Year-End Resilience: Jamaica’s Housing Market Closes Out a Strong 2018 — Monthly Housing Review, November 2018

Publication Date: 3 November 2018 | Coverage Period: 3 October – 2 November 2018 | Category: Monthly Review

October in Brief

• Hurricane Michael devastates Florida Panhandle; Jamaica spared as season approaches close
• Winter tourism season opens; advance bookings strong across north coast properties
• Year-end transaction pipeline building; buyers seeking to complete before December
• NHT scheme completions accelerating toward fiscal year second-half targets
• Fed raises rates to 2.25 percent; global financial tightening continues
• Jamaica economy on course for approximately 1.8 percent GDP growth in 2018

Housing Market

Jamaica’s residential property market is entering the year-end phase with the kind of confidence that reflects a full calendar year of solid — if not spectacular — performance. Across the key market segments, from the NHT-financed first-home buyer market to the diaspora retirement property segment to the north coast investment villa market, 2018 has broadly delivered on the expectations with which it began.

Price appreciation in the Kingston market has been consistent and moderate, with neither the overheating that would generate systemic risk nor the stagnation that would deter developers from bringing new supply forward. Sellers of well-positioned properties in established suburbs have generally received prices at or above asking, and time-on-market statistics for well-priced residential property have remained short by historical norms.

The gated community and new development segment has been the market’s most dynamic component through 2018. Greater Portmore’s pipeline of affordable gated schemes has continued to absorb Kingston metropolitan demand, and the St Catherine corridor more broadly has established itself as the most active development frontier in the island. New Kingston’s condominium and serviced apartment market has continued to mature, with a growing number of professionally managed rental buildings catering to the young professional demographic.

The self-build market, which accounts for a significant proportion of Jamaica’s total annual housing production, has remained active in rural and peri-urban areas. NHT materials loans have continued to provide the working capital that enables incremental construction, and the combination of NHT loan products and HEART/NSTA-trained labour has made the self-build pathway viable for a meaningful segment of lower-income households.

Hurricane Season: Closing Without Jamaica Impact

The 2018 Atlantic hurricane season is approaching its formal November 30 close, and Jamaica has emerged without having experienced a direct hurricane impact — a significant relief given the devastation inflicted on its Caribbean neighbours in 2017, and the anxiety generated by Hurricane Michael’s terrifying Category 5 intensification before it struck the Florida Panhandle in October.

Hurricane Michael’s passage was closely watched in Jamaica. At certain points in its development, the storm’s projected path envelopes included the western Caribbean within their margins, and ODPEM maintained alert status through the relevant period. The storm’s track veering northeast and its catastrophic landfall at Mexico Beach, Florida, was watched by Jamaicans with the mixture of relief and solidarity that characterises the Caribbean community’s experience of regional storm events.

For the property and insurance markets, the end of the 2018 season without Jamaica impact represents a positive outcome that preserves housing stock, protects household wealth, and maintains the economic continuity that sustains buyer confidence. The insurance premium environment — which had been expected to face upward pressure given Michael’s Florida claims — will be watched at the 2019 renewal cycle, though Jamaica’s reinsurance relationships and its managed exposure profile have historically buffered the island from the sharpest premium escalations that follow major US landfalling storms.

Government Policy: NHT Year in Review

As the 2018 calendar year approaches its close, it is worth taking stock of what the National Housing Trust has delivered against its fiscal year targets in the period covered by this review. The NHT’s joint-venture programme has continued to advance, with schemes in St Catherine, St James, and Manchester moving through planning, construction, and in some cases handover phases. The Guaranteed Purchase Programme has sustained developer confidence in the affordable housing segment by providing the off-take certainty that underpins construction financing.

The HAJ has maintained its social housing and land-titling programmes, with Trelawny, St James, and St Catherine receiving the most significant allocations of HAJ activity in the period. Land titling, while generating limited immediate transaction volume, has longer-term significance for household wealth formalisation and community economic resilience.

The most debated policy question of the year — the NHT loan ceiling — has remained unresolved through 2018. The J$5.5 million individual limit that has been in place since 2016 is now widely acknowledged to be materially below the actual cost of delivering a quality NHT-scheme unit in major urban centres. The expectation within the housing industry is that the March 2019 budget season will produce some form of revision announcement. The quantum and structure of any change will be critical: an increase insufficient to close the gap with actual construction costs will be welcomed but will not resolve the underlying affordability problem that the ceiling’s erosion has created.

