Jamaica Real Estate Roundup — Q3 2022: The Rate That Did Not Stop

• BOJ hikes twice: to 6.00% in August, then 6.50% in September.
• Inflation holds above 10% — 600bps of tightening now in play.
• Hurricane Ian passes west of Jamaica; minor flooding, US$5.86M damage.
• Tourism tracking toward a record year exceeding 3 million arrivals.
• Construction costs remain elevated; Russia-Ukraine supply effects persist.
• Property market shows first signs of volume contraction.

The third quarter of 2022 was, by any measure, a quarter of accumulation. The Bank of Jamaica’s Monetary Policy Committee had raised the policy rate at every meeting since October 2021 — seven times, by a cumulative 550 basis points, without pause — and in Q3 it raised twice more: by 50 basis points to 6.00 per cent effective August 19, and by a further 50 basis points to 6.50 per cent effective September 30. The cumulative tightening since October 2021 now stood at 600 basis points. The overnight policy rate had moved from 0.50 per cent — a historic low, maintained through the pandemic as an accommodation measure — to a level not seen in Jamaica since the early years of the preceding decade. The message was unambiguous: the Bank was determined to bring inflation back to its four-to-six per cent target, and it was willing to sustain the tightening for as long as the data required.

The context for the August decision was an inflation reading that had, by April 2022, reached 11.8 per cent — the ninth consecutive month that inflation had breached the upper limit of the BOJ’s target range. The Russia-Ukraine war, which had begun in February 2022, was sustaining elevated energy prices and food costs that were transmitting into Jamaica’s consumer price index through multiple channels: fuel costs, transport costs, the cost of imported food commodities, and the rising price of fertilisers and agricultural inputs that affected domestic food production. The August rate decision’s rationale was explicit about these dynamics, and the September decision’s communication acknowledged that while the war’s most acute commodity price effects were beginning to moderate, the underlying inflationary pressure it had created had not yet sufficiently abated to justify a pause in the tightening cycle.

For the mortgage market, the Q3 2022 rate moves translated into commercial lending rates that were approaching levels at which the affordability calculus for a significant proportion of aspiring homeowners was becoming materially more challenging. The market’s processing of this new reality was visible in the texture of estate agency activity: enquiry volumes were holding up, but the conversion from enquiry to committed purchase was slowing in sub-markets where buyers’ qualifying capacity was most tightly constrained by the rising rate environment.

Hurricane Ian: The Season’s Near Miss

The 2022 Atlantic hurricane season delivered Jamaica’s most significant weather event of the year on September 26, when Hurricane Ian — at that point a strengthening tropical storm tracking north-northwest through the Caribbean — passed to the west of the island. Jamaica experienced peripheral rainfall, gusty winds and minor coastal flooding in the western parishes. The Office of Disaster Preparedness and Emergency Management activated its standard protocols and the island’s storm monitoring infrastructure tracked Ian’s approach and passage with the competence that post-Hurricane Sandy improvements in early warning and response had developed. Damage across Jamaica was estimated at approximately US$5.86 million, with no fatalities reported. The island’s emergency management systems had performed their function.

Ian’s significance for the property sector was as much about what it did not do as what it did. The storm’s trajectory carried it through the Yucatan Channel into the Gulf of Mexico, where it would intensify dramatically before making catastrophic landfall in southwestern Florida on September 28. Had Ian tracked twenty or thirty miles further east — a meteorological difference measured in fractions of the forecast cone’s uncertainty — the outcome for Jamaica’s western parishes could have been substantially more damaging. The near miss was a reminder, as every hurricane season is, of the asymmetric vulnerability of an island whose housing stock and infrastructure remain significantly exposed to the impacts of a direct major hurricane strike.

The property market’s response to Ian’s passage was brief and limited. Tourism operations were disrupted for a short period in the western resort areas, but the destination’s recovery was rapid and visitor arrivals through Q3’s remaining weeks were unaffected. The construction and real estate sectors experienced no material disruption. The season’s remaining weeks — the Atlantic hurricane season runs through November 30 — were being monitored with the vigilance standard to the period, but the immediate threat had passed.

Tourism: Tracking Toward a Record Year

The tourism sector’s Q3 2022 performance was among the most striking features of the quarter’s economic data. The July-September period is traditionally one of the strongest for visitor arrivals, when the North American summer travel market and the Caribbean’s traditional appeal to warm-weather seekers aligns with school holiday schedules. The 2022 summer season delivered strongly, adding to the momentum from a first half of the year that had already exceeded expectations. Full-year projections, based on the pace through September, were increasingly pointing toward a final outcome that would exceed 3 million visitor arrivals — more than double the 2021 figure and surpassing Jamaica’s pre-pandemic record from 2019.

For the property sector, the tourism performance was a stabilising force in an environment complicated by monetary tightening and inflation. The resort markets — Montego Bay, Negril, Ocho Rios, Runaway Bay — were operating at occupancy rates that supported the business case for hotel development investment and the residential demand from the employment and income that the hospitality economy generated. Hotel development projects in Montego Bay were advancing against the backdrop of this strong demand environment, and the construction activity associated with resort-scale hospitality development was visible in the materials demand data and the employment figures for St James and St Ann parishes.

