipeline was itself a confidence signal: developers do not publicly announce schemes without having made the financing and planning decisions that precede them, and the volume of announcements in Q4 2017 implied a level of developer conviction that had not been visible since before the crisis.

The affordable housing segment was attracting renewed attention from both private developers and the public sector. The Housing Agency of Jamaica’s pipeline for 2018 included schemes that had been planned during the austerity years and deferred for financing reasons, now being reactivated with NHT co-financing on terms that made their economics viable. Private developers who had identified the gap between NHT loan limits and middle-market prices were designing schemes explicitly calibrated to the NHT lending ceiling — units priced to maximise affordability within the Trust’s financing parameters rather than to extract maximum revenue from the premium market.

What This Means

Jamaica closes 2017 with a property market that has, by the most generous reading of the data, completed its recovery and entered a new expansion cycle. The structural conditions underpinning this cycle — low rates, fiscal discipline, stamp duty reform, diaspora investment, tourism growth, BPO employment — are not new. They are the same conditions that have been present since 2014, compounding in their effects. What 2017 added was the proof that those conditions were durable enough to sustain the expansion across an election year, a hurricane near-miss, and the gradual normalisation of US interest rates. The durability, more than any single quarterly number, is the significant finding.

The risks for 2018 are the risks of a market running at pace. Price appreciation in the premium segment at eighteen to twenty-two percent annually is not, over the long run, sustainable relative to income growth and rental yields. The developer pipeline being announced for 2018 and 2019 will eventually supply a market that has been supply-constrained, and when that supply arrives the price trajectory will moderate. The IMF transition — from the current SBA to whatever arrangement succeeds it — will be watched for signals about the rate environment. And the one-seat parliamentary majority, which has constrained the government’s legislative programme since 2016, may or may not survive the full parliamentary term. But these are the concerns of a market that has earned the right to have them. The boom is real.

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jamaica-homes.com | Market Analysis | Q4 2017

For the first time since before the global financial crisis, Jamaica’s property sector can apply the word ‘boom’ without apology. Transaction volumes, price levels, developer activity, and buyer confidence are all, simultaneously, at post-crisis highs.

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• Full-year 2017 residential transaction volumes highest recorded since pre-crisis 2006
• KMA premium residential prices up eighteen to twenty-two percent over twelve months
• GDP growth for 2017 estimated at 1.7 percent; sixth consecutive year of expansion
• Tourism records best year in Jamaica’s history; 4.3 million visitor arrivals
• New IMF Precautionary and Liquidity Line under final negotiations for 2018
• Developers announcing Jamaica’s largest residential pipeline since the 2005–2007 cycle

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In the vocabulary of Jamaica’s property industry, the word “boom” has been used cautiously since the crisis of 2008. It is a word with a history — of the exuberant mid-decade expansion that preceded the crash, of the valuation excesses that the Stamp Duty Office ultimately stamped at prices the market never recovered to, of the developers who launched schemes on the assumption of perpetual appreciation and found themselves with completed inventory in a market that had ceased to buy. Those who lived through the correction learned to describe what followed the NDX and the EFF in terms that implied recovery but stopped short of the language of a cycle restarted. The data for 2017 makes that restraint no longer tenable. The word “boom” applies, and it is the right word.

Full-year residential transaction volumes — measured by transfer registrations at the National Land Agency, the most reliable available proxy for completed sales — were, by December’s end, the highest recorded since the pre-crisis peak of 2006. Not the highest since the recovery began: the highest since before the crisis that made a recovery necessary. The stamp duty reform enacted in May 2016 had done precisely what its architects intended: it had removed a cost that suppressed turnover in the middle market and allowed a layer of demand that had been structurally present but financially constrained to express itself in transactions. Over eighteen months, the cumulative effect of that removal was a volume expansion that the industry’s most optimistic projections, made in the weeks after the reform’s announcement, had not fully captured.

