Jamaica Real Estate Roundup — Q3 2023: The Long Hold

• BOJ holds at 7.00% — eleventh consecutive quarter above 4%.
• Inflation retreating from 2022’s peak above 11 per cent.
• Mortgage applications rise 28% but completions remain subdued.
• Tourism tracking a record-contending year for arrivals and earnings.
• Young professionals remain the most active buyer segment.
• Developer pipeline tightens as project economics grow more demanding.

The Jamaican property market in the third quarter of 2023 was a study in the distance between intention and action. The intention was there, measurable in the data: CIBC FirstCaribbean had recorded a 28 per cent increase in mortgage applications in the first five months of the year compared with the same period in 2022, a figure that pointed to a buyer population that was engaged, aspirational and actively pursuing property ownership. The action was constrained: transaction volumes remained below the levels that the application data implied should be closing, held back by the combination of a 7.00 per cent Bank of Jamaica policy rate that had kept commercial mortgage pricing near nine per cent and a residential price environment that had not corrected meaningfully from the highs established in the pandemic-era demand surge.

The Bank of Jamaica’s Monetary Policy Committee met in August and again in the final days of September 2023. Both meetings produced the same decision: hold the overnight policy rate at 7.00 per cent per annum. The Committee’s rationale was consistent across both announcements. Inflation — which had peaked above 11 per cent in 2022 and had been declining through the first half of 2023 — was moving in the right direction but had not yet returned convincingly within the four-to-six per cent target band. The risks to the inflation outlook, while diminishing, remained present: energy prices were volatile, food price pressures had not fully resolved, and the pass-through of the accumulated exchange rate depreciation of 2022 was still working its way through the price level. Patience, the Committee indicated, was the appropriate posture until the data provided more definitive confirmation that the job was done.

The cumulative effect of ten months at 7.00 per cent — following twenty-five months of near-continuous tightening from the historic low of 0.50 per cent — was visible in every segment of the property and construction sector. Commercial mortgage rates had followed the BOJ rate upward through the tightening cycle and, by Q3 2023, were offering the island’s aspiring homeowners the least accessible financing environment in a generation. The Jamaica Mortgage Bank’s observation that residential real estate prices had risen by 17 to 25 per cent since the pandemic meant that buyers faced not only higher rates but higher nominal values against which those rates were applied. The resulting affordability compression was the defining structural condition of the 2023 Jamaican property market.

Residential Market: Ambition Meets Arithmetic

The residential segment’s Q3 2023 story is best told through the data point that captures its central tension most precisely: mortgage rates at 7.76 per cent — a three-year high recorded in May 2023 — applied against a housing stock whose prices had appreciated by a fifth or more since the base year against which that three-year comparison was made. The buyer who had been saved out of the market by the 2020 lockdowns, attracted back in 2021 by low rates and pandemic-era motivation, and then priced out by rising costs and rising rates in 2022 was, by mid-2023, facing a qualifying hurdle that was more demanding than at any recent point in their homeownership journey.

JMMB Bank’s identification of the J$14 million to J$35 million price band as the focus of most home loan demand reflected both the aspirations of Jamaica’s young professional demographic and the practical limits of what that demographic could finance at current rates. Properties in this range — predominantly in the apartment sub-market in Kingston and St Andrew, and in the newer residential schemes developing in St Catherine, St James and St Ann — were the most actively enquired-about in the island’s estate agency offices, but enquiry was not translating to transaction at the rate that either buyer or vendor would have wished. The gap between asking price and qualifying loan amount was the market’s dominant friction point.

The rental market’s story was, as it had been throughout the tightening cycle, the inverse of the sales market’s. Every buyer who could not qualify for a mortgage at current rates remained a tenant, sustaining or strengthening the demand for rental stock that had been elevated since the pandemic-era surge in housing demand. Landlords in Kingston, St Andrew and the resort-adjacent parishes were operating at near-full occupancy through Q3 2023, with rents maintaining or extending the increases of the previous two years. For the owner of quality rental stock in well-located sub-markets, the Q3 2023 environment was highly profitable. For the renter seeking affordable accommodation, it was a period of sustained pressure.

Development Activity and the NHT

The private development pipeline in Q3 2023 reflected the caution that characterised developer decision-making throughout the year. With the Real Estate Board of Jamaica’s full-year 2023 data pointing toward approximately 92 approved developments encompassing around 3,296 units — a substantial reduction from 2022’s 5,135 — the pipeline was narrowing in ways that would reduce new supply coming to market in 2024 and 2025. Developers who had launched schemes in the confidence of 2021 were managing their delivery timelines in a cost environment that had moved significantly since their original financial projections were made, and those contemplating new launches were doing so with a greater degree of financial conservatism than had characterised the boom years.