Residential Market: Demand Persists, Affordability Strains

The residential sales market in Q3 2022 was operating in the space between the sustained underlying demand that the island’s demographic and income trends supported and the increasingly challenging affordability conditions that the rate cycle was creating. The pandemic-era demand surge — the diaspora investment, the returning residents, the young professionals whose appetite for homeownership had been sharpened by the pandemic experience — had not evaporated. But it was encountering the arithmetic of higher borrowing costs in ways that were visible in the data: properties taking longer to sell, buyer enquiries that did not convert at the same rate as 2021, vendors beginning to make modest adjustments to asking prices in sub-markets where the mismatch between what was listed and what was affordable had become apparent.

The Kingston and St Andrew apartment market — the centre of the 2020-2022 strata development boom — was absorbing completions at a pace that was notably slower than the pre-sales velocity that had characterised the launches of 2021. Developers with units to transfer were finding buyers, but with less urgency than had been the norm. The secondary market for recently completed strata units was the segment where the market’s adjustment was most visible: properties that might have found buyers within days of listing in 2021 were taking weeks or months in Q3 2022, reflecting the buyer population’s recalibration of value relative to the current cost of financing.

The National Housing Trust’s role in the market had become, if anything, more important as the commercial sector’s affordability conditions tightened. The Trust’s below-market lending rates — structured to remain accessible to NHT contributors across the income spectrum — were providing a financing channel that the commercial banks could not match in the current rate environment. Demand for NHT mortgage approvals among contributors with accumulated entitlement remained strong, and the Trust’s pipeline of housing solutions continued to represent the primary source of affordable homeownership opportunity for the large majority of Jamaican working households whose incomes placed market-rate commercial mortgages out of practical reach.

Construction Costs and Supply Pressures

The construction cost environment in Q3 2022 remained among the most significant structural constraints on the property market’s supply side. The Russia-Ukraine war’s effects on energy prices — oil and gas, whose derivatives underpin the production cost of steel, cement, plastics and transport — had been transmitted through Jamaica’s building materials supply chain in ways that had added materially to the cost of construction activity since early 2022. Steel and cement prices had risen sharply from their pre-war baselines. The cost of timber and finishing materials, affected by the global supply chain disruptions that had been building since 2020, had not returned to pre-pandemic norms. And the cost of skilled construction labour — masons, carpenters, electricians and plumbers whose services were in demand across the multiple projects advancing simultaneously in the post-pandemic pipeline — had increased in step with the general wage pressure that an active construction market generates.

The result for developers was a cost environment that was testing the viability of schemes conceived in the more optimistic conditions of 2020 and 2021. Projects that had been priced at construction costs that reflected the pre-war, pre-supply-chain-disruption baseline were managing budget overruns that required either revised financing, revised pricing of the completed product, or both. The developer community’s response was visible in the slowing of new launches and the extended timelines of projects already underway, as the economics of development in the current environment demanded more careful management of cost, timing and pre-sales than the boom conditions of the preceding two years had required.

Land Market and Long-Term Positioning

The land market in Q3 2022 reflected the bifurcated character of a property sector in transition. In the resort parishes and the established residential corridors of Kingston and St Andrew, land values were holding or advancing — sustained by the tourism-driven demand that continued to justify commercial and residential land prices in the areas adjacent to the hotel development pipeline, and by the supply constraint in established residential areas where quality land had always been limited relative to demand. In the more speculative suburban expansion zones that had attracted developer interest during the peak of the 2021 boom, the adjustment in buyer confidence was producing a more cautious land market, with vendors who had been expecting post-boom prices finding fewer takers in an environment where development economics had become more demanding.

Outlook to Year-End

The quarter ends with the BOJ at 6.50 per cent, inflation still elevated and the question of the terminal rate unresolved. The BOJ’s November meeting is the next scheduled policy decision point, and market analysts are broadly expecting a further increase — the magnitude of which will depend on the October inflation data and the Committee’s assessment of whether the cumulative 600 basis points of tightening is yet having the demand-moderating effect that the policy aims to achieve. A further 50-basis-point increase to 7.00 per cent is the most widely anticipated outcome, which would bring the tightening cycle to a round number that the BOJ has previously characterised as the upper boundary of the range it has considered appropriate for the current inflation environment.

For the property market, the final quarter of 2022 will determine the conditions that 2023 inherits. A rate that peaks at 7.00 per cent in November, followed by a hold and an eventual easing in 2023, would set a challenging but manageable environment for a market adjustment that has already begun. A rate that requires further increases beyond 7.00 per cent would add to the affordability pressure and extend the period of supply-side caution. The BOJ’s next data-driven decision will be, for Jamaica’s property market, among the most consequential of the tightening cycle’s many consequential moments.

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