Prices had moved correspondingly, though the movement was not uniform. In the premium residential segments of the Kingston Metropolitan Area — the Norbrook and Cherry Gardens corridors that constitute the island’s most visible luxury market — the twelve-month appreciation was being measured, by aggregating estate agent data, at between eighteen and twenty-two percent. Properties that had been advertised at J$45 million in January 2017 were being listed at J$54 million by December, and finding buyers. The middle-market band, larger in volume and more constrained by mortgage affordability ceilings, was appreciating at eight to twelve percent. In both segments, the direction was the same. Only the speed differed.

Tourism Breaks Records; Property Follows

The year’s macro backdrop was shaped by a tourism sector that delivered what its five-year strategic plan had targeted and that most industry analysts had doubted was achievable on schedule. Visitor arrivals for 2017 — stopover and cruise combined — reached a record that had not been approached since data collection began, with stopover numbers in particular reflecting a quality of tourism product and a volume of air access that the investment of the preceding decade was finally producing. The contribution to GDP, to employment, and to the commercial activity of the parishes along the northern coast was correspondingly substantial.

For the property market, tourism’s record performance was most directly expressed in the north-coast land and resort property segment. Beachfront and near-beach land values in the Montego Bay, Ocho Rios, and Negril corridors continued to appreciate at rates that made them the fastest-moving segment in the country by price growth, if not by volume. Hotel operators who had deferred new-build decisions during the lean years were now entering into development agreements and construction contracts that would bring new rooms to market over the following two to three years. The construction employment those projects generated — and the residential demand that construction workers’ incomes produced — was feeding the housing markets of the parishes adjacent to the major resort zones.

The Developer Pipeline: A New Cycle Announced

The fourth quarter brought a cluster of developer announcements that collectively constituted the largest residential pipeline announced in a single quarter since the 2005–2007 cycle. Schemes ranging from gated townhouse communities in upper St. Andrew to large-scale affordable housing developments in the outer KMA and the major secondary cities were announced, with construction start dates ranging from early 2018 to late 2019. The announcement pipeline was itself a confidence signal: developers do not publicly announce schemes without having made the financing and planning decisions that precede them, and the volume of announcements in Q4 2017 implied a level of developer conviction that had not been visible since before the crisis.

The affordable housing segment was attracting renewed attention from both private developers and the public sector. The Housing Agency of Jamaica’s pipeline for 2018 included schemes that had been planned during the austerity years and deferred for financing reasons, now being reactivated with NHT co-financing on terms that made their economics viable. Private developers who had identified the gap between NHT loan limits and middle-market prices were designing schemes explicitly calibrated to the NHT lending ceiling — units priced to maximise affordability within the Trust’s financing parameters rather than to extract maximum revenue from the premium market.

What This Means

Jamaica closes 2017 with a property market that has, by the most generous reading of the data, completed its recovery and entered a new expansion cycle. The structural conditions underpinning this cycle — low rates, fiscal discipline, stamp duty reform, diaspora investment, tourism growth, BPO employment — are not new. They are the same conditions that have been present since 2014, compounding in their effects. What 2017 added was the proof that those conditions were durable enough to sustain the expansion across an election year, a hurricane near-miss, and the gradual normalisation of US interest rates. The durability, more than any single quarterly number, is the significant finding.

The risks for 2018 are the risks of a market running at pace. Price appreciation in the premium segment at eighteen to twenty-two percent annually is not, over the long run, sustainable relative to income growth and rental yields. The developer pipeline being announced for 2018 and 2019 will eventually supply a market that has been supply-constrained, and when that supply arrives the price trajectory will moderate. The IMF transition — from the current SBA to whatever arrangement succeeds it — will be watched for signals about the rate environment. And the one-seat parliamentary majority, which has constrained the government’s legislative programme since 2016, may or may not survive the full parliamentary term. But these are the concerns of a market that has earned the right to have them. The boom is real.

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jamaica-homes.com | Market Analysis | Q4 2017

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