Dudus Gone: Kingston Rebuilds Confidence After the Extradition Saga – July 2011

Publication Date: July 3, 2011 | Coverage Period: June 3-July 2, 2011 | Category: Monthly Review

Month in Brief

• Christopher “Dudus” Coke was extradited to the United States on June 22, ending a two-year diplomatic and security crisis that had cast a long shadow over Jamaica’s international standing and its investment climate.
• The extradition closed the chapter opened by the Tivoli Gardens security operation of May 2010 and removed the most prominent outstanding source of tension in the US-Jamaica bilateral relationship.
• Real estate agents in West Kingston and surrounding communities reported cautious optimism that the resolution of the Coke affair would eventually translate into improved investor confidence in the broader Kingston market.
• The Bank of Jamaica held rates steady; commercial mortgage lending remained in the 11-14 percent band with no significant movement in either direction during the coverage period.
• European debt concerns continued to generate background volatility in global markets, though the direct impact on Jamaican property transaction volumes was limited.
• NHT announced continued progress on its fiscal year 2011-12 housing construction targets, with site works ongoing in multiple parishes.

Housing Market

The extradition of Christopher Coke on June 22 was, for many observers of the Jamaican property market, the closing act of a prolonged drama whose opening scenes — the Tivoli Gardens operation of May 2010, the months of US-Jamaica diplomatic friction that preceded it, and the long shadow of the Shower Posse’s grip on inner-city Kingston — had depressed investment confidence in ways that were real but difficult to quantify precisely. Estate agents and valuers contacted for this review were careful not to overstate the immediate property market implications, but the consensus was that the extradition mattered, and that its effects would accumulate over quarters rather than days.

In the immediate term, the Kingston market’s behaviour during the June coverage period was characterised by steady, unremarkable transaction flow. The upper residential segment in the hills above New Kingston — Norbrook, Stony Hill Road, Cherry Gardens — continued to attract both local professional buyers and returning diaspora members. Asking prices in that corridor remained firm, with agents reporting that vendors were under no particular pressure to move quickly or discount significantly.

The more interesting signals came from West Kingston and the communities adjacent to Tivoli Gardens, where the security operation of 2010 had frozen what little formal property market existed. Surveyors and community development practitioners noted that land and dwelling values in those areas, never formally transacted at scale, were beginning to attract a different quality of speculative interest — investors willing to hold for the medium term on the thesis that reduced gang influence and improved rule-of-law perception would eventually translate into rising values. This is not a market for the risk-averse, but its emergence is itself a signal.

Government Policy

The government’s handling of the Coke extradition and its aftermath dominated the political conversation in June. From a housing policy perspective, the month produced no major new announcements, but the extradition itself functioned as a form of governance dividend: the resolution of the affair, after months of delay that had strained relations with Washington and complicated the investment climate, was a signal that the Jamaican state could and would meet its international legal obligations when the political will was sufficiently aligned.

For the property sector, the implications of improved rule-of-law perception are indirect but real. International real estate investors and rating agencies consistently cite governance quality — including the efficacy of property rights enforcement, contract law, and the judicial system — as a determinant of investment appetite. Jamaica’s scores on these dimensions have historically been a drag on its investment proposition; a demonstrable improvement in US-Jamaica relations and in the government’s willingness to act on extradition obligations is a positive, if incremental, step.

The NHT’s operational agenda continued without interruption. The Trust’s mortgage book grew modestly in the period, with applications from first-time buyers in the eligible income tier showing sustained demand. NHT officials noted that the primary constraint on approvals was not demand but the availability of qualifying properties within the price bands eligible for Trust financing — a supply constraint that reflects the fundamental economics of Jamaican residential construction.

Construction Sector

Construction activity in June was weighted toward publicly supported schemes. NHT-linked developments in St Catherine, Clarendon, and sections of St Andrew were at various stages of completion or near-completion, providing visible evidence of institutional delivery in a market where private developer activity has been constrained by financing costs.

The private development pipeline in New Kingston and the commercial belt showed cautious signs of life. Two medium-scale apartment projects — one in the upper Waterloo Road area, one near Barbican — were reported by industry contacts to be in pre-sale or pre-development planning, with financing discussions ongoing with local commercial banks. Neither had broken ground by end of the coverage period, reflecting the extended lead times common in the Jamaican development cycle.

