Jamaica Real Estate Roundup — Q3 2021: The Boom at Its Height — and the First Rate Hike in Thirteen Years

• BOJ raises to 1.50% yesterday — first increase in thirteen years.
• Tropical Storm Grace makes landfall August 17; 9.8 inches of rain, minor flooding.
• Strata apartment launches sell out within days — demand at historic levels.
• Delta variant slows tourism recovery; visitor arrivals tracking below 2019 pace.
• Diaspora investment driving record pre-sales in Kingston and resort corridors.
• Property prices up significantly year-on-year across all major sub-markets.

As this edition of the Quarterly Jamaica Real Estate Roundup goes to press, the Bank of Jamaica has made history. Effective yesterday — October 1, 2021 — the Bank’s Monetary Policy Committee raised the overnight policy rate by 100 basis points, from 0.50 per cent to 1.50 per cent. It is the first increase in the BOJ’s benchmark lending rate since 2008 — thirteen years during which the rate had moved in one direction only, downward, as successive monetary policy decisions sought first to manage the aftermath of the global financial crisis, then to support the economy through its IMF programme period, and finally to stimulate recovery from the unprecedented shock of the COVID-19 pandemic. Yesterday’s decision marks the end of that era. The signal is unambiguous: the Bank of Jamaica believes that Jamaica’s inflation, which has been above the upper boundary of the four-to-six per cent target range since July 2021, requires a monetary policy response, and that the accommodation of the pandemic period must begin to be withdrawn.

The July inflation reading, the first month that the rate had breached the target ceiling, came in at approximately 6.4 per cent. The August and September data followed in the same direction. The sources of the pressure were primarily global — the supply chain bottlenecks that had been building since the pandemic’s economic disruption, elevated shipping costs, commodity price increases across energy and food categories — transmitted into Jamaica’s consumer price index through an import-dependent economy whose exposure to global price movements is structurally high. The BOJ’s statement accompanying yesterday’s decision acknowledged these external sources while noting that the persistence of inflation above target warranted a normalisation of the policy rate from its emergency-period floor. The MPC indicated that further adjustments would be data-dependent and that the pace of normalisation would respond to how inflation evolved in the coming months. For the property market, the critical question — one that will take months to answer with confidence — is how far and how fast the normalisation will proceed.

But that question belongs to the future. The quarter just ended tells a different story: a property market operating, by virtually every available measure, at the most elevated levels of activity in the island’s recorded history. The Q3 2021 data, as it arrives in coming weeks, will not reflect the rate increase that occurred on the last day of the quarter’s publication window. It will reflect the market that the unprecedented monetary accommodation of 2020 and 2021 created — a market of diaspora capital, record pre-sales, rapidly rising prices and a construction sector absorbing demand that exceeds its near-term delivery capacity.

Tropical Storm Grace: August’s Weather Interruption

The quarter’s most dramatic weather event occurred on August 17, 2021, when Tropical Storm Grace — at that point the seventh named storm of the 2021 Atlantic hurricane season — made its approach toward Jamaica. Grace was not a hurricane; it had not achieved the sustained wind speeds that would classify it above tropical storm status. But its approach brought significant rainfall to Jamaica, with Kingston and St Andrew recording approximately 9.8 inches of rain over the period of Grace’s passage, wind gusts reaching 53 miles per hour across exposed areas, and minor flooding in low-lying communities in the Kingston metropolitan area and the western parishes. The Office of Disaster Preparedness and Emergency Management had activated its alert protocols and shelters were opened in vulnerable areas ahead of the storm’s arrival.

The property sector’s experience of Grace was, in broad terms, a manageable one. The flooding was localised, the wind damage was limited to the standard Grace-level impacts of downed branches and signage, and the infrastructure disruptions were resolved within days of the storm’s passage. Grace moved on to intensify in the Gulf of Mexico before making its more significant Caribbean impacts in Haiti and Mexico. The episode served its perennial purpose for Jamaica’s property sector: reminding buyers, developers, insurers and the agencies that oversee building standards and coastal development that the Atlantic hurricane season runs through November, that the island’s exposure to storm risk is real and recurring, and that construction standards and building insurance are not optional considerations but structural requirements for any credible property investment.

