Jamaica Real Estate Roundup — Q4 2018: The IMF Era Closes, a New Chapter Begins

• Jamaica’s IMF Extended Fund Facility effectively concludes — a decade of adjustment delivered.
• BOJ continues rate easing; mortgage market becoming more accessible.
• Tourism closes another strong year; 2018 arrivals among the best on record.
• Residential market shows improving transaction volumes across Kingston sub-markets.
• Urban apartment demand visible; early strata development activity accelerating.

The fourth quarter of 2018 brought Jamaica’s property market to the close of a year whose defining economic narrative was the effective completion of the Extended Fund Facility programme that the International Monetary Fund and the Jamaican government had maintained since 2013. The programme — four years of primary budget surpluses that had required sustained fiscal discipline across successive administrations, with the social and political costs that austerity always involves in a small, open economy with significant poverty and inequality — had delivered its intended results. Jamaica’s public debt was on a declining path relative to GDP for the first time in decades. The current account deficit was manageable. International reserves provided an adequate buffer. And the credibility of Jamaica’s economic management, established through the programme’s disciplines and demonstrated by the political consensus that had sustained it, was creating conditions for the private investment and consumer confidence that would, over time, translate the fiscal gains into the economic growth and income improvement that Jamaicans had sacrificed through the austerity years to achieve.

The Bank of Jamaica’s Monetary Policy Committee had, through 2018, continued its gradual rate easing in response to improving inflation conditions. Consumer price inflation, which had been above the BOJ’s four-to-six per cent target range at various points through the decade’s fiscal adjustment period, had moderated toward and within the target range as the monetary policy framework’s credibility was established and maintained. The BOJ’s easing had been translating, with the characteristic lag of the monetary transmission mechanism, into progressively lower commercial mortgage rates — rates that, by Q4 2018, were creating a mortgage affordability environment that was more supportive of residential purchase decisions than it had been at any point in the preceding several years.

Tourism: Another Strong Year

The tourism sector’s 2018 full-year performance — crystallising in the Q4 data and the December period that was the winter season’s opening — was one of the strongest in the island’s recent history. Stopover visitor arrivals for 2018 were tracking at or near the levels that had positioned 2019 to be a record year, with the major resort destinations reporting occupancy and revenue performance consistent with a sector that had recovered from the mid-decade period of softer demand and was operating with increasing confidence. The resort construction pipeline — the hotel developments and major refurbishments that were underway across the western and northern parishes — was proceeding toward the completions that would add quality inventory to a destination that was approaching the capacity limits of its existing supply base.

For the property market, the tourism sector’s performance was important not only for the employment income it generated in the resort parishes but for the signal it sent to investors about Jamaica’s economic trajectory. A tourism sector operating at or near record levels was evidence of the island’s ability to compete in the international visitor market, of the strength of the destination’s brand, and of the economic management that had maintained the conditions — exchange rate stability, public safety, infrastructure adequacy — that international visitors required. For property investors making long-term commitments to Jamaican real estate, that evidence mattered.

Residential Market: Gradual Strengthening

The Q4 2018 residential market was characterised by the gradual strengthening of activity that had been building through the year as the improving macro conditions began to express themselves in buyer behaviour. Transaction volumes in Kingston and St Andrew were ahead of the comparable period of 2017, reflecting the improved affordability of the BOJ’s rate path and the growing confidence of buyers who were responding to the positive macro signals with purchase decisions that they had been deferring through the more constrained conditions of earlier years. Prices were appreciating modestly, with the supply constraint in desirable residential areas maintaining a seller’s advantage that was supporting asking prices without the urgency that would characterise the later boom period.

The Christmas quarter’s property market dynamics in Q4 2018 reflected the seasonal character that the October-December period has always had in Jamaica’s residential sector. The diaspora’s Christmas return — the annual arrival of Jamaican residents from the United Kingdom, the United States and Canada whose visits coincided with property inspections, family meetings with estate agents and attorneys, and the advancement of purchase decisions that had been initiated remotely and required the physical presence that overseas buyers eventually needed — was contributing its seasonal boost to the market’s Q4 activity. The practice of overseas Jamaicans using Christmas visits to progress real estate transactions was well established, and the Q4 2018 edition of that pattern was visible in the activity of the estate agents who served the diaspora buyer market.

The Strata Trend Accelerates

The strata apartment development trend that had been building through 2017 and into 2018 was, by Q4, increasingly visible as a structural feature of the Kingston metropolitan area’s development landscape rather than a niche or speculative activity. The projects that had been in planning and early construction through the middle years of the decade were completing and coming to market, demonstrating to the broader developer community that the urban apartment product could be delivered, sold and transferred at price points that the emerging buyer market could sustain. The completions that Q4 2018 was producing were entering a market in which the buyer demand for apartment product was growing faster than the supply had previously been able to respond.

The new project registrations and pre-sales launches that were underway through Q4 2018 reflected the confidence that the early strata projects’ performance had generated in the developer community. More developers, including both established Jamaican residential developers and newer entrants who had identified the sector’s potential, were bringing apartment projects to the Kingston market. The locations were concentrating in the areas that the demand data identified as most attractive — the Half-Way-Tree commercial and residential hub, the Barbican and Liguanea residential corridors, the New Kingston professional and commercial district, and the Constant Spring Road axis that connected the established upper-St Andrew communities to the city’s employment centres.

NHT and the Affordable Segment

The National Housing Trust’s Q4 2018 activity reflected the steady demand that the Trust’s contributor base was generating. The Trust’s mortgage lending programme — both through its own development schemes and through the open market lending that allowed contributors to purchase on the private market with NHT financing — was operating at a pace that reflected improving economic conditions and the gradual growth in the population of contributors with qualifying entitlements. The Trust’s own development programme was advancing, with scheme houses in St Catherine and other parishes providing housing solutions for contributors whose incomes placed private market purchases at or beyond the boundary of their financial capacity.

The affordable housing market’s fundamental challenge remained the persistent gap between the supply of formal housing at accessible price points and the demand from the island’s working population for such housing. The housing deficit that the policy discussions of the 2010s had repeatedly quantified — an accumulated shortage of adequate formal housing units running into the tens of thousands at minimum, and by some estimates significantly higher when informally housed households were included in the assessment — was not a problem that the NHT’s annual delivery or the private sector’s volume production had been reducing at a pace that would resolve it in any foreseeable timeframe. The deficit was structural, its resolution required a generation of sustained supply expansion, and its persistence was one of the primary demand-side drivers that would eventually fuel the boom of 2020 and 2021.

Entering 2019: The Strongest Foundation in a Decade

The fourth quarter of 2018 closes with Jamaica’s property market entering 2019 from its strongest position in a decade. The IMF programme disciplines have delivered the macro conditions that the island’s economic credibility required. The BOJ’s gradual easing has improved the financing environment for residential purchasers. The tourism sector’s strong year has provided the income and employment base that the market’s residential demand draws from. The strata development trend is building the urban apartment supply that the demographic demand has been generating. And the institutional infrastructure of the property market — the NLA’s title registration system, the conveyancing profession, the valuation industry, the mortgage lending and insurance markets — is functioning with the competence and reliability that an active property market requires. The year ahead will be determined by how well these foundations support a market that, for the first time in years, has the conditions to perform at its genuine potential.

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