Materials costs remained the dominant operational concern for contractors. Imported steel reinforcing bar, Portland cement additives, and PVC fittings all carry significant foreign exchange exposure, and the J$/US$ rate, while broadly stable, adds a layer of cost unpredictability to project budgeting. Contractors noted that clients — whether NHT or private — are increasingly demanding fixed-price contracts, a shift that transfers currency and cost risk to the builder at precisely the moment when those risks are hardest to hedge.

Investment Climate

The extradition of Coke was widely covered in the international financial and business press, and the reaction from investment community observers was generally positive. The Jamaican government’s ultimate willingness to proceed with the extradition — after the political controversy that had attended the initial resistance — was read as a signal that bilateral relations with the United States were being reset on a more functional basis.

For prospective foreign investors in Jamaican real estate, governance perception is one component of a broader assessment that also includes the macroeconomic environment, the ease of title verification, the efficiency of property transaction processes, and the availability of financing. The June extradition moves the needle positively on the governance dimension, but the other factors remain unchanged. Commercial transaction costs — stamp duty, transfer tax, legal fees — still add approximately nine to twelve percent to the gross cost of a property purchase, a substantial deterrent to active market participation.

Tourism sector confidence — which drives demand for resort property and villa investments on the north coast — appeared modestly improved in June relative to the first quarter, partly reflecting the resolution of the Coke affair and partly reflecting healthy advance booking data for the 2011-12 winter season. Montego Bay and Negril agents reported continued diaspora enquiries for holiday-use properties with rental income potential.

Diaspora Dimension

Diaspora reaction to the Coke extradition was complex and varied. Among Jamaicans in the United States — particularly those with family ties to West Kingston — the extradition resolved a period of anxiety and uncertainty. For diaspora members with property interests in Jamaica, the improved bilateral relationship with the US removes a reputational cloud that had attached to Jamaica in some investor circles.

Remittance flows in June were broadly in line with the trend established through the first half of 2011: modestly positive year-on-year, reflecting improved US employment conditions among Caribbean diaspora communities and reduced transfer costs through digital channels. Estate agents in resort and residential markets confirmed continued interest from overseas-based Jamaicans in property acquisition, with enquiries weighted toward the J$8-25 million price range — the segment accessible to diaspora buyers of middle-professional income with US dollar savings.

Affordability

The structural affordability challenge is unchanged. Jamaica’s housing deficit, conservatively estimated at over 100,000 units, reflects decades of supply shortfall relative to household formation rates, combined with a formal construction cost base that exceeds the purchasing power of the majority of the Jamaican workforce. The resolution of the Coke affair does not directly alter construction costs, mortgage rates, or household incomes — the three variables that determine affordability at the individual level.

What the extradition may do, over a period of years rather than months, is improve the conditions for the kind of sustained economic growth that drives wage improvements and the institutional investment that eventually lowers the cost of capital. Jamaica’s GDP growth in 2011 is tracking at approximately one to one-and-a-half percent — positive, but insufficient to make significant inroads into unemployment or poverty rates. A sustained improvement in the investment climate, of which the extradition is one contributing factor, is a necessary but far from sufficient condition for the economic growth that would make housing affordability a more tractable problem.

The NHT remains the primary instrument of housing affordability policy. Its concessionary rate structure — from zero percent for the lowest-income tier to five percent for the upper eligible band — represents the most direct intervention available to the state, and its construction pipeline is the most reliable source of new formal housing supply for the lower-middle market.

Looking Ahead

The extradition of Coke marks the end of a chapter, but the writing of the next chapter — improved governance, stronger investment, a more functional Kingston economy — will take sustained effort over years. The property market’s response to the extradition will be measured in slowly improving transaction volumes, gradually expanding investor interest, and incremental improvements in the conditions that allow the formal market to function more efficiently.

The international context remains challenging. European debt pressures are building through the summer, and the US economic recovery is fragile. Jamaica cannot control these external forces, but it can control the quality of its governance, the discipline of its fiscal management, and the efficiency of its administrative systems. On those dimensions, the June extradition was a step in the right direction.

This review will return in August to assess market conditions through the full month of July, including any property market developments in Kingston’s evolving inner-city communities and any policy announcements from the NHT or Ministry of Housing that may influence second-half market dynamics.