The Strata Boom: Pre-Sales at Historic Velocity

The residential property market that the quarter’s publication captures was, through the July-September period, operating at a pace and intensity that experienced practitioners described as unprecedented. The strata apartment sector — the segment that had been transformed by the pandemic-era demand surge into the island’s most dynamic development sub-market — was producing pre-sales velocities that had no clear historical precedent. Launches of new residential developments in Kingston, New Kingston, Barbican, Half-Way-Tree and the resort corridors of Montego Bay and Ocho Rios were, in the most eagerly anticipated cases, fully subscribed within hours of opening for purchase reservations. The phenomenon of the same unit being reserved by multiple would-be buyers — reflecting the speed at which demand was overwhelming administrative systems designed for a more measured pace of sales — had become a market characteristic that estate agents and developers were managing as a live operational challenge.

The buyers driving this velocity represented a convergence of demand streams that had not previously coincided with such intensity. Diaspora buyers — Jamaicans resident in the United States, Canada, the United Kingdom and elsewhere, whose Caribbean homeownership aspirations had been sharpened by the pandemic’s reminder of the value of a home territory connection — were accessing the market through online viewings, remote purchasing processes and the trusted networks of family members and local agents who could inspect and advise on their behalf. The Jamaica dollar’s exchange rate relationship with the major diaspora currencies made Jamaican property, valued in local currency, appear attractive to buyers earning in US dollars, Canadian dollars and British pounds. A property priced at J$25 million — approximately US$165,000 at mid-2021 exchange rates — was within the reach of a diaspora buyer who had accumulated savings at a North American income level.

Alongside the diaspora buyers were the domestic purchasers: the young professionals, the dual-income households, the established business owners and the investors whose confidence in Jamaica’s economic trajectory under the government’s fiscal management framework was expressed through property acquisition. For many of these buyers, the BOJ’s maintenance of the overnight rate at 0.50 per cent throughout the pandemic period had translated into historically low commercial mortgage rates that made the monthly payment on a residential mortgage more affordable, relative to rental costs and income levels, than at any previous point in living memory. The rational response to that environment — to lock in a long-term asset at historically cheap financing terms — was driving the market with the force of an obvious investment thesis.

Tourism: The Delta Wave’s Complication

The tourism sector’s Q3 2021 performance was complicated by the emergence and spread of the Delta variant of COVID-19, which through July and August 2021 was driving a significant surge in case counts across the primary tourism source markets of the United States, Canada and the United Kingdom. The Delta wave had two effects on Jamaica’s tourism recovery: it reduced the confidence of would-be travellers who had been considering Caribbean vacations, and it created uncertainty around the health protocols and testing requirements that governed international travel, adding a layer of administrative complexity that deterred some travellers even where health concerns were not themselves decisive.

The result was that Q3 2021 arrivals data, while significantly stronger than the corresponding quarter of 2020 — when Jamaica had been effectively closed to most international visitors — fell short of what a pre-Delta trajectory would have projected. The island’s tourism year, which had been tracking toward a pace that might have reached two million arrivals by year-end under the more optimistic forward projections of Q1 2021, was being revised downward. The full-year 2021 outcome was shaping toward something in the range of 1.5 million total visitors — a meaningful recovery, but well below the 2.7 million of the 2019 pre-pandemic record.

For the property market, the tourism sector’s Q3 complications were a reminder of the dependence of the resort property sub-markets on the visitor economy’s health. In Montego Bay, Negril and Ocho Rios, hotel occupancy in July and August had been below the levels that operators had been planning for, and the reduction in visitor spending was filtering through to the retail, food service and entertainment sectors that the resort communities’ local economies depend upon. The residential market in the resort areas remained active — driven by many of the same diaspora and local investor demand forces that were active in Kingston — but the Q3 pause in tourism momentum was a data point that investors in resort-area property were noting.

