Confidence Is Back: Jamaica’s Housing Market Rides a Wave of Economic Optimism

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

• Jamaica’s GDP growth in 2018 is on track to be the strongest since before the global financial crisis, underpinned by tourism, construction and services
• Investor confidence in Jamaica’s macroeconomic trajectory reaches levels not seen in the post-independence era, reflected in credit rating upgrades
• Commercial mortgage rates remain historically accommodative as BOJ holds rates steady in a low-inflation environment
• Private sector development activity in Kingston, Portmore and Montego Bay accelerates, adding supply in the mid-to-upper segments
• The affordable housing deficit remains Jamaica’s most politically sensitive unresolved social challenge heading into the pre-election period
• Hurricane season 2018 passes without significant Jamaican impact, preserving the construction sector momentum built since 2016

There is something in Jamaica’s economic air in the autumn of 2018 that has not been present for a very long time: confidence. Not the forced confidence of political rhetoric or the provisional optimism of a market still waiting for the next shock, but something more structural — a growing belief among investors, developers, lenders and, increasingly, households that Jamaica’s economic improvement is real, durable and worth betting on. The credit rating upgrades from Moody’s and S&P over the past two years have been institutional confirmation of what the data already showed: that Jamaica has genuinely turned a corner.

For the housing market, confidence is the most fundamental of all inputs. Property is a long-duration commitment. It requires buyers to believe that their income will remain stable, that the economy will support property values, that the currency will hold, and that the institutional framework governing property ownership will function reliably. Each of those beliefs is more warranted in October 2018 than at any point in at least a decade. The consequence is a market that is transacting at a pace and across a breadth of price segments that represents a genuine qualitative change from the paralysis of 2012 and 2013.

The Construction Sector’s Quiet Renaissance

One of the less-heralded aspects of Jamaica’s economic recovery has been the construction sector’s gradual resurgence. After years of severely constrained activity during the adjustment period, construction output has expanded in each of the past three years. The drivers are multiple: public infrastructure investment under the government’s growth agenda; commercial construction linked to tourism expansion; and the residential development pipeline that private developers and the NHT have been building as confidence improves. The construction sector is both a producer of housing supply and an employer of the workforce that housing demand depends on. Its recovery is, accordingly, doubly important to the housing market.

The 2018 hurricane season, now nearly concluded, passed Jamaica without the kind of devastating strike that has periodically reset the construction sector’s progress. Hurricane season is a structural risk that is never absent from Jamaican planning horizons. This year’s relative calm has allowed the construction momentum of 2016 and 2017 to continue into 2018 without the disruption that a direct hit would have entailed. Developers and the NHT have been able to advance their project pipelines without the interruption that rebuilding and restoration would have required.

Who Is Borrowing and Why

The profile of the Jamaican mortgage borrower has been shifting subtly but meaningfully through the recovery years. The NHT’s contributor base now includes a significant cohort of younger Jamaicans who entered formal employment during the economic crisis and have been contributing steadily for five or more years, accumulating the eligibility that qualifies them for Trust mortgages. This cohort — typically in their late twenties or early thirties, employed in the formal private sector or public service, with modest savings and specific aspirations around homeownership — is increasingly the face of the market’s active buyer segment.

Commercial lenders have responded to this improving demographic with products designed to capture the segment. Mortgage products with longer terms, graduated repayment structures, and combined NHT-commercial lending packages have made the monthly commitment of homeownership more manageable than the headline interest rate alone would suggest. The banks are competing for mortgage business in a way they were not during the crisis years, and that competition is good for borrowers. Rates are the most favourable in a generation. Serviceability calculations that appeared impossible in 2013 are now, for many households, achievable.

The Unresolved Affordable Segment

The progress in the upper-middle and commercial segments should not obscure the continuing challenge in the affordable segment. The NHT’s project pipeline is active but insufficient relative to the deficit. Private developers have not found a viable economic model for affordable-range construction in urban Jamaica at scale. The government’s land regularisation programme — essential for converting informal tenure into mortgageable title — is progressing at a pace that will take many years to clear the accumulated backlog. These are structural challenges that the current economic momentum has not resolved and that will require deliberate policy intervention to address at the scale the deficit demands.

What This Means

For buyers ready to transact, October 2018 is one of the better moments in recent memory to commit. The rate environment is favourable, lender appetite is healthy, and the macro outlook is the most stable Jamaica has offered in years. Buyers who have been postponing purchase decisions — waiting for prices to fall, for rates to improve, for conditions to be more certain — should recognise that those conditions are substantially present now. Deferred decisions have a cost in a market where values are rising in real terms.

For investors, Jamaica’s housing market offers a risk-return profile that compares favourably with other asset classes available on the island. Rental demand is strong across the income spectrum, vacancy rates in well-located residential property are low, and the tourism-linked short-term rental segment continues to generate yields that represent a premium to long-term residential letting.

The Outlook: Building Into the Cycle

The final quarter of 2018 finds Jamaica’s housing market in its most buoyant condition since before the global financial crisis. The macro conditions that support this confidence — growth, low rates, improving employment, credit upgrades, stable exchange rate — are a collective achievement that should not be taken for granted. Market cycles turn; interest rates move; external shocks happen. What Jamaica has built over the past five years is a more resilient economic platform from which the inevitable next challenge can be managed better than the last one was. The housing market is the beneficiary of that platform. The task now is to ensure that its benefits reach the Jamaicans who need them most.

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

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