Overseas Buyers: From Capital Gain to Yield
The behaviour of overseas buyers — the diaspora investors and international purchasers who had played a significant role in the expansion since 2014 — was beginning to shift in ways that estate agents serving the luxury and north-coast segments were observing with interest. The buyers who had entered the market in 2014 and 2015 had been motivated primarily by the capital appreciation that the post-EFF recovery had made plausible: they were buying assets at depressed prices and expecting them to recover. By 2019, those buyers had achieved their capital gain. The new cohort of overseas enquiries was arriving with a different question: what does the rental yield look like, and does the short-term rental economics work?
The answer, for well-located north-coast properties, remained positive. A two-bedroom villa in the Ocho Rios corridor, acquired at J$25–30 million and let through a short-stay platform at an average occupancy rate consistent with Jamaica’s tourism growth trajectory, was generating US dollar yields that compared favourably with equivalent investments in the US secondary real estate markets from which many diaspora buyers were coming. The arithmetic was compelling enough that north-coast demand from the overseas buyer cohort was holding despite the fact that capital appreciation, while still positive, was no longer the primary draw.
What This Means
The second quarter of 2019 presents a market in late-cycle expansion: prices high relative to history, yields compressed in the mature urban segments, construction costs rising, and the political calendar moving toward a terminal point. None of these conditions is a crisis signal in isolation. Taken together, they describe the normal state of a property market that has been expanding for several years and is approaching the point at which the pace of expansion naturally moderates. The expansion has not ended; it is maturing.
The outlook for the second half of 2019 is shaped by three principal uncertainties: the timing of the general election and whether it produces the political continuity or disruption that markets price for in advance; the trajectory of construction costs and whether rising feasibility thresholds reduce the developer pipeline enough to create renewed supply constraint; and the performance of the tourist season, which will determine both the north-coast rental economics and the macro conditions that feed into buyer confidence. On balance, the evidence supports continued expansion, but at a pace that is decelerating toward something that looks more like two to five percent annual appreciation than the double-digit rates of 2016 and 2017.
jamaica-homes.com | Market Analysis | Q2 2019
No hurricanes, no elections, no IMF drama. Jamaica’s property market in the second quarter of 2019 was defined by what did not happen as much as by what did. The expansion continued, quietly and at pace.
- Residential transaction volumes continue at post-crisis highs through Q2; summer pipeline robust
- KMA apartment segment records largest single-quarter completions total in over a decade
- Construction cost inflation becomes significant factor in project feasibility calculations
- BOJ maintains low policy rate; interbank market liquidity abundant
- Portland Eastern by-election expected in Q3; political market watching intensifies
- Overseas buyer demand focuses increasingly on short-term rental economics rather than capital gain
In a country with Jamaica’s history of fiscal drama, political volatility, and meteorological surprise, a quarter that produces none of those things deserves to be noted. The second quarter of 2019 was, by the standards of Jamaica’s modern economic history, uneventful. The property market absorbed this uneventfulness with the confidence of a sector that had learned, over the preceding six years, to sustain itself on fundamentals rather than requiring the stimulus of a policy event or the drama of a crisis to generate volume. Transaction numbers were strong. The pipeline of new supply was delivering. Buyers were present. Sellers were confident. The market was, in the most straightforward possible sense, working.
The apartment segment of the Kingston Metropolitan Area recorded its largest single-quarter completions total in more than a decade, reflecting the cumulative effect of the planning and construction decisions that developers had been making since 2016 in response to the BPO employment boom and the demonstrated appetite of younger buyers for urban multi-family living. The completions were being absorbed quickly: presale rates on the schemes delivering in Q2 had been high enough that most units were committed before certificates of occupation were issued, and the remaining inventory was clearing within weeks of practical completion. The velocity of absorption was the clearest evidence available that the apartment market had reached a structural level of demand that would sustain continued supply without the oversupply risk that had characterised the residential market in the early 2010s.
Construction cost inflation was emerging as a more significant issue than it had been at the start of the expansion cycle. Steel, cement, and skilled labour had all seen price increases that were compressing the margins on projects financed at the 2016–2017 feasibility economics and being built and delivered in 2019. Developers who had locked in presale prices early were finding that the gap between sale price and construction cost had narrowed since project launch, and that the timeline from planning to delivery had extended as contractor availability tightened. The implications for the pipeline were not immediately visible in the delivered supply data, but they were beginning to appear in the feasibility conversations being had about the next generation of schemes: the price points at which new development was viable were moving upward, and the segments of the market that could absorb those price points were, correspondingly, shrinking.
Overseas Buyers: From Capital Gain to Yield
The behaviour of overseas buyers — the diaspora investors and international purchasers who had played a significant role in the expansion since 2014 — was beginning to shift in ways that estate agents serving the luxury and north-coast segments were observing with interest. The buyers who had entered the market in 2014 and 2015 had been motivated primarily by the capital appreciation that the post-EFF recovery had made plausible: they were buying assets at depressed prices and expecting them to recover. By 2019, those buyers had achieved their capital gain. The new cohort of overseas enquiries was arriving with a different question: what does the rental yield look like, and does the short-term rental economics work?
The answer, for well-located north-coast properties, remained positive. A two-bedroom villa in the Ocho Rios corridor, acquired at J$25–30 million and let through a short-stay platform at an average occupancy rate consistent with Jamaica’s tourism growth trajectory, was generating US dollar yields that compared favourably with equivalent investments in the US secondary real estate markets from which many diaspora buyers were coming. The arithmetic was compelling enough that north-coast demand from the overseas buyer cohort was holding despite the fact that capital appreciation, while still positive, was no longer the primary draw.
What This Means
The second quarter of 2019 presents a market in late-cycle expansion: prices high relative to history, yields compressed in the mature urban segments, construction costs rising, and the political calendar moving toward a terminal point. None of these conditions is a crisis signal in isolation. Taken together, they describe the normal state of a property market that has been expanding for several years and is approaching the point at which the pace of expansion naturally moderates. The expansion has not ended; it is maturing.
The outlook for the second half of 2019 is shaped by three principal uncertainties: the timing of the general election and whether it produces the political continuity or disruption that markets price for in advance; the trajectory of construction costs and whether rising feasibility thresholds reduce the developer pipeline enough to create renewed supply constraint; and the performance of the tourist season, which will determine both the north-coast rental economics and the macro conditions that feed into buyer confidence. On balance, the evidence supports continued expansion, but at a pace that is decelerating toward something that looks more like two to five percent annual appreciation than the double-digit rates of 2016 and 2017.
jamaica-homes.com | Market Analysis | Q2 2019
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