Jamaica Real Estate Roundup — Q2 2023: Holding the Line

• BOJ holds at 7.00% through May and June meetings.
• Commercial mortgage rates spike to 7.76% — a three-year high.
• Residential prices 17–25% above pandemic-era baseline nationwide.
• Tourism on pace for another strong year; by May, earnings hit US$1.69B.
• CIBC FirstCaribbean mortgage applications up 28% year-on-year.

There is a particular form of market distress that does not announce itself through headlines or emergency statements. It accumulates quietly, in the gap between what buyers want and what they can finance, in the silence between a mortgage application submitted and a loan that does not close, in the property listing that sits on the market for ninety days when it would have sold in ten two years earlier. The second quarter of 2023 in Jamaica was, above all else, a quarter defined by this quieter kind of pressure — not a crash, not a crisis, but a steady narrowing of the conditions that had made the island’s property market one of the Caribbean’s most dynamic stories in the preceding three years.

The Bank of Jamaica’s Monetary Policy Committee met in May and again in late June 2023. Both meetings produced decisions that by now carried the weight of inevitability: the policy rate was held at 7.00 per cent per annum, where it had been since November 2022. The MPC’s May communication noted that while inflation was declining from its 2022 peaks, the pace of return to the four-to-six per cent target remained uncertain, and the Committee was not prepared to ease until it had greater confidence that the disinflationary trend was durable. The Russia-Ukraine war’s commodity price effects, while diminishing in intensity, had not fully cleared from the price level. The pass-through of accumulated exchange rate changes was still embedded in core inflation. Patience, the Bank reiterated, remained the operative framework.

Commercial mortgage rates, which had tracked the BOJ’s tightening upward through sixteen months of increases, reached a three-year high of approximately 7.76 per cent in May 2023 — a figure reported from the commercial banking sector that captured the peak cost of accessing home loan finance in Jamaica at the most recent data point before this publication. For context, the equivalent rate available to borrowers during 2020 and 2021 — the years when Jamaica’s property market had generated its extraordinary demand surge — was materially lower. The combination of higher rates and substantially higher nominal property values had produced an affordability squeeze that was registering in every segment of the market’s data.

Demand and Supply: The Arithmetic of Aspiration

The residential market’s Q2 2023 picture was drawn in apparent contradictions. CIBC FirstCaribbean’s data showed a 28 per cent increase in mortgage applications in the first five months of 2023 compared with the equivalent period in 2022 — a figure that pointed to a buyer population that remained engaged, motivated and actively seeking property. Yet transaction volumes told a different story: the conversion rate from application to completed purchase had declined, as the gap between what buyers wanted and what they could qualify to borrow at current rates placed an increasing proportion of applicants beyond the reach of viable loan amounts for the properties they sought.

JMMB Bank’s identification of the J$14 million to J$35 million price range as the primary demand concentration was accurate but incomplete. Within that range, the affordability mathematics were most comfortable at the lower end: a J$14 million property financed at 7.76 per cent over twenty-five years produced a monthly payment of approximately J$105,000 before insurance and fees — a figure accessible to a professional household earning in the J$350,000 to J$400,000 per month range. A J$35 million property at the same rate produced a payment approaching J$260,000 per month, accessible only to households significantly above median professional incomes. The supply of properties priced under J$20 million that met buyer quality standards was severely limited, and the supply of properties in the J$20 to J$35 million band was not meaningfully expanding in the current development environment.

The Jamaica Mortgage Bank had observed that residential real estate prices across the island had risen by 17 to 25 per cent since the pandemic — an appreciation that captured both the genuine demand surge of 2021 and the construction cost inflation that made replacement value meaningfully higher than pre-pandemic baselines. These gains had not reversed as the market cooled; sellers who had purchased or developed at higher prices were holding rather than discounting, sustaining values in nominal terms while volumes declined. The market was demonstrating the classic characteristics of a period of price rigidity: activity falling without values following, a condition that typically persists until either rates ease enough to restore affordability or enough forced sellers emerge to clear inventory at lower levels.

The Rental Market’s Sustained Strength

The rental market in Q2 2023 was not experiencing any of the hesitation visible in the sales segment. Every buyer who could not qualify at current mortgage rates remained a renter, and the pool of such buyers was, by all observable measures, large and growing. Vacancy rates in Kingston, St Andrew and the major resort-adjacent residential markets of St James and St Ann remained very low, and rental rates were continuing the upward trajectory that had been established since 2021. For landlords — particularly those who had acquired property in the pre-boom environment of 2018 to 2020 and had relatively modest debt service obligations — the Q2 2023 environment was producing some of the strongest yields in their portfolios’ histories.

