Two consecutive years of GDP growth. Two years of clean IMF quarterly reviews. Two years of declining commercial lending rates. Jamaica closes 2014 with a property market that has recovered its operational credibility, its transaction velocity, and — in selected segments — its pricing confidence. What comes next depends on the final year of the EFF programme and the political cycle that follows it.
Highlights
- Full-year GDP approximately +1.0%; second consecutive positive year under EFF
- All IMF quarterly reviews passed; debt-to-GDP declining from 145% peak
- Transaction volumes at highest level since 2007; residential prices up 8–12% across KMA
- Construction sector contributes positively to GDP for first time since 2007
- Exchange rate closes year near J$116/US$; depreciation pace the most orderly in a decade
- Transfer tax reform debate intensifies as sector lobbying gains political traction
The year-end conversations in Kingston’s real estate offices carried a quality that would have been unrecognisable to anyone sitting in the same rooms in December 2009 or December 2012. The tone was not euphoric — Jamaica’s property professionals have been around long enough to understand that euphoria is a precursor to disappointment — but it was genuinely, measuredly positive. Transaction volumes had finished the year at their highest level since 2007. Residential prices in the Kingston Metropolitan Area had appreciated eight to twelve percent over the calendar year. Construction sites that had been quiet for half a decade were active. And the macroeconomic conditions that had made all of this possible — the EFF reviews, the declining rates, the fiscal surplus — were still in place and still performing.
The IMF’s Extended Fund Facility programme had completed all of its scheduled 2014 reviews without disruption. The fiscal primary surplus had been maintained at or above the target of 7.5 percent of GDP, a performance that the Fund’s staff reports described as exceptional by the standards of comparable emerging market adjustment programmes. The debt-to-GDP ratio, which had reached approximately 145 percent at its crisis peak, had begun a descent that was projected to continue through the programme period and beyond. The structural benchmark agenda — tax reform, pension rationalisation, public enterprise reform — was advancing, slowly but materially, through the legislative and executive machinery of the government.
The construction sector’s contribution to GDP had turned positive for the first time since 2007, a milestone that reflected the accumulated effect of two years of housing scheme starts, commercial fit-out activity, and the modest but growing pipeline of public infrastructure investment that the fiscal space created by the EFF was beginning to permit. The contribution was not large in absolute terms, but its direction — from a consistent drag on economic activity to a modest positive input — represented a structural shift in the composition of Jamaica’s economic recovery that had been absent from all previous post-crisis periods.
The exchange rate’s full-year movement — from J$106 to J$116, a ten percent depreciation — was the most orderly annual adjustment in the Jamaican dollar since before the global crisis. The Bank of Jamaica’s reserve position had strengthened sufficiently through EFF drawdowns and improving current account performance to give it the capacity to prevent disorderly movements without exhausting the reserves that were needed for other balance of payments functions. Property buyers had adapted to a world of managed, predictable depreciation, incorporating it into their purchase calculations as a background variable rather than experiencing it as a sudden crisis that required a reassessment of every investment decision.
The transfer tax debate was intensifying. The real estate sector’s persistent lobbying had gained traction in political circles that were beginning to think about the landscape for the next general election, expected in 2016. The argument — that a reduction in the 4.5 percent vendor-side transfer tax would increase transaction volumes, reduce the shadow market in undervalued transactions, and ultimately produce more revenue at a lower rate — was finding an audience in the Ministry of Finance that had not been there during the austerity focus of the early EFF years. Nothing was committed, and the fiscal constraints of the final year of the programme would limit the room for manoeuvre. But the direction of political travel on the transfer tax was becoming visible.
The commercial property market had evolved significantly through 2014. BPO employment was approaching 35,000 workers, and the sector’s demand for office space had exhausted the available supply of suitable commercial stock in New Kingston. The first purpose-built BPO facilities in Kingston were approaching completion — modern, infrastructure-appropriate spaces designed for the demands of outsourcing operations — and their arrival would both ease the supply constraint that had been holding back operator expansion and demonstrate to the development market that purpose-built commercial development in Kingston was viable at current rent levels.
What This Means
Jamaica’s property market closes 2014 in the best condition it has been in since the pre-crisis years. The recovery is real, broad-based, and supported by the structural improvements that have been accumulating since 2010. The question that overhangs 2015 is whether the positive trajectory can survive the transition from the EFF’s structured discipline to whatever comes next. The programme expires in 2017, and the years approaching its conclusion will test whether Jamaica has genuinely internalised the fiscal discipline that the EFF enforced or whether the disciplines were primarily a response to external conditionality. The property market’s continued health depends on the answer to that question, which will be answered in the next two to three years — starting, crucially, with what the government does with the fiscal space that the transfer tax reform debate is bringing into focus.
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