Clinton Acquitted, US Normalcy Returns: Jamaica’s Property Market Reads the Spring Signals — March 1999

Publication Date: 3 March 1999 | Coverage Period: 3 February–2 March 1999 | Category: Monthly Review

Month in Brief

• The United States Senate voted on 12 February 1999 to acquit President Clinton on both articles of impeachment — perjury and obstruction of justice — with neither article obtaining even a simple majority, far short of the two-thirds required for removal; the year-long political crisis is formally resolved.
• Jamaica’s residential property market has shown tentative signs of increased activity in February relative to the depressed levels of the past several months; Kingston estate agents report modestly higher inquiry volumes, though transaction completions remain sluggish.
• Bank of Jamaica rates remain in the 20–25% corridor; no official signal of imminent reduction has been given, though some market analysts believe the stabilisation of the JMD and moderation in inflation may create conditions for a measured rate adjustment in the second half of 1999.
• NHT’s first-quarter mortgage approvals are tracking broadly in line with the same period in 1998; the post-Georges deferral cohort’s performance will be a key metric to monitor as the deferral window approaches its conclusion for the earliest applicants.
• The Euro has weakened slightly against the US dollar since its 1 January launch, trading near parity concerns in some market commentary; the sterling rate has remained relatively stable, maintaining the purchasing power of UK-based diaspora remittances to Jamaica.
• The Asian financial crisis shows early signs of stabilisation in South Korea; Thailand and Indonesia remain under significant stress, but the IMF programmes are beginning to impose structural adjustment that may, over time, restore growth prospects in the region.

Housing Market Overview

Clinton’s acquittal on 12 February closed the most extraordinary chapter in American political life since Watergate and removed a significant cloud of uncertainty from the international environment in which Jamaica operates. The resolution — widely anticipated but not certain until the votes were counted — has allowed Washington to return to the normal business of governance, and the global markets that had been trading partly on US political risk signals have responded with cautious relief.

For Jamaica’s property market, the acquittal’s most important implication is indirect: a functioning, politically stable United States is the most important external determinant of the economic conditions — remittance volumes, tourist arrivals, bilateral trade and investment — that underpin Jamaican household financial capacity and property market demand. The restoration of American political normalcy, however messy the path to that restoration, is therefore a genuine positive for the Jamaican housing sector’s medium-term prospects.

Domestically, February has brought the first tentative signs that the property market’s long period of suppressed activity may be beginning — very slowly — to ease. Kingston estate agents report that the volume of serious inquiries in February was measurably higher than in January, and that several transactions that had been in negotiation since the start of the year are moving toward conclusion. It would be premature to describe this as a market recovery; the structural constraints of high interest rates and limited mortgage accessibility have not changed. But the marginal signal is positive.

Government Policy and NHT Response

The government’s housing policy apparatus has been relatively quiet through February. The Ministry of Water and Housing is understood to be preparing a medium-term housing sector strategy document that will set out the government’s ambitions for the remainder of the parliamentary term — a document whose publication has been anticipated but not yet confirmed for the first quarter of 1999.

NHT’s operations continue on their established trajectory. The Trust’s quarterly performance report for October–December 1998 noted that mortgage approvals were in line with plan and that the post-Georges deferral programme had been implemented without significant administrative difficulty. The challenge now facing the Trust is managing the transition of deferral-programme participants back to normal payment schedules: a process that must be handled sensitively to avoid creating a new wave of non-performing loans in a portfolio whose quality is already under strain from the general macroeconomic environment.

The government has also been managing the politics of FINSAC’s legacy. Public anger at the cost of the financial sector bailout — and at the perception that financial institution shareholders and managers were shielded from consequences while ordinary depositors and property owners suffered — remains a live political issue. The government’s response has been to emphasise the systemic necessity of the intervention and the progress made in stabilising the financial sector, while acknowledging that the fiscal costs were severe. This political management task will continue to shape the environment in which housing policy is formulated and communicated.

Construction Sector

February construction activity has been more visible than the depressed levels of late 1998 and early 1999 would have suggested. Several NHT-scheme developments in the metropolitan outskirts — notably in areas of St. Catherine accessible to Kingston workers — have moved into active construction phase, providing employment for construction workers and beginning to add to the modest supply of new NHT-financed units available for qualifying contributors.

The Georges repair backlog, while significantly reduced from its immediate post-storm dimensions, has not been fully cleared. Reports from the worst-affected rural parishes indicate that a subset of the most severely damaged properties — typically those belonging to elderly or economically marginalised households who lack the financial capacity or physical ability to manage their own repairs — remain in a state of partial damage. Government and NGO programmes targeting this residual caseload are understood to be planned, though implementation timelines remain uncertain.

