Jamaica Real Estate Roundup — Q1 2022: War, Inflation and the End of Cheap Money

• BOJ jumps 150bps to 4.00% in February, then 50bps more to 4.50% in March.
• Inflation reaches 10.7% in February — well above the 4–6% target ceiling.
• Russia invades Ukraine February 24; energy and food prices surge globally.
• GDP growth strong; fiscal 2021/22 trajectory toward 8% expansion.
• Property market still buoyant but the rate cycle’s weight is accumulating.

The first quarter of 2022 was defined by two events whose combined effect was to accelerate the unwinding of the exceptional monetary conditions that had underpinned Jamaica’s property boom. The first was domestic: the Bank of Jamaica’s Monetary Policy Committee, responding to inflation that had been above the upper limit of its four-to-six per cent target range since July 2021, raised the overnight policy rate by 150 basis points to 4.00 per cent effective February 21 — the largest single increase in a tightening cycle that had already delivered 350 basis points of tightening since October 2021 — and then by a further 50 basis points to 4.50 per cent effective March 30. The second was geopolitical: Russia’s invasion of Ukraine on February 24, 2022, which the BOJ’s March Monetary Policy Committee statement explicitly identified as adding a further inflationary shock to an already elevated global price environment. Two events, one domestic and one a hemisphere away, converging in the same three-month window to reset the conditions for Jamaica’s property market.

The February 150-basis-point increase was notable both for its magnitude — the largest single move in the current cycle, larger than any single increase since Jamaica’s monetary policy framework had been reformed — and for what it signalled about the BOJ’s determination to restore price stability. The January 2022 inflation data, at 9.7 per cent, had confirmed that the price pressures building since mid-2021 were not transient. The February figure, at 10.7 per cent, was released shortly after the February rate decision and confirmed the direction of travel. The BOJ was moving fast and signalling that it would continue to move, whatever the near-term implications for borrowing costs and economic activity.

The March 30 rate increase to 4.50 per cent came with the Russia-Ukraine war already six weeks old and its commodity price effects already visible in Jamaica’s import cost data and domestic fuel prices. The BOJ’s communication around the March decision was explicit about the war’s role in complicating the inflation outlook: energy prices that had been expected to moderate in 2022 were instead being driven higher by supply disruptions and sanctions, food commodity prices were rising sharply in response to the disruption of Ukrainian agricultural exports, and the uncertainty about the war’s duration and escalation trajectory was adding a risk premium to the global economic outlook that made confident forward projections difficult. Against this backdrop, the BOJ judged that continued tightening was warranted.

The Economy’s Strong Baseline

The backdrop against which the rate cycle was operating was, notwithstanding the inflationary pressures, one of genuine economic momentum. Jamaica’s GDP growth for fiscal year 2021/22, ending March 2022, was tracking toward a figure of approximately eight per cent — a recovery driven by the rebound in tourism, the resumption of mining activity, and the broad-based service sector growth that had accompanied the economy’s reopening from pandemic restrictions. The construction sector had been a particularly strong contributor to growth through fiscal 2021/22, reflecting both the residential development boom and the government’s capital works programme, which had accelerated infrastructure spending using the fiscal space created by the post-IMF-programme fiscal framework.

Employment had recovered substantially from the pandemic lows of 2020. Tourism employment in the resort parishes was rebuilding as visitor arrivals increased. The construction sector’s labour market was, if anything, characterised by a shortage of skilled tradespeople rather than unemployment — a reflection of the scale of concurrent construction activity that had characterised the post-pandemic period. Remittance inflows from the Jamaican diaspora, which had been remarkably resilient through the pandemic, were maintaining the level of foreign exchange inflows that had historically provided one of Jamaica’s most stable external financing sources. The macro environment, in short, was one that the property market had drawn genuine strength from during 2020 and 2021 and would continue to draw strength from as long as the rate cycle’s tightening effects could be absorbed without triggering a significant growth slowdown.

Property Market: Still Moving, But Feeling the Weight

Through Q1 2022, the residential property market was still operating with the momentum carried over from the boom years of 2020 and 2021. The Registrar of Titles’ data and the Reports from the island’s major estate agencies reflected a market in which transactions were completing, properties were transferring, and prices were holding at or above the levels reached in the peak months of 2021. The characteristic of the Q1 2022 market was not stasis but gradual deceleration — a market in which the number of active buyers at any given asking price point was beginning to thin, and in which the pace of sale for properties at the higher end of their sub-market’s price range was beginning to extend.

