Better Than It Looks: Jamaica’s Housing Market in a Season of Quiet Progress

Jamaica Homes Housing Affordability & Cost of Living Review — July 2018

• Jamaica’s second consecutive year of GDP growth under the JLP government brings employment gains and improved formal sector wages to Jamaican households
• Bank of Jamaica holds policy rate steady at historically low levels, sustaining mortgage market conditions that are the most favourable in memory
• Tourism arrivals set to break 2017 records; visitor spend growth supports employment and income in resort-adjacent property markets
• The Kingston apartment development pipeline continues to expand, with new mid-range projects launching in suburban communities
• Diaspora property purchases hit their highest pace in a decade as sterling and dollar strength makes Jamaican property attractive to overseas buyers
• Land titling backlog remains a fundamental barrier to affordable mortgage access; approximately 40 percent of residential land in Jamaica is estimated to remain outside the formal title system

The housing market in Jamaica in the summer of 2018 is in a condition that would have seemed nearly impossible to imagine five years ago. Rates are low. Employment is rising. The economy is growing. Tourism is at record levels. The construction sector is active. The NHT is lending. Banks are competing for mortgage business. And yet, for the majority of Jamaicans who do not yet own their home, the question of how and when they will achieve homeownership remains stubbornly unanswered by the market’s visible progress. The macro environment is the best in a generation. The structural supply problem is unchanged.

This is the defining paradox of Jamaica’s housing story in the current recovery phase. The conditions that should translate into broad-based homeownership gains are present. The mechanism that would convert those conditions into affordable supply — formal housing development at price points accessible to the median Jamaican worker — is not working at the scale the deficit requires. Understanding why, and what might change it, is the analytical work that Jamaica’s housing stakeholders need to do with the time and confidence that the current cycle provides.

The Rate Environment’s Gift to Mortgage Holders

The Bank of Jamaica’s maintenance of historically low policy rates has been the single greatest gift to Jamaica’s mortgage market over the past three years. NHT lending rates, already subsidised below commercial levels, have remained among the lowest in the institution’s history. Commercial mortgage rates, while higher, have compressed to levels that make a longer-term monthly payment meaningfully lower than it would have been at the rates that prevailed in 2010 or 2011. For households that were financially prevented from homeownership by the monthly serviceability challenge rather than the deposit or qualification hurdle, the current rate environment has been directly enabling.

The risk in this environment is one that prudent buyers and advisors are discussing: the question of where rates go from here. The current rate level reflects a deliberate policy stance calibrated to Jamaica’s low inflation and growth-support priorities. If inflation rises — for any of the external or domestic reasons that have driven Jamaican inflation historically — rates will follow. Buyers who are currently qualifying at the margin of serviceability should factor rate sensitivity into their purchasing decisions. A mortgage that is affordable at today’s rates but not at rates two percentage points higher is a different risk proposition from one that works comfortably across a range of rate scenarios.

The Diaspora’s Moment

For Jamaicans living in the United Kingdom, United States or Canada, the summer of 2018 is an unusually attractive moment to invest in Jamaican property. Sterling, despite Brexit uncertainty, has remained strong in hard currency terms relative to the Jamaican dollar. The US dollar, driven by a strengthening American economy and Federal Reserve rate increases, has appreciated against the Jamaican dollar through 2017 and 2018. The consequence for diaspora buyers is a structural advantage: properties that were priced in Jamaican dollars at levels that strained hard currency affordability a few years ago have become, in real terms, notably cheaper for buyers earning or holding funds in USD or sterling.

The diaspora market is responding to this dynamic. Property exhibitions in Miami, New York, London and Toronto are generating sales volumes that agents are describing as the highest in many years. The product selling most strongly to the diaspora is in the JM$20 million to JM$50 million range — gated community lots and serviced residential units in locations accessible to Kingston and the resort parishes. This is a market segment where supply and demand are better matched than in the mass-market affordable segment, and where the transaction machinery — remote purchasing, diaspora-specialist mortgage products, property management for absentee owners — has matured considerably in recent years.

The Land Titling Barrier

One of the least visible but most consequential structural constraints on Jamaica’s housing market is the state of land titling. Estimates from the National Land Agency suggest that a substantial proportion of residential land in Jamaica — some estimates range as high as forty percent — is held informally, without registered title. This is an inheritance of Jamaica’s colonial and post-independence history: the subdivision of family land across generations, the incremental occupation of lots without formal purchase, the regularisation of communities that grew without planning permission. These arrangements are functional in social terms; they break down entirely when formal mortgage finance is needed.

No commercial lender and no NHT mortgage can be secured against a property without registered title. The potential borrower who occupies family land, or who has built on a lot purchased informally, is entirely outside the formal mortgage system regardless of their income, their employment status or their NHT contributions. The government’s titling and regularisation programmes — operated through the NLA and periodic special initiatives — are working through this backlog, but at a pace that keeps the unbanked, untitled segment of the housing market very large. The economic cost of this backlog, in terms of mortgage credit denied and housing investment suppressed, is enormous and largely unmeasured.

What This Means

For buyers with formal employment and NHT eligibility, the summer of 2018 is a window that deserves active use. The combination of rates, lender appetite and macro stability that currently prevails is a function of a favourable cycle that will not persist indefinitely. Buyers who are close to ready should close the gap; those who are further away should have a clear plan for what they need to accumulate to qualify.

For households on untitled land, the practical priority is to pursue formal titling of their property through whatever mechanism applies to their situation. The NLA’s services, while imperfect and sometimes slow, are the path from informal occupancy to mortgageable ownership. Engaging this process proactively, even if completion is years away, is the most consequential housing finance decision available to a household in this position.

The Outlook: Using the Window

Jamaica’s housing market in the second half of 2018 has an opportunity that may not recur for many years: to use the current macroeconomic stability to make structural progress on the supply and titling barriers that have persisted through boom and bust alike. The economic window — growth, low rates, improving employment — will close at some point. The question is whether the policy ambition to use it is present in the institutions that have the power to do so. The market’s own momentum is evident. The structural work requires a deliberate hand.

This review is produced for informational and journalistic purposes only and does not constitute financial, legal or investment advice.

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