Jamaica Real Estate Roundup — Q2 2019: A Market Building Quietly Toward Its Best Year

• Tourism delivers another strong quarter; 2019 full-year record increasingly in view.
• BOJ continues gradual rate easing; commercial mortgage affordability improving.
• Residential transaction volumes ahead of the comparable 2018 period.
• Strata development launches attracting growing buyer interest in Kingston.
• GDP posting modest growth; fiscal consolidation remains on track.

The second quarter of 2019 was, for Jamaica’s property market, a period of quiet accumulation — a market building on the improving foundations that the island’s post-IMF-programme economic trajectory had been laying through the preceding years. There was nothing dramatic about the Q2 2019 data: no rate shock, no weather event, no policy announcement that reset the market’s conditions in the manner that the more eventful quarters of the decade’s second half had occasionally produced. What there was, instead, was the steady progress of a sector responding to a gradually improving affordability environment, a tourism economy delivering the employment and income that sustained household demand for housing, and a development pipeline whose strata apartment component was beginning to emerge as a meaningful source of new urban residential supply.

The Bank of Jamaica’s Monetary Policy Committee maintained its gradual easing stance through Q2 2019, continuing the downward rate trajectory that had been progressively improving the financing conditions available to residential mortgage borrowers. The overnight policy rate, reduced from the higher levels that had been necessary to anchor inflation expectations in the earlier years of the decade’s fiscal consolidation period, was creating a commercial lending environment that was more supportive of property purchase decisions than it had been for much of the post-2010 period. Inflation was operating within or near the four-to-six per cent target range — the monetary conditions that the BOJ’s framework had been designed to achieve — and the Committee’s communications were constructive about the trajectory, if careful to avoid signalling any acceleration of the easing pace.

Jamaica’s broader economic performance through Q2 2019 was characterised by the modest but consistent GDP growth that the post-IMF-programme period had established as a new normal. The economy was no longer in the contraction or near-stagnation of the austerity years; it was growing, adding employment, and generating the incremental income gains that, over time, translated into housing demand at prices the market could support. The fiscal consolidation that had been the price of IMF programme support — the primary surpluses, the debt reduction, the public sector reform — was delivering the debt trajectory improvement that was building international confidence in Jamaica’s long-term economic management, with the consequent positive effects on the exchange rate stability and investment climate that property buyers and developers used as background conditions for their decisions.

Tourism: The Record Takes Shape

The tourism sector’s Q2 2019 performance continued the trajectory that was making 2019 increasingly credible as a record year for Jamaica’s visitor arrivals. The April-June period, which bridges the end of the winter peak season and the beginning of the North American summer travel market, delivered arrivals data consistent with the full-year projection of total stopover visitors exceeding 2.6 million. Hotel occupancy rates in the resort destinations remained strong, and the average revenue per room — the metric that operators use to assess the quality rather than just the quantity of their tourism performance — was tracking at levels that justified the investment decisions being made in resort expansion and refurbishment.

The tourism sector’s relevance to the property market operated through multiple channels in Q2 2019. Most directly, the employment and income generated by a strong tourism season sustained the consumer spending and mortgage payment capacity of the large workforce — in the resort parishes’ hospitality, transport and service sectors — that depended on the visitor economy for its livelihood. Less directly but equally importantly, the signal sent by a record tourism year — to investors, developers and the financial institutions that provided construction and mortgage financing — was one of economic confidence that reduced the risk premium attached to long-term property commitments in a tourism-dependent economy.

The Strata Opportunity: A Development Trend Emerging

The most structurally significant feature of Q2 2019’s property market, in the perspective that the subsequent years would provide, was the acceleration of developer activity in the strata apartment segment. The Kingston metropolitan area’s persistent shortage of quality multi-family residential product — the apartments, the managed residential buildings with shared amenities, the urban living options that a growing population of young professionals was demanding and the existing housing stock was not supplying — was attracting the attention of developers whose market research and pre-sales enquiry data were converging on the same conclusion: there was an underserved demand for well-located, well-finished urban apartments at price points that the NHT plus commercial top-up or modest commercial mortgage could reach.

The strata launches that came to market in Q2 2019 were, compared to what the boom period of 2020 and 2021 would produce, modest in scale and relatively measured in their pre-sales velocity. Buyers in Q2 2019 were approaching new strata developments with the deliberation appropriate to a market that had not yet experienced the demand surge that would make unit allocations feel urgent. The typical pre-sales period — the window from launch to achieving the threshold of committed reservations that would trigger construction commencement — was measured in months rather than days. But the underlying demand was real, the price points were supportable against the financing available, and the developers who were active in the segment through Q2 2019 were laying the groundwork for projects that would complete into the boom-era market and achieve outcomes significantly better than their original underwriting had projected.

Residential Market: Improving But Measured

The broader residential market’s Q2 2019 performance reflected the improving but not yet transformed conditions of a property sector whose recovery from the decade’s austerity constraints was incremental rather than sudden. Transaction volumes in Kingston and St Andrew were ahead of the comparable quarter of 2018, reflecting the combined effect of gradual affordability improvement — from the BOJ’s rate easing — and the growing confidence in the island’s economic trajectory that the tourism sector’s performance and the fiscal data were generating. Prices were rising modestly, driven by the supply constraint in desirable residential areas and the gradual improvement in qualified buyer demand rather than by the demand surge and speculation that the later boom would introduce.

The resort-area residential markets were performing consistently with the tourism sector’s strength. In Montego Bay’s established residential corridors, properties with strong rental income potential — from the short-term holiday rental market that the Airbnb and VRBO platforms were growing, as well as from the traditional long-term rental market serving the resort economy’s professional and management workforce — were attracting investor interest at cap rates that the improving occupancy environment was justifying. Negril’s residential market was benefiting from the destination’s sustained popularity and the continuing development of its resort capacity. Ocho Rios was seeing the residential demand generated by both the tourism employment base and the retirees and semi-retirees whose preference for the north coast’s climate, amenities and lifestyle sustained a steady stream of residential purchases.

NHT Activity: Steady Demand, Constrained Supply

The National Housing Trust’s Q2 2019 mortgage lending activity reflected the steady demand from the island’s contributor base that had characterised the period since the completion of the IMF programme. The gradual improvement in formal employment conditions — more workers contributing regularly to NHT, accumulating the entitlements that would eventually qualify them for Trust financing, and reaching the income thresholds that made them candidates for mortgage lending — was translating into a steady flow of qualifying applications. The Trust’s challenge, as it had been throughout the decade, was not insufficient demand but insufficient supply: the pipeline of NHT-approved housing solutions at price points accessible to the contributor base was consistently smaller than the qualified demand pool that the Trust’s records reflected.

Outlook: Building Toward Year-End

The second quarter of 2019 closes with the property market in improving health and the macro environment providing the supportive conditions that the sector needs to continue its gradual recovery from the constraints of the IMF programme years. The third quarter — with its tourism summer peak, the hurricane season’s risk window, and the typically strong residential activity of the July to September period — will build on the Q2 foundations. The year is tracking toward what the data currently suggests will be its best performance in the post-programme period. The record that 2019 is assembling — in tourism, in residential transactions, in the property market’s overall health — will, in the context of the events that follow, come to be understood as the benchmark of a normal market operating at its best before the extraordinary disruptions and expansions of the 2020s began to reshape it.

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