Year-End Rally: Jamaica’s Property Market Closes 2022 on Cautious Terms — Monthly Review, December 2022

Publication Date: December 3, 2022 | Coverage Period: November 3 – December 2, 2022 | Category: Monthly Review

December 2022 in Brief

• Jamaica Observer reports housing market remains robust despite rate pressures as year-end data confirms.
• NHT targets approximately 4,000 housing starts and near 8,000 mortgage disbursements for 2022.
• Building society mortgage balance sheet: J$106.3 billion by September 2022, up from J$96.3bn a year prior.
• Road construction slowdown masked resilience of residential building sector through the year.
• BOJ policy rate at 7.0 per cent; US Federal Reserve rate at 4.25–4.5 per cent by December 2022.
• Diaspora remittances on track to approach or surpass US$3.3 billion for full year 2022.

Housing Market Overview

As 2022 draws to a close, Jamaica’s residential property market has defied the more pessimistic scenarios that were being contemplated twelve months ago. The Jamaica Observer’s December assessment — that the housing market remains robust — is consistent with the evidence that has accumulated through a year of extraordinary monetary policy tightening, commodity cost shocks, and global uncertainty. The market has not collapsed. Supply has not flooded the market in a disorderly way. The NHT has delivered on its construction and disbursement commitments. And while the speculative fringe has softened, the structural demand story that has driven Jamaica’s property market since 2020 remains fundamentally intact.

That said, the year-end picture is one of cautious rather than exuberant robustness. The market that closes 2022 is meaningfully different from the market that opened it. Commercial mortgage rates have risen by 3–4 percentage points from their 2022 lows. Construction costs remain elevated. Developer confidence — particularly for speculative mid-to-high-end residential projects — has moderated. And the public discourse around the market’s sustainability is more sceptical than at any point in the post-COVID recovery.

The story of 2022, in property market terms, is one of resilient fundamentals meeting a more demanding operating environment — and just about holding the line. Whether 2023 will extend that resilience or mark a more decisive shift is the question that will dominate the sector’s strategic planning in the period ahead.

NHT Year-End Performance

The National Housing Trust’s 2022 performance represents the most unambiguously positive element of this year-end review. The Trust confirmed it is on track to provide approximately 4,000 new housing starts during 2022 — a target that represents a 103 per cent increase in housing starts year-on-year. Against an ambitious target of approximately 8,000 mortgage disbursements, the NHT is tracking close to plan, a figure that would represent one of the Trust’s strongest annual performances in recent years.

The NHT’s joint-venture model with private developers has been central to this performance. By pre-committing to purchase completed units and providing pipeline certainty to developers, the Trust has been able to leverage private sector construction capacity in a way that its own direct construction alone could not achieve. This model will be critical to the ambitions that have been set for 2023 and beyond, particularly given the refocusing instruction from Prime Minister Holness toward affordable and low-income solutions.

The Trust’s geographic spread of activity — across St Catherine, St James, Trelawny, and the Kingston Metropolitan Region, with HAJ complementing in social housing and titling — reflects an increasingly island-wide rather than capital-centric approach to housing provision. This geographic diversification is an important structural development for addressing a housing deficit that manifests across all parishes rather than only in the urban core.

The Commercial Market: Holding but Watchful

Jamaica’s commercial property market — the segment served by building societies, commercial banks, and other market-rate lenders — ends 2022 in a state of watchful stability. The building societies’ aggregate mortgage portfolio has grown to J$106.3 billion by September 2022, up from J$96.3 billion twelve months earlier. This growth reflects the continued processing of the backlog of applications and approvals that accumulated during the early-to-mid 2022 demand surge, even as the rate environment was tightening.

The VM Group’s assessment — that the market had broadly stayed where it was through the year, despite the rate environment — reflects this picture of stability at the portfolio level. But the forward indicator of new application volumes suggests that the pipeline feeding into this portfolio growth is becoming narrower. As commercial rates remain near or above 9 per cent, the population of buyers who can comfortably service a commercial mortgage has contracted, and this constraint will become more visible in 2023 disbursement data.

The Planning Institute of Jamaica’s construction sector analysis adds important nuance. Overall construction contracted modestly in the July–September 2022 quarter — but this was not a housing story. The contraction was driven entirely by a slowdown in road and infrastructure construction. The residential building sub-sector — encompassing both NHT-driven and private market construction — continued to grow through the period, driven by the NHT’s housing starts performance.

Monetary Policy Context

The Bank of Jamaica’s policy rate stands at 7.0 per cent as this review is published — representing a 650–680 basis point increase from the near-zero levels that characterised early 2022. The US Federal Reserve, meanwhile, raised its federal funds rate to 4.25–4.5 per cent at its December meeting, the highest level since 2007, and has projected further increases into 2023.

For Jamaica’s BOJ, the key near-term question is whether the domestic inflation data will begin to demonstrate sufficient moderation to allow a pause in the rate-hiking cycle. Inflation has been running at 8–11 per cent through 2022, but base effects and some easing of global commodity prices suggest it may moderate somewhat into 2023 without further aggressive domestic tightening. If the BOJ can hold or modestly reduce its rate in the first quarter of 2023, the commercial mortgage market would benefit from some stabilisation of funding costs.

Construction Costs: Signs of Stabilisation?

One of the more cautiously positive signals from the construction sector at year-end is that the extraordinary pace of materials cost inflation that characterised the first half of 2022 appears to have stabilised, if not reversed. Global steel prices, which peaked dramatically following the Ukraine invasion, have retreated somewhat from their highs, though they remain well above pre-conflict levels. Cement and timber costs are similarly elevated but not climbing as aggressively as in the first half of the year.

For developers, stabilisation is not the same as relief: they are still operating in a cost environment materially more expensive than 2020 or 2021 baseline assumptions. But it does allow for more confident project budgeting than was possible when costs were moving on a weekly basis. The capacity to plan forward with reasonable cost certainty is a prerequisite for the developer confidence that new project launches require.

Diaspora Investment at Year-End

Remittances to Jamaica are tracking towards a record or near-record year, with full-year 2022 flows expected to approach or exceed US$3.3 billion. This figure represents a structural increase from the pre-pandemic baseline, reflecting both the increased volume of diaspora saving during COVID lockdowns and the normalisation of digital remittance transfer mechanisms that make regular flows easier and cheaper to execute.

The diaspora buying segment — particularly from the United States — remains an important source of demand for Jamaica’s upper and mid-tier residential property. The J$152–157/US$1 exchange rate has been a source of consistent purchasing power advantage for US-based buyers, and this dynamic is expected to persist into 2023 in the absence of a material shift in the bilateral rate.

Looking Ahead to 2023

As this December 2022 review closes the year, the baseline expectation for Jamaica’s housing market in 2023 is one of continued resilience in the NHT and affordable housing segments, tempered activity in the commercial and speculative sectors, and a gradual normalisation of the most extreme cost pressures that have characterised the year now ending.

The key risks to this baseline are weighted to the downside: a more prolonged and aggressive global rate cycle than currently anticipated; a deterioration in Jamaica’s external account that forces further BOJ tightening; or a sharper-than-expected moderation in diaspora remittance flows. The key upside scenario is an earlier-than-expected easing of global inflation pressures that allows central banks globally, and the BOJ in particular, to pause or reverse their tightening cycles before they cause more significant damage to housing market demand.

For Jamaican households, developers, and policymakers, 2022 has been a year of navigating a complex and rapidly shifting environment. The housing market has held, but it has been tested in ways that were not anticipated when the year began. The foundations of the next phase — for better or worse — are being laid in the decisions being made right now.