Jamaica Real Estate Roundup — Q3 2019: Summer Strength and the Arc Toward a Record Year

• Tourism tracking toward a record full year; summer season delivers strong numbers.
• BOJ continues rate easing cycle; mortgage affordability improving gradually.
• Residential transactions healthy across Kingston, St Andrew and resort parishes.
• Strata development pipeline expanding; new launches attracting steady interest.
• Economy exiting IMF programme with improved macro fundamentals.

The third quarter of 2019 delivered the kind of solid, unremarkable performance that a healthy property market produces when the macroeconomic environment is supportive, the structural demand drivers are intact and no exogenous shock has disrupted the ordinary mechanism of transaction. Tourism arrivals through July and August confirmed that the 2019 season was tracking toward a full-year outcome that would set a new record for Jamaica’s visitor economy. The Bank of Jamaica’s Monetary Policy Committee continued the gradual rate easing that had been progressively improving the affordability conditions for residential mortgage borrowers. The residential property market transacted at a pace and volume consistent with a sector in sustainable health. And the broader economic context — the arc of the post-IMF-programme fiscal consolidation that was positioning Jamaica for a successful exit from its Extended Fund Facility arrangement with the International Monetary Fund — provided the macro confidence backdrop against which property investment decisions are made.

The Q3 2019 property market’s character — steady, confident, operating on fundamentals rather than exuberance — stands in instructive contrast to the conditions that would define both the disruption of 2020 and the boom of 2021. In Q3 2019, the market was neither suppressed by adversity nor elevated by the extraordinary monetary conditions that the pandemic would generate. It was operating in the normal range of a small open economy’s property market: responding to the signals of income, employment, financing cost and supply availability that determine residential demand, and delivering transaction volumes and price levels that reflected those signals without dramatic amplification in either direction.

Tourism: The Record in Sight

The tourism sector’s Q3 2019 performance was one of the year’s strongest contributors to the confidence that permeated Jamaica’s economic environment through the quarter. The July-September period is traditionally Jamaica’s strongest for North American summer travel, and the 2019 summer season delivered arrivals data that was tracking toward the full-year record that the tourism authorities had been projecting. Major resort destinations — Montego Bay, Negril, Ocho Rios and the expanding south coast properties — were reporting hotel occupancy rates and average daily rates consistent with a sector operating at or near the capacity of its current supply base.

The resort’s capacity constraints were, in Q3 2019, a positive signal for investors with development capital to deploy. The active pipeline of new hotel construction and major resort refurbishment projects that was underway across the western and northern parishes reflected operators’ confidence that the demand trajectory was sufficiently strong to justify the capital commitments required to expand the supply base. New hotel openings expected in 2020 and 2021 — whose construction activity was visible in the cranes and earthworks of the resort corridors — were accompanied by significant upscaling investments at existing properties, creating construction demand for materials and skilled labour that was an active contributor to the building sector’s Q3 2019 activity levels.

For the property market, the tourism sector’s Q3 performance was a structural input in multiple ways. The direct contribution was to the employment income of the large workforce — in the resort parishes’ hospitality, transport, retail and service sectors — that participated in the visitor economy and whose income generated the demand for housing that the resort-area residential market served. The indirect contribution was to the macro confidence — the sense that Jamaica’s economy was on a positive trajectory that justified the long-term financial commitment of a property purchase — that sustained investment in real estate assets across the island.

Monetary Policy and Mortgage Affordability

The Bank of Jamaica’s monetary policy stance through Q3 2019 was one of continued, gradual accommodation. The overnight policy rate, which had been on a downward trajectory from the higher levels of the earlier post-programme years, was being reduced incrementally as the Monetary Policy Committee assessed the inflation data and the economic activity indicators that guided its rate decisions. Inflation was operating within or close to the four-to-six per cent target range — not as consistently or as comfortably as the BOJ’s published targets specified, but sufficiently so that the case for continued easing was supportable without creating the policy credibility risks that persistent target overshoots would have generated.

The commercial mortgage market was responding to the BOJ’s easing stance with the characteristic lag that the transmission mechanism from policy rate to lending rate involves. The rate reductions of the preceding quarters were working their way through the commercial banks’ cost of funds and into their published mortgage rates, improving the affordability conditions for buyers whose qualifying was sensitive to the cost of borrowing. The NHT’s lending rates, structured independently of the commercial banks’ rate-setting and anchored to the Trust’s social mandate, were providing the primary affordable financing channel for the large population of contributors whose incomes placed commercial bank mortgages at the upper boundary of their affordability range.

