For the first time since the pre-crisis boom, Jamaica’s property market has entered a new year without the shadow of an unresolved macro threat on the horizon. The IMF programme is on track, interest rates are at their lowest level in a generation, and developers who paused ground-breaking ceremonies in 2009 are dusting off their plans.
Highlights
- GDP tracking +0.5–1.0% for 2014; EFF programme midpoint approaching
- Commercial mortgage rates at 7–8%; NHT concessional rates below 6%
- Residential transactions in KMA up 20% year-on-year through March
- New housing scheme construction starts at highest level since 2006
- Transfer tax remains at 4.5% on vendor side; market entry costs still elevated
- Exchange rate J$108–112/US$; managed depreciation continues
The first quarter of 2014 offered something Jamaica’s property market had not experienced in nearly a decade: momentum without anxiety. The macroeconomic backdrop — a functioning IMF programme, declining interest rates, an exchange rate depreciating at a pace slow enough to model into purchase decisions — was not merely stable but actually improving. And the market was responding with the kind of velocity that had been structurally suppressed for so long that its re-emergence felt almost startling.
Transaction volumes at the National Land Agency’s offices in the Kingston Metropolitan Area were running approximately twenty percent above the comparable first quarter of 2013. The comparison was made against a period that was itself an improvement over prior years, meaning the recovery was not merely a base effect but a genuine acceleration in underlying demand. In St Catherine — the parish that had absorbed the largest share of affordable housing development over the preceding decade, and whose commuter corridor to Kingston had become the principal route for middle-income household formation — new scheme completions were arriving at a pace not seen since the years before the global financial crisis.
The interest rate environment that was driving this activity had its roots in the successive restructurings of 2010 and 2013. The JDX had brought rates from the high teens to the low teens; the NDX had brought them from the low teens to single digits; and the sustained fiscal discipline of the EFF years had kept government bond yields on a gentle downward trajectory as investors gained confidence in Jamaica’s medium-term fiscal path. By the first quarter of 2014, commercial bank mortgage products were available at fixed rates of 7–8 percent, and NHT concessional products had fallen to entry points below 6 percent for qualifying contributors. These were rates at which the mathematics of homeownership worked for a household earning the Jamaican formal sector median — something that had not been true for most of the preceding decade.
The constraint that remained most visible in the market was the transfer tax burden. At 4.5 percent of the sale price imposed on the vendor, the transfer tax — combined with stamp duty and legal fees — added a transaction cost that suppressed turnover and created a price floor effect that sometimes prevented marginal transactions from occurring. A seller who needed to clear J$10 million from a sale was effectively pricing at J$10.5 million before stamp duty and conveyancing fees, and in a market where buyer financing was tight relative to the size of the purchase, each percentage point of transaction cost represented a meaningful barrier. The real estate sector had been lobbying for reform of the transfer tax structure for years, arguing that a lower rate applied to higher volumes would ultimately produce greater government revenue. The government, focused on primary surplus maintenance under the EFF, had not yet found the fiscal space to reduce a revenue line that contributed meaningfully to the budget.
Construction activity was the most vivid evidence of the market’s improving health. NEPA approval volumes for residential developments were at their highest level since 2006, and the pipeline between approval and groundbreaking had compressed as developers — with access to construction financing and confidence in absorption rates — moved faster from planning to execution than they had in the crisis years. The schemes under construction were concentrated in the mid-market segment: two- and three-bedroom townhouses, gated residential communities with security infrastructure, and NHT-eligible pricing in the J$10–22 million range. The upper end of the market, where developments priced above J$30 million targeted professionals and returning residents, was also showing life, but the volume was in the mass market.
The exchange rate continued its managed depreciation, touching J$112 in the latter part of the quarter before settling near J$110. The movement was orderly and, for most property buyers, predictable enough to incorporate into their purchase calculations. Buyers who were financing in Jamaican dollars — the large majority of residential purchasers — viewed the depreciation primarily through the lens of its effect on construction material costs and household purchasing power rather than as a direct threat to asset values, which remained denominated and transacted in the local currency.
What This Means
The first quarter of 2014 confirms that 2013’s inflection was real. The market is expanding, construction is resuming, and the rate environment is the most supportive it has been since before the global financial crisis. The principal structural constraint — the transfer tax burden — is a policy issue rather than a market failure, and its resolution, when it comes, will release additional transaction velocity that is currently being suppressed. For buyers who can qualify at current rates and who have been patient through the crisis years, the window is open and the conditions are as good as they are likely to be in the near term. The market is, at last, working again.
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