The strata apartment sector — which had driven the boom’s most visible activity, with launches of multi-storey residential developments in Kingston, New Kingston, Barbican, Liguanea and the expanding corridors of Half-Way-Tree and Constant Spring Road attracting pre-sales at levels that sometimes outpaced developers’ ability to deliver — was showing early signs of the transition that higher rates would bring. Developers who had launched in 2020 and 2021, when pre-construction commitments had come quickly, were finding that the buyers coming forward in Q1 2022 were more deliberate and more focused on the financing terms they could secure. The one-bedroom-unit buyer who represented the entry point of the strata market was the buyer most affected by the rising rate environment, and developers were beginning to factor this into the pricing and payment plans they were offering on new registrations and completions.

National Housing Trust and the Affordable Segment

The NHT’s position in the market assumed greater importance as the commercial sector’s rate environment moved away from the historic lows of 2020 and early 2021. The Trust’s lending rates, calibrated to the social mandate of the Housing Act and not directly linked to the BOJ’s overnight rate in the same mechanical way that commercial banks’ prime rates were, provided a degree of insulation for the large population of NHT contributors whose homeownership aspirations depended on NHT financing rather than commercial mortgages. The Trust’s Q1 2022 activity levels reflected continuing strong demand from contributors who saw the NHT window as providing better value than the commercial alternative.

The NHT’s own development pipeline was contributing to supply at the affordable and middle segments of the market. Projects in progress at the close of Q1 2022 included the Ruthven Towers development in St Andrew — a seven-storey residential building — alongside a range of scheme house developments in St Catherine and other parishes where the Trust was deploying its resources toward the housing solutions that contributors had been accumulating entitlement toward. The quantum of the housing deficit — by most credible estimates, Jamaica’s accumulated shortage of adequate housing units ran into the tens of thousands — ensured that demand for any NHT housing solution would continue to exceed supply for the foreseeable future.

Commercial Real Estate and Tourism Infrastructure

The commercial property market in Q1 2022 was operating in the shadow of its residential counterpart in terms of headline attention, but the fundamentals of Jamaica’s commercial real estate were being shaped by the tourism recovery in ways that would have significant medium-term implications. Hotel occupancy rates in the major resort destinations were recovering strongly as international travel resumed and Jamaica’s established position as a premium Caribbean destination reasserted itself in the booking data. The pipeline of new hotel construction and major refurbishment projects that had been in various stages of development when the pandemic struck was resuming, creating construction demand that competed with the residential sector for skilled labour and materials.

The Montego Bay commercial property market was particularly active, reflecting the St James parish’s role as the centre of Jamaica’s hotel and resort economy. Office and retail development in the parish was being driven by the ancillary service demand from the resort industry — the professional services, healthcare, education and retail infrastructure that a large international visitor population and its associated local employment generates. The inland commercial corridors of Montego Bay were attracting developer and investor interest at levels consistent with the broad trajectory of the tourism recovery.

Russia-Ukraine: The Property Sector’s Supply-Side Shock

The Russia-Ukraine war’s implications for Jamaica’s property sector were primarily felt on the supply side rather than the demand side. The demand-side effects — higher food prices reducing discretionary income and constraining the household budgets from which deposit savings and mortgage repayments are drawn — were real but diffuse and slow to manifest in transaction data. The supply-side effects were more immediate and more specifically targeted at the development industry: the global oil price spike translated within weeks into higher fuel costs for construction equipment, higher transport costs for materials, and higher energy costs across the cement and steel production chains that supplied Jamaica’s construction market.

The construction industry’s response to these cost pressures was visible in the Q1 2022 planning and development data. New development approvals from local planning authorities — a leading indicator of the supply pipeline — were running at a pace that was beginning to reflect developers’ more cautious approach to project commencement in an environment where both the cost of materials and the cost of financing had risen significantly since the projects were conceived. The BOJ’s February rate decision, coming less than a month after the last of a series of rate increases from Q4 2021, had reduced the window in which development projects underwritten at 2020 or early 2021 cost assumptions could still generate acceptable returns without revision to their pricing or scope.

Looking Toward Q2 and Beyond

The quarter closes with Jamaica’s property market at an inflection point whose direction has been set but whose destination is not yet visible. The BOJ has raised rates by 400 basis points since October 2021 and has communicated clearly that the cycle is not finished. The Russia-Ukraine war’s commodity price effects are adding an inflationary dimension that Jamaica’s domestic monetary policy cannot address directly but must factor into the policy rate path to prevent second-round price setting. The construction sector is absorbing cost increases that are restructuring the economics of development. And the residential market’s buyers are beginning to encounter an affordability environment that is materially more demanding than the one in which the boom was ignited.

Against these pressures, Jamaica’s fundamentals remain genuine. The housing deficit is real and persistent. The diaspora’s connection to the island is enduring. The economy’s fiscal management has improved to a degree that sustains macro confidence. And the tourism sector’s strong recovery trajectory provides the foreign exchange and employment income that underpins the island’s economic activity. The market entering Q2 2022 is not in distress — it is adjusting. The adjustments that Q2 and beyond will require will be the subject of the reports that follow.

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