Publication Date: June 3, 2019 | Coverage Period: May 3 – June 2, 2019 | Category: Monthly Review
May in Brief
- Tourism arrivals tracking toward record levels for 2019; north coast economy buoyant
- Coastal residential rents rising sharply in Montego Bay, Ocho Rios and Negril
- Short-term rental market continues to expand; regulatory framework discussions ongoing
- NHT construction on schedule across all parishes; Joint Ventures delivering new units
- Kingston apartment market remains tight; first completions seeing strong resale values
- Diaspora summer visit season approaching; US and Canadian buyer enquiries rising
Housing Market Overview
Jamaica’s residential property market in May 2019 is shaped, above all else, by the extraordinary performance of the tourism sector. Visitor arrivals for the first four months of 2019 are tracking ahead of the equivalent period in 2018, which was itself a record or near-record year. The economic activity generated by this tourism boom — employment in hotels, restaurants, transportation and the wider hospitality supply chain; foreign exchange earnings that underpin the broader economy; the investor confidence that strong tourism revenues signal — is flowing into residential property demand along the north coast and, to a degree, across the island.
The most direct expression of this dynamic is in the rental market. Coastal rental rates — in Montego Bay, Ocho Rios, Negril and their surrounding residential communities — have risen significantly over the past twelve months, driven by a combination of increased demand from employed tourism sector workers and the reduction in long-term rental supply as more units are converted to short-term tourist accommodation through Airbnb and similar platforms. For long-term residential tenants in these communities, the cost of living has risen materially.
The sales market along the north coast is equally buoyant. Gated residential communities, townhouse developments and detached residential properties in St James, Trelawny and St Ann are all moving at prices that would have seemed aspirational three or four years ago. The combination of strong local demand and active diaspora buyer participation is sustaining price appreciation that outpaces inflation and makes property in these areas one of the better-performing asset classes available to Jamaican investors.
Tourism, Rents and the Short-Term Rental Economy
The growth of the short-term rental market — which has been a notable feature of Jamaica’s coastal property landscape for several years but has accelerated markedly since the mass adoption of platforms like Airbnb — is creating a structural tension in coastal residential communities. Property owners who can earn significantly more from nightly tourist rentals than from monthly residential leases have strong incentives to convert their properties. The aggregate effect of this rational individual decision-making is a reduction in the stock of affordable long-term rental accommodation in areas where the tourism economy employs large numbers of people who cannot afford to purchase.
The regulatory response is forming, but slowly. The Jamaica Tourist Board and the relevant government ministries are engaged in discussions about a registration and licensing framework for short-term rental properties. The objectives of any such framework would be multiple: ensuring that short-term rental properties meet safety, hygiene and insurance standards comparable to those required of formal hotels; collecting tax revenue from an economic activity that is currently significantly under-reported for income tax purposes; and providing the data needed to monitor the market’s scale and its impact on local housing markets.
Industry participants — both those operating in the short-term rental market and those representing long-term residential tenants — broadly accept the principle of regulation, though they differ on the details. The most contentious question is whether any licensing regime should include restrictions on the proportion of residential units that can be converted to short-term use in a given area — a more interventionist step that would directly address the rental supply problem but would constrain property owners’ rights to use their assets as they see fit.
Government Policy and the NHT
The NHT’s construction programme for 2019–20 is under way across all fourteen parishes. The Trust’s Joint Venture arrangements with private developers — an expanding component of its overall housing delivery model — are producing units that supplement its direct construction activity. The Guaranteed Purchase Programme continues to provide the sales certainty that enables developers to secure construction financing for projects that might otherwise struggle to attract bank support in the absence of pre-sales.
The post-budget period has seen the NHT transfer controversy recede somewhat from the immediate political foreground, as parliamentary attention has shifted to other matters. But the structural tension — between the Trust’s housing delivery mandate and its role as a contributor to fiscal consolidation — remains unresolved and will resurface with the next budget cycle.
The HAJ’s social housing programme continues to advance. Settlement titling projects in multiple parishes are progressing, with formal title being conferred on communities that have occupied land informally for decades. The economic benefits of formalisation — access to mortgage financing, property insurance and the broader banking system — are being documented by the HAJ as evidence of the programme’s impact beyond the headline of titles issued.
Construction Sector
Construction activity in May reflects the established rhythm of the current development cycle. NHT sites are progressing; private sector projects are advancing. Material costs remain broadly stable. Labour supply is adequate. The key constraint — planning approval delays at municipal corporations — persists, but has not worsened materially from the position documented in earlier months.
One noteworthy development in the construction sector is the growing interest among developers in modular and pre-fabricated building techniques, which can reduce construction time and, in some configurations, material costs. While these techniques have not yet been widely adopted in Jamaica’s mainstream residential sector, the conversations happening within the industry suggest that the next cycle of development may include more innovation on construction methodology than has been seen in recent years.
Major Developments
The north coast residential market’s most active areas include the Rose Hall, Ironshore and Reading communities in St James; the Mammee Bay and Tower Isle areas of St Ann; and several sites in Trelawny between Falmouth and the Clark’s Town corridor. These areas combine relative proximity to tourism employment centres with the amenity of coastal or near-coastal locations, making them attractive to both Jamaican buyers and diaspora investors.