The demand for short-term and furnished rental accommodation was receiving an additional boost from Jamaica’s booming tourism performance and the growing number of international professionals working in the island’s expanding business services sector. Corporate rentals — furnished apartments and houses supplied to international companies for the accommodation of visiting staff, consultants and short-term assignees — commanded premium rates that outperformed the standard residential rental market, and the supply of quality furnished accommodation in Kingston’s commercial and diplomatic districts remained tight relative to demand.

Development Activity: Reading the Signals

The development pipeline in Q2 2023 was transmitting signals that would not fully manifest in market data for another twelve to eighteen months. Approvals were continuing through the Real Estate Board, but at a volume and scale below the 2022 peak. Developers who had committed to schemes in the confidence of 2021 were managing their delivery timelines while watching financing costs closely. Those contemplating new launches were doing so in a market where construction cost inflation had added significantly to project budgets, where pre-sales had become more challenging in the rate environment and where the expected margin on completion was tighter than historical norms had accustomed the industry to accept.

The National Housing Trust remained the most significant single force in affordable housing supply. The Trust’s rate structure — insulated from the full effect of the commercial rate environment by its below-market lending policy — meant that NHT mortgages remained the most accessible path to homeownership for Jamaica’s contributing working population. The Trust’s pipeline of housing solutions across the parishes was advancing, and the demand for NHT mortgage approvals from contributors who had accumulated entitlement was robust. The Trust’s relative resilience in a challenging market environment was itself a measure of how much the island’s affordable housing infrastructure depended on its institutional support.

Tourism: The Economy’s Clearest Success Story

Against the muted background of the residential property market’s affordability challenges and the development pipeline’s caution, Jamaica’s tourism sector was providing the economy with its clearest success story of Q2 2023. By May 10, the Jamaica Tourist Board had confirmed that the island had welcomed 1,586,303 total visitors since January 1, earning US$1.69 billion in foreign exchange earnings — a pace broadly consistent with the record-breaking 2022 performance that had produced 3.3 million visitor arrivals and US$3.6 billion for the full year. The summer season — the peak for North American leisure travel to Jamaica — was commencing as this report was prepared, with forward booking data suggesting continued strength.

The tourism sector’s strength had direct implications for the property market. Hotel and resort development continued to advance in Montego Bay, supported by the demand data that the JTB’s strong visitor numbers provided. The adjacent residential markets in St James and St Ann continued to benefit from the employment, spending and infrastructure investment that accompanied large-scale hospitality development. And the foreign exchange earnings flowing through Jamaica’s economy from tourism provided the macroeconomic stability that underpinned investor confidence in the island’s property market more broadly, even as the residential sales segment moved through its rate-constrained period of reduced activity.

Infrastructure and the Long Game

The government’s infrastructure investment programme — the highways, water infrastructure, port improvements and energy projects that had been advancing under successive administrations — continued to provide the structural backdrop against which Jamaica’s property market played out its shorter-term cycles. The Southern Coastal Highway improvements connecting Kingston to the western parishes were reducing travel times in ways that enlarged the practical catchment area for Kingston’s residential market. Improvements in the North Coast’s road infrastructure were supporting property values in the communities that benefited from reduced transit times to the resort centres and airports.

The Jamaica Logistics Hub concept — the ambition to establish Jamaica as a transshipment and logistics node in the Caribbean — was advancing through the development of the Special Economic Zones and the investments in port capacity at Kingston. These investments, while their full real estate implications would take years to materialise, were creating demand for industrial and logistics property in the Kingston Metropolitan Area that pointed toward a diversifying base of commercial property demand beyond the service sector.

Outlook

The second half of 2023 will be shaped by the same variables that determined the first: the pace of inflation’s return to the BOJ’s target range and the timing and extent of the monetary easing that will follow. The market’s base case — held by the majority of analysts and investors engaging with the Jamaican property sector — is that the rate peak has been reached and that the next move in the policy rate will be downward, creating conditions more favourable to homeownership and to residential development when it arrives. The question that 2023’s third and fourth quarters must answer is whether that move comes quickly enough to prevent the current period of muted activity from becoming entrenched.

For buyers currently positioned at the margin of qualifying at current rates, the calculus of action is finely balanced. Waiting for lower rates means competing in a market that a rate cut will almost certainly energise, potentially against additional buyer demand that has been accumulating through the same period of constraint. Acting now means accepting the current rate environment in exchange for securing property before the market reactivates. There is no obviously correct answer. What is clear is that the market entering H2 2023 is a market with a substantial reservoir of deferred demand — and that the conditions that release that reservoir will, when they arrive, do so with force.