The National Housing Trust remained the island’s most active institutional housing provider through Q3 2023. The Trust’s below-market rate structure had provided meaningful insulation from the full effect of the BOJ tightening cycle, and the pipeline of housing solutions under various stages of development across the parishes continued to represent the most significant single source of affordable homeownership opportunity available to Jamaica’s contributing workforce. The NHT’s lending in the 2022-23 fiscal year had reached J$34.8 billion, with a portfolio of loans receivable totalling J$277.4 billion — measures of the scale of the institution’s role in the island’s housing finance architecture.

The strata apartment market — the multi-unit residential development format that had been one of the most visible features of the Kingston and St Andrew property landscape since the early 2010s — was evolving through Q3 2023 in ways that reflected both the market’s current constraints and its longer-term trajectory. New completions were being absorbed, albeit more slowly than in the boom years, and the secondary market for strata units was demonstrating the sticky price dynamics characteristic of the broader market: sellers holding at asking prices rather than discounting to meet buyers, inventory accumulating in some sub-markets, and days-on-market extending.

Commercial Property and Business Services Demand

The commercial property market in Q3 2023 continued to reflect the structural strength of Jamaica’s business services economy. The business process outsourcing sector, which had grown significantly through the 2010s and had demonstrated resilience through the pandemic period, remained the most significant driver of demand for grade-A office space in Kingston and Montego Bay. The sector’s employment base — tens of thousands of Jamaicans working in contact centres, back-office operations and professional services functions for international clients — required the kind of purpose-built, technology-enabled commercial space that was in finite supply in Jamaica’s two major cities, keeping occupancy rates and rental yields at levels that attracted institutional and private capital even in a high-rate environment.

The industrial and logistics property market was continuing its evolution driven by the Jamaica Logistics Hub ambitions and the broader improvements in port and road infrastructure that had been advancing over the previous decade. Demand for modern warehousing and light industrial space — always under-supplied relative to the island’s logistics needs — remained firm through Q3 2023, with rental rates reflecting the tight supply position.

Tourism: The Best Year in Memory

The tourism sector’s Q3 2023 performance was the bright light in an otherwise constrained economic and property context. By mid-year, the Jamaica Tourist Board had confirmed that 2023 was tracking to be among the strongest in the destination’s history. By May 10, Jamaica had already welcomed 1,586,303 total visitors, earning US$1.69 billion in foreign exchange — a pace that pointed toward a full-year outcome comparable to or exceeding the record-breaking 2022 performance of 3.3 million visitors and US$3.6 billion in earnings. The summer season of July and August, which typically delivers Jamaica’s highest visitor volumes, was adding to this already strong base.

The implications for the property market were several and significant. Strong tourism sustained the hotel development investment case, keeping the major projects advancing in Montego Bay on their development timelines. It maintained the employment base in the resort parishes, supporting residential demand in communities adjacent to the hotel corridors. And it continued to channel foreign exchange earnings through the Jamaican economy at a rate that underpinned the exchange rate stability and the confidence of the international investor community in Jamaica’s economic management.

The 2023 Atlantic hurricane season — which had been forecast as active — had passed through Q3 without a direct major hit on Jamaica. The island had experienced peripheral weather impacts and was maintaining its standard hurricane preparedness posture, but the absence of a significant storm during the peak season months of August and September had allowed tourism to proceed normally and had kept the construction and real estate sectors free of the disruption that a direct hurricane impact would have imposed.

Land Market and Suburban Expansion

The land market in Q3 2023 was operating at a pace that reflected the development pipeline’s caution without entirely abandoning the long-run conviction that land in Jamaica’s key corridors represents a reliable store of value. Landowners in the principal residential expansion zones — the communities between Kingston and Portmore in St Catherine, the St James/St Elizabeth border areas, and the emerging development corridors of St Ann — were holding prices that reflected their long-term view of the land’s potential rather than the immediate transactional market’s willingness to pay. Land banking — the acquisition and patient holding of serviced or serviceable lots against a future development cycle — remained a strategy pursued by both institutional developers and individual investors who took the view that the current rate environment was temporary and that the underlying demand for Jamaican land in accessible locations was structural and durable.

What the Quarter Leaves Behind

As the third quarter of 2023 closes and attention turns to the final three months of the year, Jamaica’s property market is in a condition of productive tension. It has not collapsed — transaction volumes have declined but not disappeared, development has slowed but not stopped, investor confidence has moderated but not evaporated. What it has done is compress: into a smaller and more deliberate set of transactions, a narrower range of financially viable development schemes and a buyer population that is carefully calculating the risk-reward of committing now versus waiting for the rate environment to improve.

The BOJ’s Q4 2023 meetings will be among the most watched in recent memory. If the inflation data for October and November confirms the continued descent toward the target range, the Committee may find itself in a position at the December meeting to signal more precisely the timing of the first cut. For a market that has been patient through a 650-basis-point tightening cycle, the clarity of that signal will be a significant moment — not an immediate transformation of conditions, but a change in direction that the market has been positioning for since the tightening cycle reached its probable peak.

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