Public Housing Reactivates
The first quarter also brought the formal activation of several Housing Agency of Jamaica schemes that had been in the NHT co-financing pipeline since 2016. These were not marginal additions to the market: two schemes in outer St. Catherine and one in St. James, collectively comprising more than six hundred units at price points designed for NHT-income buyers, represented the largest addition to the affordable housing stock from the public sector in more than a decade. Their significance was as much symbolic as numerical: they demonstrated that the public sector could deliver affordable supply at scale under the fiscal discipline of the post-EFF framework, without the deficit financing that had historically been the public sector’s mechanism for housing delivery and its most predictable route to fiscal overrun.
What This Means
The first quarter of 2018 begins the next chapter of Jamaica’s property cycle — one in which the supply response to the 2016–2017 demand surge starts to moderate the price trajectory in the premium segment while the underlying structural demand remains intact. This is the natural evolution of a market that has functioned correctly: prices rose because supply was constrained; supply is now increasing because developers responded to those prices; prices will moderate as supply arrives. The cycle is working as designed.
The risks for the remainder of 2018 include the continued normalisation of US dollar interest rates, which is beginning to have a marginal effect on diaspora mortgage affordability. Hurricane season will begin in June. And the political calendar is approaching a point at which the Holness government’s one-seat majority may be tested by by-election arithmetic. None of these is a structural threat to the market’s expansion. But each is a variable that a prudent buyer or developer would factor into their timing decisions over the next six to twelve months.
jamaica-homes.com | Market Analysis | Q1 2018
BPO at Fifty Thousand; Commercial Demand Evolves
The business process outsourcing sector crossed the threshold of fifty thousand employees in the first quarter, a milestone that had been targeted by the sector’s development agencies since the early 2010s and that had significant implications for the commercial property markets of Kingston and Montego Bay. The sector was now large enough to generate its own gravitational field: BPO operators were attracting ancillary businesses — food service, transport, training, technology infrastructure — that in turn required their own commercial premises, and the combined effect was a structural uplift in office and mixed-use demand that was only partially captured by BPO employment numbers alone.
The residential corollary of this commercial expansion was equally significant. Fifty thousand BPO workers — concentrated in the eighteen-to-thirty-five age bracket, earning formal-sector wages, and overwhelmingly without existing property ownership — represented the single most important first-time buyer demographic in the country. Their earnings profile made them NHT contributors and mortgage applicants; their age profile made them the buyers who would determine the market’s volume trajectory for the following decade. Estate agents who had learned to track BPO employment cycles as a leading indicator of residential demand in the areas adjacent to major BPO campuses were finding, in the first quarter of 2018, that the correlation held: demand for mid-market apartments and townhouses in the Constant Spring Road corridor of Kingston and in the Bogue Estate area of Montego Bay was running ahead of the city-wide average.
Public Housing Reactivates
The first quarter also brought the formal activation of several Housing Agency of Jamaica schemes that had been in the NHT co-financing pipeline since 2016. These were not marginal additions to the market: two schemes in outer St. Catherine and one in St. James, collectively comprising more than six hundred units at price points designed for NHT-income buyers, represented the largest addition to the affordable housing stock from the public sector in more than a decade. Their significance was as much symbolic as numerical: they demonstrated that the public sector could deliver affordable supply at scale under the fiscal discipline of the post-EFF framework, without the deficit financing that had historically been the public sector’s mechanism for housing delivery and its most predictable route to fiscal overrun.
What This Means
The first quarter of 2018 begins the next chapter of Jamaica’s property cycle — one in which the supply response to the 2016–2017 demand surge starts to moderate the price trajectory in the premium segment while the underlying structural demand remains intact. This is the natural evolution of a market that has functioned correctly: prices rose because supply was constrained; supply is now increasing because developers responded to those prices; prices will moderate as supply arrives. The cycle is working as designed.
The risks for the remainder of 2018 include the continued normalisation of US dollar interest rates, which is beginning to have a marginal effect on diaspora mortgage affordability. Hurricane season will begin in June. And the political calendar is approaching a point at which the Holness government’s one-seat majority may be tested by by-election arithmetic. None of these is a structural threat to the market’s expansion. But each is a variable that a prudent buyer or developer would factor into their timing decisions over the next six to twelve months.
jamaica-homes.com | Market Analysis | Q1 2018
The first quarter of 2018 brings the first signs of price deceleration in the premium segment as new supply enters the market. The boom continues, but the geometry is changing.