In Kingston, the apartment market’s maturation continues. Early buyers in the wave of apartment developments that commenced delivery in late 2018 and through 2019 are, in some cases, seeing their units appreciate from pre-sale prices as the completed product attracts demand from buyers who were unable or unwilling to commit at the pre-construction stage. This secondary market activity is an important signal of the apartment model’s viability and is encouraging developers to proceed with additional sites.
In rural parishes, the NHT’s schemes continue to address the housing deficit for working families in agricultural and other sectors. Developments in St Elizabeth, Manchester, Clarendon and Portland are providing homeownership opportunities for contributing members who would otherwise have no viable path to formal homeownership.
Infrastructure
Infrastructure investment through the May period has continued at the levels established earlier in the year. Road rehabilitation under government programmes is ongoing. In the north coast, the quality of road connections between residential communities and tourism employment centres is a direct factor in residential land values — communities with reliable, well-maintained road access command significant premiums over those without.
Water supply remains the area of greatest infrastructure concern for residential developers. The National Water Commission’s capacity expansion programme is under way but will take time to deliver meaningful increases in available supply in the corridors under most residential development pressure. In the interim, developers in St Catherine and parts of St Andrew are investing in private water supply infrastructure — wells, storage tanks and treatment systems — to reduce dependence on NWC connections.
Investment and Finance
The mortgage market continues in its established buoyant pattern. Lending rates remain historically manageable, supported by the BOJ’s accommodative stance. The commercial banks’ competition for quality mortgage business — a stable segment in an otherwise challenging credit environment — continues to generate favourable terms for well-qualified borrowers. The diaspora mortgage products offered by JN Bank, VM Group and NCB Financial Group are seeing sustained enquiry from prospective buyers in the US, Canada and, to a lesser extent, the UK.
The exchange rate — in the J$131–135 per US dollar range — has remained broadly stable through May, a positive for Jamaican mortgage borrowers in Jamaican dollars and for diaspora buyers whose purchasing power in US dollar terms is not being eroded by rapid local currency depreciation.
Diaspora
The diaspora summer visit season is approaching, and with it the annual surge in property enquiries from Jamaicans based in the US, Canada and the UK who visit the island in June, July and August. Agents who specialise in diaspora buyers are reporting a strong pipeline of pre-visit enquiries — potential buyers who are researching the market online before arriving in Jamaica and want to have viewings arranged before they land.
The US and Canadian diaspora communities — whose economic circumstances are favourable, with strong employment and earnings — are expected to generate solid transaction volume through the summer period. The UK diaspora’s posture remains more cautious, for reasons that are now well-established: Brexit uncertainty, sterling weakness and the resulting cost of Jamaica-denominated property for pound-earners continue to suppress UK buyer activity relative to its historical levels.
The Jamaican government has maintained its engagement with diaspora communities through the various diaspora engagement initiatives and conferences that are a regular feature of the Jamaica-diaspora relationship. The Diaspora Advisory Board, the Jamaica Diaspora Conference and the networks maintained by individual financial institutions all serve as channels through which the island communicates its property market opportunities to overseas Jamaicans. These communications are falling on attentive ears in North America; the UK community requires more convincing that now is the right time.
Affordability
The affordability challenge is particularly acute in the coastal markets that are the subject of this edition’s focus. In Montego Bay’s established residential neighbourhoods — Cherry Gardens, Brandon Hill, Fairview — prices have risen to levels that are beyond the reach of many of the tourism sector workers who drive the local economy. The dichotomy between the prosperity generated by tourism and the housing exclusion experienced by many of those who deliver that tourism experience is one of the more troubling features of the north coast’s economic model.
The NHT addresses part of this challenge through its schemes in St James and surrounding parishes, but the Trust’s loan ceiling — and the prices commanded by coastal land — limit what it can deliver at genuinely affordable price points in the most desirable locations. The result is that affordable NHT housing tends to be located further from tourism employment centres, adding commuting time and cost to the burden of coastal workers.
Regional Context
Jamaica’s tourism performance in the first half of 2019 places it firmly among the Caribbean’s leading destinations. The global appetite for Caribbean travel remains strong, supported by the continued economic expansion in the United States and the resilience of Canadian and European visitor numbers. Jamaica’s combination of natural beauty, cultural distinctiveness, improving safety record in tourist zones and competitive pricing is sustaining its strong positioning in the regional market.
The broader Caribbean region’s residential property market is uneven. Destinations that continue to recover from the 2017 hurricane season are still working through reconstruction and investor confidence challenges. Jamaica’s relative stability — and its absence from the most severely affected zone of that season’s storm track — has benefited its relative attractiveness for property investment.
Looking Ahead
As June 2019 begins, Jamaica’s residential property market is performing with the confidence and momentum that the macro environment and structural demand dynamics justify. Tourism is at or near record levels. The diaspora summer season is opening with a strong pipeline. The NHT’s construction programme is active. The mortgage market is competitive and accessible. And while the affordability challenge is real and persistent, the direction of the broader economy — positive, if gradual — offers reasonable grounds for sustained optimism.
The summer months will test whether the pre-season enthusiasm translates into completed transactions. In both the coastal markets and Kingston, the supply of available units relative to the number of motivated buyers will be the binding constraint. Vendors who price realistically will transact; those who test the ceiling may find themselves waiting for the autumn market. The market’s fundamental character — firm but not frenzied, active but not speculative — is likely to persist through the remainder of 2019 absent a significant macroeconomic shock.
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