The Pre-Election Hum: Jamaica’s Property Market Opens 2019 With Confidence but One Eye on the Calendar

The Apartment Market Grows Up

One of the structural shifts occurring beneath the headline numbers in the first quarter was a continued deepening of the apartment market — the multi-family residential segment that had historically been underdeveloped in Jamaica relative to comparable Caribbean cities. The BPO workforce’s preference for urban living, the NHT’s expanded programme for multi-family housing, and the growing recognition among developers that apartment construction delivered a better return per unit of buildable land than standalone houses were combining to produce a pipeline of apartment schemes in the Kingston Metropolitan Area that was qualitatively different from what had existed a decade earlier: better designed, better specified, and targeted at a buyer demographic that wanted proximity to employment rather than the suburban house-and-garden model of the previous generation.

Rental yields in the established apartment corridors of New Kingston and Half Way Tree had been compressing as purchase prices rose faster than rents — a pattern familiar from property markets in other cities during expansion phases. The compression was creating a bifurcation in the investor calculus: those who had purchased early in the recovery were holding assets that had appreciated materially and generating yields that were lower than at acquisition but still acceptable relative to alternative investments. Those entering the market in 2019 were confronting a choice between accepting lower yields on the assumption of continued capital appreciation, or focusing on middle-market products where the yield-to-price ratio remained more attractive.

What This Means

The first quarter of 2019 offers a market in mature expansion: priced higher than at any point since the pre-crisis era, supplied at the highest rate in more than a decade, and supported by a financing environment that the structural reforms of 2013–2016 have made durable rather than temporary. The pre-election awareness is a real variable but not yet a decisive one: Jamaican elections have not historically produced large property market corrections, and the fiscal framework now embedded in domestic law and IMF insurance provides a buffer against the monetary consequences of a political cycle that a previous generation’s markets did not have.

The question entering the rest of 2019 is less about the market’s direction — which remains positive — and more about the pace. The five to eight percent appreciation rate of the first quarter is, in the view of most analysts, the market finding a sustainable cruising speed after the 2016–2017 acceleration. At that rate, the expansion can continue for several more years without generating the affordability crisis that would produce a correction. The challenge, as always, is supply: whether the developer pipeline currently under construction will be adequate to accommodate the demand that the economy’s continued growth and the diaspora’s sustained investment appetite are generating.

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jamaica-homes.com | Market Analysis | Q1 2019

The constitutional clock on the Holness government’s first term is running. The property market, which has learned to track political risk with the same discipline it applies to interest rates, opens 2019 in good health but with an ear to the ground.

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• Property market opens 2019 with sustained transaction volumes; no signs of pre-election pause yet
• KMA residential prices appreciate five to eight percent year-on-year; healthy, sustainable pace
• Jamaica’s credit rating upgraded by international agencies; risk premium on sovereign debt falls
• NHT announces expanded loan programme for multi-family housing; apartment supply to increase
• Tourism remains strong; hotel room pipeline nears five thousand new rooms by 2022
• Rental yields compress as prices rise; investor calculus shifts toward capital appreciation

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The first quarter of 2019 arrived without ceremony, inheriting from 2018 a market that was neither overheated nor flagging but simply running — the sustainable pace of a well-constructed property expansion in its fourth year. Transaction volumes were consistent with the post-crisis highs of 2017 and 2018. Price appreciation had moderated to five to eight percent annually in the KMA, a rate that matched income growth in the formal sector closely enough to sustain affordability without requiring the kind of yield compression that signals a bubble. Developers were delivering supply. Banks were lending at rates that, by historical Jamaican standards, remained extraordinarily supportive.

The external validation of this trajectory came in the first quarter in the form of credit rating adjustments from two of the three major international agencies, each of which moved Jamaica’s sovereign rating upward to reflect the sustained fiscal improvement of the post-EFF period. The practical effect on the property market was indirect but real: a higher sovereign rating reduces the risk premium required on Jamaican-dollar-denominated assets, which filters through to lower market interest rates and to the reduced cost of capital for developers financing construction through Jamaican financial institutions. Each incremental improvement in Jamaica’s sovereign credit standing has a marginal downward effect on the cost of mortgage finance, and in a market where affordability is calculated at the level of monthly payment rather than purchase price, those marginal effects compound over time into material changes in the pool of potential buyers.

The political calendar was present in market conversations but not yet dominant. The Holness government had governed since February 2016 with a parliamentary majority of one, and the constitutional timeline for the next general election was running. The government could call an election at any point within the parliamentary term, and the signals from Holness himself — a leader known for strategic timing — were being read by the political and market commentariat with the same focus that traders apply to central bank communications. An election was coming. The question was when, and whether the timing would be chosen to capitalise on economic momentum or forced by political circumstance.

The Apartment Market Grows Up

One of the structural shifts occurring beneath the headline numbers in the first quarter was a continued deepening of the apartment market — the multi-family residential segment that had historically been underdeveloped in Jamaica relative to comparable Caribbean cities. The BPO workforce’s preference for urban living, the NHT’s expanded programme for multi-family housing, and the growing recognition among developers that apartment construction delivered a better return per unit of buildable land than standalone houses were combining to produce a pipeline of apartment schemes in the Kingston Metropolitan Area that was qualitatively different from what had existed a decade earlier: better designed, better specified, and targeted at a buyer demographic that wanted proximity to employment rather than the suburban house-and-garden model of the previous generation.

Rental yields in the established apartment corridors of New Kingston and Half Way Tree had been compressing as purchase prices rose faster than rents — a pattern familiar from property markets in other cities during expansion phases. The compression was creating a bifurcation in the investor calculus: those who had purchased early in the recovery were holding assets that had appreciated materially and generating yields that were lower than at acquisition but still acceptable relative to alternative investments. Those entering the market in 2019 were confronting a choice between accepting lower yields on the assumption of continued capital appreciation, or focusing on middle-market products where the yield-to-price ratio remained more attractive.

What This Means

The first quarter of 2019 offers a market in mature expansion: priced higher than at any point since the pre-crisis era, supplied at the highest rate in more than a decade, and supported by a financing environment that the structural reforms of 2013–2016 have made durable rather than temporary. The pre-election awareness is a real variable but not yet a decisive one: Jamaican elections have not historically produced large property market corrections, and the fiscal framework now embedded in domestic law and IMF insurance provides a buffer against the monetary consequences of a political cycle that a previous generation’s markets did not have.

The question entering the rest of 2019 is less about the market’s direction — which remains positive — and more about the pace. The five to eight percent appreciation rate of the first quarter is, in the view of most analysts, the market finding a sustainable cruising speed after the 2016–2017 acceleration. At that rate, the expansion can continue for several more years without generating the affordability crisis that would produce a correction. The challenge, as always, is supply: whether the developer pipeline currently under construction will be adequate to accommodate the demand that the economy’s continued growth and the diaspora’s sustained investment appetite are generating.

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jamaica-homes.com | Market Analysis | Q1 2019

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