Materials pricing in February has continued its normalisation trend. Cement is at or near pre-Georges levels; roofing material costs remain modestly elevated but are declining. Hardware retailers in Kingston report that the post-hurricane demand surge has given way to a more normal pattern of project-driven demand, though the underlying level of construction activity remains below the sector’s historical norms.

Investment Climate

The post-Clinton-acquittal environment is one of cautious optimism in global markets. The US economy’s continued strength — growth running at approximately 4% annually, unemployment below 5%, and equity markets at or near historical highs — provides a buoyant backdrop for the global economic environment on which Jamaica depends. The Federal Reserve has held rates steady since its December cut, signalling confidence that the autumn market stress has been successfully contained without requiring further accommodation.

For Caribbean property investment, the most relevant indicator is the trajectory of US consumer confidence and personal income growth, which are the primary determinants of both tourist spending and diaspora remittance capacity. Both remain at favourable levels in early 1999, suggesting that the exogenous support for Jamaica’s dollar flows will continue through the first half of the year.

Domestic investment conditions remain constrained by the BOJ’s high-rate stance. Until commercial mortgage rates move materially below the 25% level, formal property investment using leverage is economically irrational for all but the highest-yielding properties. The result is a market in which cash buyers and NHT contributors dominate transactional activity — a distribution that favours the upper end and the lower end of the market and leaves the broad middle relatively inactive.

Diaspora Perspective

Clinton’s acquittal has been received with some relief in the substantial Jamaican-American community in New York, South Florida, and elsewhere. The prospect of prolonged American political dysfunction — however unlikely to result in Clinton’s actual removal — had created background anxiety in communities whose livelihoods, immigration status, and economic prospects are bound up with the health and stability of American institutions.

The acquittal removes that anxiety and allows the diaspora community to focus on its more immediate concerns: economic advancement, community stability, and the management of financial ties — including property interests — in Jamaica. Several diaspora real estate intermediaries — professionals who specialise in connecting overseas Jamaicans with property opportunities on the island — report that the first two months of 1999 have seen the highest level of diaspora inquiry since before the 1997 Asian crisis began to affect investor confidence globally.

The UK-based community’s situation has been shaped partly by the sterling-Euro dynamic. The pound has held relatively firm against the new Euro through its first two months of existence, maintaining the purchasing power of UK-based remittances in USD and JMD terms. For the Jamaican-British community, this stability is welcome context for those considering property purchases in Jamaica, though the high costs of UK housing — and the significant financial commitments most UK-based Jamaicans carry in the form of UK mortgages and rental costs — remain a constraint on the capital available for Jamaican property investment.

Affordability

The affordability picture in February 1999 reflects the same structural constraints that have characterised the market throughout the post-FINSAC period, with one emerging nuance: the modest appreciation of real wages in the formal sector — as nominal salary increases in some segments have modestly exceeded the current inflation rate — has, at the margin, improved the debt-service-to-income ratio for the most creditworthy NHT contributor households.

This is a small positive but should not be overstated. The fundamental gap between what formal housing costs to produce and what the majority of Jamaican households can afford remains enormous, and the structural conditions — high BOJ rates, constrained fiscal space, limited developer capacity for genuinely affordable product — that perpetuate this gap are not resolved by marginal improvements in real wages for a subset of formal-sector workers.

NHT continues to receive applications well in excess of its capacity to approve and disburse in any given period. The Trust’s management has indicated that it is examining options for expanding its loan book within the constraints of its contributory financing model, but any significant expansion of NHT capacity would require either a legislative change to its funding mandate or sustained growth in the contributor base — neither of which is imminent.

Looking Ahead

March 1999 will be watched closely for any signal from the BOJ on the direction of interest rates. The stabilisation of the JMD, the moderation in inflation from its post-devaluation peaks, and the general improvement in financial market conditions since the autumn 1998 crisis all create conditions under which a measured rate reduction might be contemplated. However, the BOJ is acutely aware of the risks of premature easing — the memories of previous episodes in which rate reductions triggered exchange rate instability and renewed inflationary pressure are still fresh — and any move will be cautious and incremental.

The April edition of this review will assess the BOJ’s first-quarter policy decisions, the trajectory of the Kingston residential market as the spring season gets underway, and the international backdrop — particularly the situation in the Balkans, where tensions have been building and where a military response by the Western alliance to the situation in Kosovo may be approaching.

Follow Jamaica Homes on Youtube @jamaicahomes and Instagram @jamaica_homes and on Facebook @jamaicahomesnews Send us a message or email us at onlinefeedback@jamaica-homes.com or editor@jamaica-homes.com