The Crisis Takes Hold: Jamaica’s Housing Market Confronts FINSAC’s First Full Year, April 1998

Jamaica Homes Housing Affordability & Cost of Living Review — April 1998

• FINSAC is in its first full year of operation; the scale of Jamaica’s domestic financial sector crisis is becoming fully apparent
• Commercial mortgage rates have risen sharply; the building society and merchant banking sectors that served the housing market are being progressively restructured
• The Asian financial crisis that erupted in Thailand in July 1997 has spread across Asia and is affecting global capital markets; Jamaica’s external financing environment has deteriorated
• NHT is increasingly the primary formal housing finance route as commercial alternatives contract; contributor demand for NHT mortgages is rising as commercial access closes
• Patterson won his third consecutive general election on March 18, 1997; his government is managing the FINSAC crisis as the central economic challenge of this term
• Housing construction activity is declining; developer access to commercial credit is being curtailed as the crisis reduces available risk capital across the financial system

April 1998 finds Jamaica’s housing market a year into the FINSAC crisis, and the full scale of the challenge is now visible. The Financial Sector Adjustment Company, established to manage the rescue of Jamaica’s failed and failing domestic financial institutions, has been at work through 1997 and into 1998. The institutions that were first affected — some of the domestic building societies and merchant banks that had expanded aggressively in the early 1990s — are being restructured. Others in the insurance sector, which was closely interlinked with the failed financial groups through corporate structures and cross-holdings, are also under stress.

The housing market consequences are direct and immediate. The building societies that provided the primary route to formal homeownership for working and middle-class Jamaicans — through affordable deposit savings and affordable mortgage lending — are among the most affected institutions. As they are placed under FINSAC management or closed, their mortgage origination ceases. New commercial mortgage lending in April 1998 is available from a shrinking pool of institutions, at rates that have risen substantially as the institutions that remain seek to price for the risk environment they now face.

The Asian Crisis Arrives

Jamaica’s domestic financial crisis is not occurring in isolation. The Asian financial crisis that began in Thailand in July 1997 — when the Thai baht collapsed under speculative pressure and the International Monetary Fund was called in — has spread through Indonesia, South Korea, Malaysia and beyond. The contagion has made global capital markets more risk-averse; investors are pulling back from emerging markets generally. For Jamaica, already managing a domestic financial crisis, this external development compounds the difficulty of accessing international capital at affordable rates. The IMF and World Bank, central to any stabilisation programme, are simultaneously occupied with the Asian crisis at a scale that is historically unusual.

What This Means

For NHT contributors, April 1998 is a critical moment to understand the Trust’s importance. As commercial alternatives contract, NHT’s below-market contributor loans are increasingly the difference between accessible homeownership and indefinite waiting. Maintaining contribution consistency, building eligibility, and understanding the NHT scheme pipeline in your area of interest are the most valuable steps an aspiring homeowner can take in this environment.

For families in the middle-income segment that previously aspired to commercial mortgage financing, April 1998 requires a realistic reassessment. The commercial market that once served this segment is contracting and repricing; the route to homeownership for this group now runs more heavily through NHT than it did two years ago. Engagement with NHT’s programmes — even for families who previously considered themselves above the NHT target market — is advisable.

The Outlook: The Crisis Will Deepen Before It Eases

Jamaica’s housing market in April 1998 is entering what will prove to be the most difficult phase of the FINSAC crisis. The restructuring of the financial sector is not yet complete; rates are not yet at their peak; the fiscal pressure on the government is still building. For Jamaican families managing housing aspirations through this period, the outlook requires honesty: the next year or two will be harder than the recent past, and homeownership aspirations may need to be deferred further. The aspiration itself is worth preserving; the timeline must be adjusted to the reality of the environment.

This review is produced for informational and journalistic purposes only and does not constitute financial, legal or investment advice.

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