- Premium segment price growth moderates to twelve to fifteen percent; middle market holds eight to ten
- New scheme completions begin to ease the supply constraint that drove 2016–2017 appreciation
- IMF Precautionary and Liquidity Line approved; Jamaica transitions to new programme structure
- GDP growth forecast at 1.9 percent for 2018; BPO employment crosses fifty thousand workers
- NHT begins co-financing large-scale public housing schemes in outer KMA parishes
- North-coast villa and short-term rental market deepens as diaspora investor appetite holds
The annualised price appreciation figures that defined 2017 — eighteen to twenty-two percent in the premium segment, eight to twelve percent in the middle market — were always going to moderate. A market cannot appreciate at those rates indefinitely while income growth proceeds at low single digits: the gap between asset price and borrowing capacity eventually asserts itself, not through a crash but through the gradual deceleration that occurs when buyers at the margin of affordability can no longer follow the price curve upward. The first quarter of 2018 provided the first systematic evidence that this deceleration was underway in the premium segment, where twelve-month appreciation had fallen back to between twelve and fifteen percent. The moderation was not a reversal; it was a normalisation, and it was what a healthy market does when supply begins to catch up with demand.
The supply catching up was the consequence of the developer activity of 2016 and 2017. Schemes that had been announced in the confident atmosphere of those years — financed, planned, and started on the back of the stamp duty reform and the post-EFF rate environment — were reaching the completion stages of their construction cycles and presenting buyers with a range of choice that the supply-constrained market of 2013 to 2016 had not offered. The effect was visible most clearly in the time-on-market data: properties in the mid-range of the KMA were taking longer to sell than they had at the peak of the 2017 demand surge, not because buyers were absent but because buyers were exercising the option to compare alternatives that the supply increase had given them.
The IMF transition that the fourth quarter of 2017 had anticipated was completed in the first quarter of 2018 with the approval of a Precautionary and Liquidity Line — the Fund’s most flexible and least intrusive arrangement, available only to economies whose macroeconomic fundamentals meet a high threshold of qualification. Jamaica’s approval under the PLL was, in the language of sovereign credit markets, a rating upgrade in all but name: it confirmed that the IMF viewed Jamaica’s fiscal position, institutional framework, and policy track record as strong enough to warrant access to precautionary liquidity without the conditionality and quarterly review structure that had accompanied the EFF and SBA. For the property market, the PLL’s primary significance was the signal it sent about the durability of the low-rate environment. Jamaica had arrived, by the judgment of the IMF, at a point where external macroeconomic support was precautionary rather than structural.
BPO at Fifty Thousand; Commercial Demand Evolves
The business process outsourcing sector crossed the threshold of fifty thousand employees in the first quarter, a milestone that had been targeted by the sector’s development agencies since the early 2010s and that had significant implications for the commercial property markets of Kingston and Montego Bay. The sector was now large enough to generate its own gravitational field: BPO operators were attracting ancillary businesses — food service, transport, training, technology infrastructure — that in turn required their own commercial premises, and the combined effect was a structural uplift in office and mixed-use demand that was only partially captured by BPO employment numbers alone.
The residential corollary of this commercial expansion was equally significant. Fifty thousand BPO workers — concentrated in the eighteen-to-thirty-five age bracket, earning formal-sector wages, and overwhelmingly without existing property ownership — represented the single most important first-time buyer demographic in the country. Their earnings profile made them NHT contributors and mortgage applicants; their age profile made them the buyers who would determine the market’s volume trajectory for the following decade. Estate agents who had learned to track BPO employment cycles as a leading indicator of residential demand in the areas adjacent to major BPO campuses were finding, in the first quarter of 2018, that the correlation held: demand for mid-market apartments and townhouses in the Constant Spring Road corridor of Kingston and in the Bogue Estate area of Montego Bay was running ahead of the city-wide average.
Public Housing Reactivates
The first quarter also brought the formal activation of several Housing Agency of Jamaica schemes that had been in the NHT co-financing pipeline since 2016. These were not marginal additions to the market: two schemes in outer St. Catherine and one in St. James, collectively comprising more than six hundred units at price points designed for NHT-income buyers, represented the largest addition to the affordable housing stock from the public sector in more than a decade. Their significance was as much symbolic as numerical: they demonstrated that the public sector could deliver affordable supply at scale under the fiscal discipline of the post-EFF framework, without the deficit financing that had historically been the public sector’s mechanism for housing delivery and its most predictable route to fiscal overrun.
What This Means
The first quarter of 2018 begins the next chapter of Jamaica’s property cycle — one in which the supply response to the 2016–2017 demand surge starts to moderate the price trajectory in the premium segment while the underlying structural demand remains intact. This is the natural evolution of a market that has functioned correctly: prices rose because supply was constrained; supply is now increasing because developers responded to those prices; prices will moderate as supply arrives. The cycle is working as designed.
The risks for the remainder of 2018 include the continued normalisation of US dollar interest rates, which is beginning to have a marginal effect on diaspora mortgage affordability. Hurricane season will begin in June. And the political calendar is approaching a point at which the Holness government’s one-seat majority may be tested by by-election arithmetic. None of these is a structural threat to the market’s expansion. But each is a variable that a prudent buyer or developer would factor into their timing decisions over the next six to twelve months.
jamaica-homes.com | Market Analysis | Q1 2018
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