Jamaica enters the penultimate year of its IMF Extended Fund Facility with a property market that has now maintained positive momentum for seven consecutive quarters. The election cycle — expected in 2016 — is becoming a background presence in every medium-term property investment calculation, but the fundamentals of declining rates and rising demand are holding.
Highlights
- GDP tracking +0.9–1.1% for 2015; third consecutive positive year under EFF
- Commercial mortgage rates at 6.5–7.5%; NHT concessional rates approaching 5.5%
- EFF ninth review passes; debt-to-GDP declining toward 130% by year-end projection
- Residential transaction volumes running 10% above Q1 2014 pace
- BPO sector approaching 40,000 employees; Montego Bay expanding operations
- Exchange rate near J$118–120/US$; managed depreciation remains the pattern
By the first quarter of 2015 the property market had been in recovery for long enough that its practitioners had stopped calling it a recovery and started calling it normal. The transaction volumes that had felt surprising in 2013 and encouraging in 2014 were, by 2015, simply what the market did. New scheme launches were being announced and selling. Commercial spaces were being leased at rents that landlords could accept. Mortgage applications were being processed and approved within timelines that borrowers found reasonable. The crisis years had receded far enough that a cohort of buyers was entering the market who had no direct professional memory of the conditions that had prevailed from 2008 to 2012.
The interest rate trajectory continued its descent. Commercial bank mortgage products were available at fixed rates of 6.5 to 7.5 percent by the close of the quarter, with some institutions advertising promotional variable-rate offerings that started below 6.5 percent. The National Housing Trust’s concessional rates were approaching 5.5 percent — levels that, in combination with the Trust’s expanding maximum loan limits, made NHT-financed homeownership affordable to a household earning Jamaica’s formal sector median wage. The structural effect was significant: the population of Jamaicans who could credibly service a mortgage for the first time in their adult lives was, at these rates, substantially larger than it had been at any point during the preceding decade.
The EFF programme’s ninth review had been completed without disruption. Jamaica’s record of consecutive clean quarterly reviews under the programme was, by early 2015, widely cited in investment circles as evidence of a qualitative change in the country’s institutional capacity for sustained fiscal discipline. The debt-to-GDP ratio was declining on a trajectory consistent with the programme’s medium-term projections, and the structural reforms that accompanied the financial performance criteria — improved tax compliance, reformed public pensions, rationalised public enterprises — were producing the secondary effects on fiscal sustainability that the original programme designers had intended.
The BPO sector’s expansion into Montego Bay was the commercial property market’s most significant development of the quarter. Operators who had established their Jamaican footprint in Kingston’s New Kingston district were beginning to open satellite operations in St James, attracted by a labour market that offered experienced English-language workers at prices below the Kingston rate and a growing telecommunications infrastructure that made voice-based outsourcing viable. The expansion was driving demand for commercial space in the Montego Bay freeport and its environs, creating a property market dynamic in St James that had not been visible since the pre-crisis tourism boom years.
The election cycle was beginning to shape the medium-term calculus of property investment decisions in ways that were subtle but present. Jamaica’s general election was not due until the end of 2016, and the Portia Simpson-Miller government had given no clear indication of its preferred timing within the constitutional window. But institutional investors — pension funds allocating to commercial property, international buyers considering resort real estate, developers deciding whether to commit to a new scheme launch — were incorporating the political uncertainty into their timelines, preferring shorter planning horizons and more flexible commitments than they would have been prepared to make in a mid-term political environment. The effect was not yet severe enough to suppress market activity, but it was visible in the extended decision cycles that characterised the upper end of the market.
What This Means
The property market enters the second quarter of 2015 with its strongest fundamental position since before the global crisis. Rates are declining, employment is growing, construction is active, and the macroeconomic framework is stable. The election horizon introduces a measure of political risk that sophisticated buyers and developers are pricing into their decisions, but the risk is familiar and manageable — Jamaica’s property market has navigated election cycles many times before. The more consequential question for the market’s medium-term trajectory is what happens when the EFF concludes in 2017: whether the fiscal disciplines that the programme has embedded are durable enough to survive the end of external conditionality, and whether the rate environment can be maintained without the credibility anchor of an active IMF arrangement. Those questions will be answered in 2017 and beyond, but their shadow falls forward into every property investment decision being made today.
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