Jamaica's housing market remains resilient
Lalaine C. Delmendo | October 04, 2019
“Investments in the sector have been resilient and reliable for many owners, as properties continue to hold their value and have even increased in worth, despite the climate,” said Petal James, Chief of Branches at JN Bank. “And, while some levelling off has been predicted, prices are not expected to decline.”
The government-owned company, the National Housing Trust (NHT), which leads the mortgage market with almost 50% market share, recently introduced special relief measures to continue to stimulate the housing market in the wake of the global pandemic. These include:
- A reduction in interest rates on all new loans by 1%, effective April 1, 2020
- A reduction in interest rates on all existing NHT loans by 0.5%, benefitting around 100,000 households
- Interest rate discounts to special groups, such as those mortgagors aged 55 and above, the disabled, as well as public sector workers
- Greater benefits to NHT contributors over 65 years.
“These measures are to safeguard persons from losing their homes while improving their disposable income,” said Prime Minister Andrew Holness. “Effective immediately, mortgagors who are laid off can apply for a moratorium on all loan payments of three months in the first instance,” Holness added.
Foreign interest in Jamaica's housing market has risen in recent years. Vacation homes located in Montego Bay area, Ocho Rios, and Negril are attracting foreign homebuyers. Interest in Port Antonio is also slowly rising after an airport expansion in the area, according to Nicola Delapenha of Coldwell Banker Jamaica.
Vacation homes are priced from US$ 800,000 to US$10 million, according to Seventh Heaven Properties managing director Walter Zephirin.Foreign investors dominate this high-end market, while young Jamaican professionals who are first-time homebuyers fuel demand for mid-income bracket properties.
Demand for homes costing J$25 million (US$ 174,800) and below have grown strongly in recent years, while houses worth above J$40 million (US$279,700) had the least growth. Demand remains stable for townhouses, apartments, and for properties in gated communities.
Low mortgage rates and competition among mortgage providers have spurred home purchases, says Carlene Sinclair, President of the Realtors Association of Jamaica.
Jamaica's economy contracted by a record 8.6% in 2020, following y-o-y expansions of 0.9% in 2019, 1.9% in 2018, 0.7% in 2017 and 1.5% in 2016, after tourism took a severe hit due to the COVID-19 pandemic, according to the International Monetary Fund (IMF).
The number of tourists in Jamaica plunged by about two-thirds to just over 1.1 million visitors in the first ten months of 2020, after record arrivals in 2019.
There are no restrictions on foreign ownership of property in Jamaica.
Jamaica - prices stable, yields high
Prices of apartments and houses have continued stable in Kingston and St Andrews during 2010, continuing the trend of 2009. The exception is a decline in the prices of the largest houses, which fell sharply between 2008 and 2009.
A 3-bedroom apartment in Kingston and St Andrews would cost around US$240,000.
A 3-bedroom house in Kingston and St Andrews would cost around US$330,000.
Gross rental yields remain very strong, especially on apartments, with 2 bedroom apartments reaching yields of around 10%. This would seem to suggest that Jamaica’s residential property market is firmly-based.
Income taxes are high in Jamaica
Rental Income: Nonresidents earnings rental income are taxed at a flat rate of 25%. Property taxes, maintenance costs, interest payments, and depreciation are deductible from taxable income.
Capital Gains: There are no capital gains taxes in Jamaica.
Inheritance: Transfers of property as inheritance taxes is taxed at 7.5%.
Residents: Resident are taxed on their worldwide income at a flat rate of 25%.
Buying costs are high in Jamaica
Round-trip transaction costs are between 16.49% and 22.32%. The buyer and the seller are separately liable for their own legal fees. But both are jointly liable for the Stamp Duty of 4%.
The seller pays the real estate agent’s commission of 3% to 5%, which is subject to 16.50% General Consumption Tax (GCT). The transfer tax of 5% the property value is usually paid by the seller.
Jamaican pro-landlord luxury market
Jamaican law is pro-tenant, but in practice high-end rental agreements often ignore the law and practice is pro-landlord.
Rents: Rents and rent increases for all commercial and residential premises are set and regulated by the Rent Assessment Board. The standard rent is prescribed by the Minister and is currently set at 7.5% of the property’s assessed value.
Tenant Security: Lease agreements can either be short-term or long-term. A landlord cannot evict a tenant without a court order. It takes a minimum of 105 days to evict a tenant.
Pandemic impairs Jamaica’s already fragile economyThe Jamaican economy has performed very poorly for a long time, and the country is still on International Monetary Fund (IMF) life support because of its high debt levels. The economy grew a minuscule 0.9% in 2019, following annual expansions of 1.9% in 2018, 0.7% in 2017, 1.5% in 2016, 0.9% in 2015 and o.6% in 2014, according to the International Monetary Fund (IMF).
Longer-term, the numbers are even worse. Jamaica grew by only 1.3% annually from 1998 to 2007.
There was a GDP contraction by 0.8% in 2008, when it was the only Caribbean country aside from the Bahamas to experience recession. GDP fell by 3.4% in 2009, followed by a 1.4% decline in 2010. After weak growth of 1.4% in 2011, the economy slipped again into recession in 2012, contracting by around 0.5%.
The economy is estimated to have contracted by a record 8.6% in 2020 mainly due to the economic repercussions brought by the COVID-19 pandemic.
“COVID-19 continues to impact and disrupt trading partners, we look at the US, our source market for tourism and we understand that there is a significant fear and panic in those markets so it would impact our visitor arrivals,” said Economic Programme Oversight Committee (EPOC) co-chairman Keith Duncan. “So, the impact on our economy is highly uncertain.”
Last year, Prime Minister Andrew Holness unveiled an economic aid worth $25 billion, the largest fiscal stimulus in Jamaica’s history, to cushion the impact of the pandemic. In May 2020, the IMF approved Jamaica’s request for emergency financial assistance amounting to US$520 million under the Rapid Financing Instrument (RFI) to help meet the urgent balance of payments needs of the country arising from the health crisis.
As a result, Jamaica is estimated to record a budget deficit of more than 3% of GDP in 2020, in sharp contrast to surpluses of 1.4% of GDP in 2019 and 1.3% in 2018. Government gross debt increased to more than 101% of GDP in 2020, up from 93.9% in 2019, but still far below the annual average of 136.5% from 2008 to 2015.
The country’s inflation rate stood at 4.8% in November 2020, up from an annual average of 3.6% in 2015-19 but still far below the average of 11.2% in 2004-14. Overall, inflation is projected at 5% last year, still within the central bank’s target range of 4% to 6%.
Nationwide unemployment increased to 12.6% in Q3 2020, from just 7.8% a year earlier, according to STATIN.
Despite this, both Standard and Poor’s and Fitch Ratings recently affirmed their credit ratings for Jamaica at B+, but changed their outlook from stable to negative for S&P and from positive to stable for Fitch.