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Oct 18, 2012

Despite violent crime, theft, and a weak economy...


Jamaican beach properties

Jamaica’s housing market has been on a minor upswing, helped by firm police action to protect tourists from theft and muggings. Tourist visits to Jamaica’s “attractions” are guided by their resorts, with the selected areas tightly controlled by police.

Demand for mid to upper priced homes (worth J$25 million and above) has risen, encouraged by declining loan rates and competition in the mortgage market. Professionals, pension funds, and individual buyers, some first-time buyers, are expressing interest in J$25m-worth homes in Kingston 6, Kingston 8, as well as some parts of Kingston 9.

The Realtors Association of Jamaica (RAJ) notes that Multiple Listing Service (MLS) transactions increased from 44 in 2010, to 104 in 2011. Around 75% of RAJ’s 365 members subscribe to the MLS.

But Jamaica Redevelopment Foundation’s (JRF) Jason Rudd believes that in this price category, the market may be overburdened by inventory. Mid-income homes are the most popular, agrees Coldwell Banker Jamaica head Andrew Issa, followed by town homes and apartments.

Red Hills and Stony Hill are in demand, with sales up and inventory low, in popular areas such as Mona, Havendale and Hope Pastures. National Housing Trust chairman Easton Douglas adds that there is a supply shortage for low- and/or middle-income buyers, agreeing with Issa agree that there is strong demand for lower priced homes.

Jamaica’s real estate market has struggled for the last few years, thanks to weak economic growth, high inflation, and high crime rates. In Q2 2012, the country’s GDP declined for a second quarter in a row by 0.2% y-o-y, according to the Statistical Institute of Jamaica Statin). There are fears of another recession, and in April 2012 unemployment hit 14.3%.

Yet Jamaica’s efforts in reducing violent crimes, as well as the Tourism sector’s intense promotion, brought increased tourist arrivals in Jamaica from 2011 to 2012. Tourist arrivals in 2011 rose by 8.7% in 2011, while stopovers were up 6.5% during the year to September 2012.

Upward trend in tourism

With the help of good publicity following Jamaica’s fantastic showing in the London Olympics (July to August 2012), its tourism sector has seen significant growth in stopover arrivals and cruise visits. But even before the Olympics, tourism was up. In 2011, visitor arrivals were 8.7% up y-o-y, to 3.08 million.

The level of violent crimes in Kingston declined in 2011, according to the Overseas Security Advisory Council’s Crime and Safety Report although it remains a serious problem. The reduced number of crimes was due to:

  • A 3-months State of Emergency effective in May 2010;
  • Heavy exposure of wanted criminals’ photographs or posters in the news media;
  • Increased police patrols;
  • Police road blocks;
  • Information given to crime stoppers.

Petty theft and pick pocketing remains prevalent in some tourist areas, but visitors to the island are largely untouched by violent crime, since much of the criminality occurs in Kingston. Resort areas such as Montego Bay and Negril have been less affected.

Small mortgage market

Jamaican stop over visitors

Jamaica’s mortgage market slowed during the last four years. Compared to growth of around 36.5% from 2006 to 2007 , followed by 30% in 2008, it is disappointing to see only 10% expansion in 2009, and 3% in 2010 and 2011. From around 2% of GDP in 1999, the ratio of mortgages to GDP rose to 4% in 2007, and then slid back to around 2% of GDP in 2009 and 2010.

The sluggish growth is attributed to:

  • Jamaican real estate market’s dependence on foreign and expat homebuyers, who usually pay cash
  • High mortgage interest rates, pushing foreigners to obtain financing in their home countries.

The maximum loan-to-value (LTV) ratio for foreigners is about 70% of the appraised value of the property, with a term period of 20 years. A government-owned company, the National Housing Trust, leads the mortgage market with around 63.7% market share. It is followed by building societies owning 36.1% of the market.

The government recently hinted at a plan to amend the Mortgage Insurance Act (MIA) to make home buying easier for average Jamaicans. The amendment, as advised by the Jamaica Mortgage Bank (JMB), would raise the percentage of the allowed value for financing to 97%, from 90%. According to Minister Morais Guy of the Ministry of Transport, Works and Housing, the proposed amendment could make home mortgages more accessible and reduce costs to a sum of around 5%.

High rental yields

Jamaica mortgage loans

In 2011, the rent for four-bedroom houses rose by 4.8% to J$276,542 (US$3,210) from a year earlier, according to the UN International Civil Service Commission. The previous year’s growth was 9.3%, to J$274,706 (US$3,063).

"While sales are not at the same pace they were in the days of the investment schemes, they are picking up and prices are holding. Apartments continue to be a good investment with rental rates of US$2,000 to US$2,500," says Issa.

Rental yields on apartments are strong, ranging from 9.34% to 10.08%, based on Global Property Guide research in December 2011.

Hopes for another IMF loan

Jamaica monthly rent

Jamaica’s economic recovery remains anemic in 2012. It continues to face weak local and global demand, exacerbated by government austerity measures. Even before the global economic crisis, the Jamaican economy suffering from high inflation, high unemployment, a depreciating Jamaican dollar, and serious debt problems (with debt-to-GDP ratio at 126.5% in 2011).

After escaping a recession in 1998, GDP rose by an average of only 1.6% from 1999 to 2007. Jamaica’s meagre growth was followed by a GDP contraction by 0.8% in 2008, and it was the only Caribbean country, along with the Bahamas, to experience recession. GDP fell by 3.1% in 2009, followed by a 1.4% decline in 2010.

Jamaica’s recovery in 2011 (with 1.5% GDP growth) was weaker than other countries. The trend is expected to continue in 2012 with flat growth of around 1%.

Jamaica GDP growth

A spike in unemployment was observed, reaching 14.3% in April 2012. The inflation outlook was rather more positive, hitting 5.4% during the year to August 2012.

Jamaica inflation

The Jamaican government hopes to rekindle its borrowing relationship with IMF and reach a new agreement with them before the year ends. Until now, no agreement has been reached, despite an IMF visit in early-October. In his previous statements, Finance and Planning Minister Dr. Peter Phillips was positive that Jamaica could obtain a new agreement by the end of the year. Also, Dr. Phillips stated recently that the two parties were making progress.

The 2010 agreement, heavily directed towards deficit reduction, allowed Jamaica to receive financial support as long as it met IMF conditions. But the US$1.27 billion standby agreement lapsed in May 2012, having stalled in early 2011 due to Jamaica’s inability to meet IMF performance targets.

Prior to the agreement, the Jamaican government had devised a plan to restructure its public debt known as the Jamaican Debt Exchange (JDX), encouraging residents holding certain debt instruments to exchange them for new longer-dated instruments. The JDX produced good results early on, providing remarkable decline in market interest rates as well as interest payments. The country even earned upgrades in credit ratings from Standard & Poor’s and Moody’s in early 2010.

However, the successful debt exchange in 2010 was not accompanied by fiscal consolidation, according to the IMF. Jamaica’s debt is at 140% of GDP, and is likely to increase to 150% or more in the medium term, unless strong fiscal reforms push through.

Newly-elected Prime Minister Portia Simpson Miller, who assumed office in January 5, 2012, has pledged job creation and growth, even while implementing austerity measures and tighter partnerships with its international partners, such as the IMF.

 

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