Kingston Market: Price Appreciation Across All Segments

In the Kingston and St Andrew market, the Q3 2021 picture was one of price appreciation across segments that had not previously moved in the same direction simultaneously. At the luxury end — the Cherry Gardens, Norbrook, Jack’s Hill and Beverley Hills market — values for well-positioned houses with modern specifications were being set at levels that would have been regarded as aspirational just two years earlier. At the middle market — the two and three-bedroom house in the established residential communities of Constant Spring, Havendale, Mona, Barbican and the expanding upper St Andrew developments — demand was exceeding supply by a margin that was reducing average days-to-sale to levels that gave sellers the confidence to hold firmly to asking prices and buyers little negotiating leverage. And at the entry-level strata market — one-bedroom apartments in the urban core’s new developments, priced to attract the first-time buyer and the investor seeking rental yield — pre-sales velocity was at its peak.

The rental market in Kingston was reflecting the same dynamics. The arrival of new strata developments with professionally managed rental programmes was adding a quality tier to the rental stock that had not previously existed at scale, and the pricing of that tier — monthly rents for a well-finished one-bedroom in a managed strata development that reflected the capital cost of the unit and the financing cost of the investor — was setting a new benchmark that was pulling the broader rental market upward. Long-standing rental stock in established residential areas was being repriced toward the rates that the new supply was establishing, as landlords recognised that demand was sufficient to sustain higher rents and that the alternative — holding below-market rates for sitting tenants in a booming market — was increasingly costly relative to the opportunity represented by new rental rates.

NHT and Affordable Housing

The National Housing Trust’s Q3 2021 activity was a reflection of the same demand pressures that were driving the commercial market, filtered through the Trust’s mandate to serve Jamaica’s working population at rates that the commercial market could not match. The Trust’s contributors — workers across Jamaica who had been making mandatory NHT contributions from their wages and accumulating the entitlements that would eventually qualify them for Trust financing — were accessing the NHT mortgage facility in numbers that reflected the boom’s broad reach. The Trust’s open market lending programme — which allows qualified contributors to purchase on the private market using NHT financing — was serving a buyer population whose incomes placed them at the junction between the Trust’s accessibility and the commercial banks’ qualifying requirements.

The NHT’s own development pipeline was advancing. The Ruthven Towers project in St Andrew, a seven-storey residential development, represented the Trust’s contribution to the urban apartment supply that the market was demanding. Projects across St Catherine — in Portmore, Waterford, Old Harbour and the expanding suburban zones accessible from the Portmore Causeway and the Highway 2000 corridor — were serving the large population of first-time and aspirational buyers for whom the NHT represented their primary or only viable path to homeownership.

A Market at the Turn

The quarter’s closing note returns to where we began: the Bank of Jamaica raised its overnight policy rate yesterday. The market that the Q3 2021 data describes is one of exceptional vitality, demand-driven price appreciation, historic pre-sales velocity and a supply pipeline that has been stretched to its limits by the scale of the demand it is attempting to serve. That market was built on a specific set of conditions — pandemic-era monetary accommodation at its maximum, financing costs at their historic lows, and the specific psychology of a moment when the security of a physical asset had become, for many buyers, more important than the opportunity cost of capital deployment elsewhere.

Yesterday’s rate increase does not end that market today. The 100 basis points that have moved the overnight rate from 0.50 per cent to 1.50 per cent are not yet, at this new level, a meaningfully restrictive monetary stance. But they are the beginning of a normalisation whose endpoint is uncertain, whose pace is data-dependent, and whose ultimate effect on the property market’s affordability environment will depend on how far and how fast the cycle runs. The Quarterly Jamaica Real Estate Roundup will be following this story closely. The Q4 edition will be the first that can report on what the rate increase has meant in practice for Jamaica’s property market. Between now and then, the island’s buyers, sellers, developers and financiers are processing a signal that thirteen years of monetary policy history had never sent them before.

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