Residential Market: Steady Throughput

The residential transaction market in Q3 2019 was generating the steady throughput that a market in sustainable health produces. In Kingston and St Andrew, the primary market by transaction value, activity was distributed across the price segments that the parish’s diverse residential stock accommodates: the luxury market of Cherry Gardens, Norbrook and Jack’s Hill was transacting at its characteristic measured pace, with individual high-value properties attracting the qualified buyer pool that the parish’s upper residential tier has historically served. The middle market — the two and three-bedroom house in the established residential communities — was active, with healthy enquiry volumes and average days-on-market consistent with a market in balance rather than under the demand pressure that would characterise the 2021 boom.

The emerging strata apartment segment was the residential market’s growth story in Q3 2019. New launches in the Kingston metropolitan area were attracting interest from a buyer profile that combined the young professional first-time buyer, the investor purchasing for rental yield, and the diaspora buyer whose desire for a manageable, secure and professionally maintained Jamaican property base was well served by the strata apartment’s characteristics. Pre-sales of units in the quarter’s launches were proceeding at a pace that, while not the extraordinary velocity of the later boom period, was sufficient to demonstrate market depth and support developers’ confidence in advancing their projects toward construction commencement.

St Catherine and the Suburban Corridor

The St Catherine residential market in Q3 2019 was performing the function it has historically occupied in Jamaica’s property landscape: absorbing the demand from buyers whose budgets did not extend to Kingston and St Andrew’s price points, and providing the primary market for the mass-affordable product that the NHT and the private sector’s volume builders were supplying to the island’s large population of working families. Portmore’s established residential communities — Portmore Pines, Portmore Gardens, the expanding Waterford and Bridgeport zones — were transacting at volumes consistent with their role as the primary affordable homeownership destination for the Kingston metropolitan area’s large working-class and lower-middle-class buyer population.

The Highway 2000 corridor’s continued operation was sustaining the commuting viability of St Catherine as a residential base for workers employed in Kingston, which had historically been the primary constraint on the parish’s ability to absorb residential demand from the capital’s overspill. The toll road’s capacity, the frequency of public transport services and the commuting time experience of St Catherine residents employed in Kingston were all factors that the residential developers targeting the parish’s expanding zones were actively managing as inputs to their product and pricing strategies.

Hurricane Season: A Quiet Year for Jamaica

The 2019 Atlantic hurricane season produced its most consequential event of the year in late August and early September, when Hurricane Dorian — one of the most powerful Atlantic hurricanes on record — made its catastrophic landfall over the Bahamas as a Category 5 storm on September 1, causing devastating loss of life and property damage on the islands of Grand Bahama and Abaco. Dorian’s track, which took it through the Bahamas and then along the United States East Coast, passed well to the north and east of Jamaica. The island experienced no significant weather impacts from the storm, and the operational disruption to the property market and tourism sector from the 2019 hurricane season was minimal by historical standards.

The Bahamas’ Dorian disaster was, however, a reminder relevant to Jamaica’s property sector of the structural vulnerability of Caribbean island economies to major hurricane impacts. The Bahamas’ experience — the sudden destruction of housing stock, infrastructure and the economic base of affected communities, with its implications for insurance markets, reconstruction timelines and the confidence of investors in Caribbean property as an asset class — was noted by Jamaica’s property professionals and insurers as a scenario whose possibility the island’s own exposure to the Atlantic hurricane track made relevant to their own risk assessments.

Outlook: A Strong Finish to a Solid Year

The third quarter of 2019 closes with Jamaica’s property market in good health and the broader economic environment providing the conditions for a solid final quarter. Tourism is tracking toward its record year. The monetary policy environment is supportive. The residential transaction pipeline is healthy. The construction sector’s activity levels — driven by both the residential development pipeline and the hotel and resort construction that the tourism sector’s growth is sustaining — are contributing to GDP and employment at a meaningful level. The government’s fiscal management, which has been the primary source of the macro credibility that underpins investor confidence, is on track.

The fourth quarter of 2019 will bring the winter tourism season’s opening months and the year’s final property market data. The Quarterly Jamaica Real Estate Roundup’s year-end edition will be able to assess whether the solid trajectory of the first three quarters has been maintained through the full year, and what the 2019 data implies for the market’s condition as it enters a decade whose opening chapter — in ways that no one writing in early October 2019 can anticipate — will be defined by events whose nature and magnitude are not yet visible on any forecast horizon.

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