Holding the Line: Jamaica’s Housing Market Defies Gravity Amid Rising Costs — Monthly Review, September 2022

Publication Date: September 3, 2022 | Coverage Period: August 3 – September 2, 2022 | Category: Monthly Review

September 2022 in Brief

• NHT on track to disburse approximately 8,000 mortgages by year-end 2022, the Trust confirms.
• NHT housing starts up 103 per cent year-on-year; building construction segment continues to grow.
• Jamaica’s IMF programme remains on track; fiscal consolidation improving debt ratios.
• BOJ rate cycle continues; commercial mortgage rates now approaching 9 per cent at some lenders.
• Global headwinds intensifying: US Federal Reserve signals continued aggressive tightening.
• Real estate practitioners report market activity sustained but buyer questions shifting to affordability.

Housing Market Overview

Jamaica’s residential property market has demonstrated a resilience in the face of the rate-hiking cycle that has surprised some observers. As this review is prepared in early September 2022, the headline finding is that demand has not broken. Building society mortgage portfolios continue to expand, NHT is on course for a record or near-record year of disbursements, and the residential construction segment of the broader construction industry is still growing — even as the road-building component has contracted.

The Planning Institute of Jamaica’s analysis of construction sector performance has highlighted an important distinction: while overall construction output contracted modestly in the July–September quarter, this was driven by a slowdown in road and infrastructure construction rather than residential building. The housing sector, by contrast, has continued to expand, driven in significant measure by the 103 per cent year-on-year increase in NHT housing starts.

This performance should be contextualised carefully. The NHT’s construction programme is, by design, rate-insensitive in a way that the commercial market is not — the Trust funds its activities through mandatory employer and employee contributions rather than market-rate debt financing. The resilience of the residential construction sector therefore partly reflects the NHT’s role as a countercyclical force rather than evidence that the broader private market is unaffected by the rate environment.

NHT Activity: A Record Year in Prospect

The National Housing Trust’s performance data for 2022 is among the most significant positive signals in this month’s review. The Trust has indicated it is on track to disburse approximately 8,000 mortgages by year-end, a figure that would represent a substantial achievement in the context of the challenging external environment. New housing starts have more than doubled year-on-year, reflecting both the ambitious construction programme approved for 2022 and the joint-venture arrangements with private developers that allow the NHT to leverage third-party construction capacity.

The NHT’s Guaranteed Purchase Programme — under which the Trust pre-commits to purchase units in developer-led schemes, providing developers with financing certainty — continues to function as a pipeline-enabling mechanism. This arrangement is particularly important in the current environment, where developer access to commercial financing has become more expensive and the economics of speculative construction more challenging.

Looking beyond 2022, the NHT’s pipeline for the next fiscal year will reflect the refocusing instruction from Prime Minister Holness: new schemes are expected to be weighted more heavily toward affordable and low-income units, with the high-end developments that previously attracted controversy being reduced or eliminated from the Trust’s direct construction portfolio.

Monetary Policy and Commercial Mortgage Market

The Bank of Jamaica’s policy rate has continued to rise through the coverage period. The cumulative scale of tightening — from near-zero to approaching 6.5 per cent since September 2021 — represents an extraordinary compression of monetary accommodation. The global context for this tightening is clear: the US Federal Reserve has signalled its intention to continue raising rates aggressively to bring US inflation under control, and Jamaica cannot afford to allow its own monetary policy to diverge too far from this trajectory without accepting significant exchange rate risk.

Commercial mortgage rates at Jamaica’s building societies and banks are now approaching or, in some product categories, exceeding 9 per cent. The spread between commercial mortgage rates and NHT rates — which begin at 0 per cent for the lowest income contributors — has never been wider in recent memory. For buyers in the NHT eligibility window, this differential represents a financing advantage of potentially 4–9 percentage points, translating into substantial differences in monthly mortgage repayments over a twenty-five or thirty-year loan term.

The VM Group’s CEO of building society operations noted that market demand had remained broadly stable through the rate adjustment cycle — a comment that reflects the resilience of underlying buyer appetite but which industry participants are cautious about extrapolating too far into the future given the ongoing rate trajectory.

Macroeconomic Context

Jamaica’s macro backdrop remains broadly supportive of the housing market, even as external pressures mount. The government’s IMF programme is on track, with debt ratios improving and fiscal consolidation continuing. The primary balance has remained positive, and Jamaica’s credit profile has benefited from years of sustained fiscal discipline. This provides the government with limited but real policy space to respond if economic conditions deteriorate.

GDP growth for 2022 is projected to be positive, supported by strong tourism sector performance and a recovering agriculture sector. Jamaica’s exchange rate — at approximately J$152–157/US$1 — has been relatively stable, supported by the BOJ’s intervention capacity and the country’s healthy foreign exchange reserves. Elevated remittances have also contributed to reserve accumulation, providing a buffer against external volatility.

Inflation, however, remains a significant concern. Running at approximately 8–11 per cent at various points in 2022, elevated consumer prices are eroding real household incomes and adding to the affordability pressure already being generated by rising mortgage costs. The interaction between wage growth, inflation, and housing costs is a critical dynamic for the accessibility of homeownership for middle and lower-income Jamaicans.

First-Time Buyers: Urgency and Anxiety

First-time buyers in Jamaica’s housing market face a complex decision environment. On one hand, there is genuine urgency: commercial mortgage rates have already risen significantly and may rise further, while property prices remain elevated and supply remains constrained. Buyers who wait risk facing both higher mortgage costs and, if supply remains limited, no material decline in purchase prices to compensate.

On the other hand, stretching to buy at the limit of one’s affordability in a rising-rate environment carries real risk for those with variable-rate mortgages. Financial advisors are counselling careful affordability stress-testing — assessing whether debt service obligations remain manageable if rates rise by a further 1–2 percentage points. For NHT contributors, the relative rate security of the Trust’s fixed-rate products is a significant mitigant of this risk.

Regional Development Activity

Development activity across the island’s regions reflects the intersection of demand dynamics and cost environment. In Kingston and St Andrew, the pipeline of apartment and townhouse developments remains substantial, with a number of schemes that received planning approval in 2020–21 now in construction phase. In St Catherine, the Portmore corridor and the areas served by the Highway 2000 extension continue to attract both NHT and private development.

On the north coast, tourism-driven demand is sustaining developer interest in St James and St Ann, with villa developments and mixed-use schemes — combining residential and short-term rental units — finding receptive buyers among both the diaspora and domestic investor communities. The HAJ’s social housing and land titling work continues in rural parishes, addressing the lower end of the housing deficit where market-rate solutions are structurally inadequate.

Looking Ahead

As September begins, the housing market’s immediate outlook is cautiously stable. The NHT’s strong performance provides a meaningful buffer, and underlying demand remains structurally intact. However, the BOJ’s tightening cycle is not yet complete, global commodity prices remain elevated, and the broader global economic environment is increasingly uncertain. The key question for the final quarter of 2022 is whether commercial market activity — the segment most directly exposed to mortgage rate movements — begins to show signs of softening that the NHT segment has so far masked. October and November data will be revealing.

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