Construction Sector: Year-End Assessment

Jamaica’s construction sector has had an active year, driven by the trifecta of residential development, hotel and resort construction, and public infrastructure investment. The cost environment has been challenging: global oil prices, while moderating from mid-year peaks, remain elevated relative to 2017, and steel and aluminium prices have incorporated the uncertainty generated by US tariff measures and the US-China trade dispute.

The skilled labour shortage in the construction trades has been a persistent bottleneck, and the competition between the hotel sector and residential developers for the island’s most experienced tradespeople has been a recurring theme of 2018. HEART/NSTA’s training output has been increasing, but there is an inevitable lag between training and productive deployment that means the shortage will persist into 2019.

Planning approval timelines at municipal corporations remain a material constraint on development velocity. The approval process for new residential schemes in Kingston and St Andrew can extend beyond twelve months, adding financing costs and reducing developer returns in ways that ultimately constrain supply. Reform of the planning process is a recurring recommendation in housing sector reviews, but administrative change in this area has been slow to materialise.

Winter Tourism Season and North Coast Market

The winter high season on Jamaica’s north coast has opened with strong advance bookings, and early visitor arrival data for October suggests that 2018 will indeed be a record year for Jamaica tourism. The total visitor arrival count for 2018 is expected to approach or exceed 4.3 million, matching or surpassing 2017’s record performance. This sustained tourism vitality is the most important single driver of the north coast residential investment market, and its continuation into the 2018/2019 winter season provides a solid backdrop for property investors who have positioned vacation rental assets in the Montego Bay, Negril, and Ocho Rios corridors.

Short-let occupancy through Airbnb and HomeAway platforms has been performing strongly, and Jamaican hosts have been investing in property improvements to capture positive reviews and repeat bookings. The professionalization of the short-let management sector — with more property management companies offering turnkey services for investor-owners who are not resident on the island — is making the north coast vacation rental proposition more accessible to diaspora and international buyers who wish to generate income during periods they are not using their Jamaica property personally.

Diaspora: A Year in Review

The diaspora market’s defining story of 2018 has been the Windrush scandal and its impact on the UK-based Jamaican community’s relationship with both Britain and Jamaica. The net effect on UK diaspora property purchasing in Jamaica has been complex: an initial sharp impact to confidence and financial capacity for those directly affected, followed by a gradual normalisation as the UK government moved to acknowledge wrongdoing and establish compensation pathways.

The US and Canadian diaspora markets have been largely unaffected by Windrush and have maintained steady purchase volumes. The Federal Reserve’s aggressive rate-hiking cycle — with the fed funds rate now at 2.25 percent following the September 2018 increase — has strengthened the US dollar meaningfully against a broad basket of currencies, including the Jamaican dollar. For US-based diaspora buyers, the stronger dollar has improved the relative affordability of Jamaican property denominated in Jamaican dollars, providing a modest incentive to complete purchases sooner rather than later.

Macroeconomic Outlook

Jamaica’s macroeconomic performance in 2018 has been one of the more encouraging stories in the Caribbean region. GDP growth of approximately 1.5 to 2 percent, declining debt-to-GDP ratios, inflation broadly within the Bank of Jamaica’s target range, and continued IMF EFF programme compliance have all contributed to an environment of cautious optimism. The island’s fiscal consolidation story — which the government has pursued with commendable discipline through the political pressures of an NHT transfer controversy and opposition criticism — has been validated by continued international investor confidence and the absence of the kind of currency crisis that has afflicted less disciplined emerging markets in 2018.

Looking Ahead to 2019

As this review closes out the 2018 calendar year coverage period, the Jamaica housing market stands in a position of qualified strength. The structural challenges — a 100,000-plus unit deficit, an NHT loan ceiling that has not kept pace with construction costs, planning approval bottlenecks, and a skilled labour shortage in the construction trades — have not been resolved and will continue to shape the market into 2019. But against these structural headwinds, the macro tailwinds — record tourism, a disciplined fiscal programme, steady diaspora interest, and a genuinely improving employment environment — have sustained demand at levels that are keeping the market in positive territory. The March 2019 budget season will be the first significant policy test of the new year, and housing advocates will be watching closely for any movement on loan limits and programme expansion.

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