Real Estate Market Update 4th Quarter 2022

Background Economic Conditions

On December 19, 2022, The Bank of Jamaica reported there were $228 Billion Dollars in circulation. This represented a three percent increase over the same pre-Christmas period in December 2021. With inflation estimated at 8-9 percent during 2022, and economic growth forecasted at four percent, it can be postulated that electronic transactions (credit/debit cards & direct transfers) continue to expand. The International Monetary Fund and the World Bank have forecasted that much of the world will face recessionary pressures that began in 2022 and will continue in 2023.
Faced with the prospect of a recession, In December 2022 the Ministry of Finance announced that Jamaica had negotiated two new facilities from the International Monetary Fund (IMF), totaling US$1.7 billion, that will allow the country to transition to greener energy projects and a buffer for increases in commodity prices that are likely to result from the Russia/Ukraine war.
Also, the country received a line of credit up to US$967 million under the Precautionary and Liquidity Line (PLL) facility to buffer the island from external shocks.
Over time, the loan and credit facility will give the Government options to refinance over US$1 billion in external debt maturing over two years. Refinancing would give the Government savings of up to US$40 million per year.
The deal will seek IMF executive board approval in February 2023.
On December 30, 2022, STATIN reported that Resurgence in tourism spurs economic growth in Jamaica. The resurgent tourism industry continues to largely spearhead the country’s gradual recovery from the COVID-19 pandemic economic fallout.
According to the Statistical Institute of Jamaica (STATIN), the ‘Hotels and Restaurants’ category fueled the third quarter of the 2022 calendar year growth of 5.9 percent, between July and September. The annualized growth rate in the April-June quarter was 4.9 percent
The STATIN communiqué indicated that this category grew by 35.3 per
The Goods Producing Industry also grew, recording a 5.6 percent outturn.
Growth in the hotels and restaurants segment largely resulted from increased activities in the hotels and other short-stay accommodation subcategories, which recorded a 49.2
percent rise in foreign national arrivals, supported by positive outturns for restaurants, bars, and canteens.
“Cruise passenger arrivals totaled 156,609 in July [and] August, relative to 3,496 in the corresponding period of 2021,” the director general further informed.
Dr. Henry said visitor expenditure was estimated to have increased by 49.5 percent to US$692.8 million for July and August, relative to the corresponding period in 2021.
The other services industry subsectors recording growth were: ‘Other Services’, up 13.1 percent; ‘Transport, Storage and Communication’, up 5.9 percent; ‘Wholesale and Retail Trade, Repairs, Installation of Machinery and Equipment’, up 5.3 percent; ‘Electricity and Water Supply’, up 3.9 percent; ‘Real Estate, Renting and Business Activities’, up 3.3 percent; ‘Finance and Insurance Services’, up one percent, and Producers of Government Services, up 0.1 percent.
STATIN pointed out, however, that ‘Agriculture, Forestry and Fishing’, and ‘Manufacturing’, with outturns of 17 and 9.5 percent respectively, were the only goods producing subsectors which grew during the September quarter.
Two sub-sectors – ‘Mining and Quarrying’, and ‘Construction’, contracted by 27.6 and 3.1 percent, respectively.
STATIN said Jamaica’s September quarter growth performance reflected the country’s continued economic recovery from the impact of the pandemic.

The Real Estate Sector

Inflation in 2022 is likely to be in the range of 8 – 9. Real estate speculators are likely to withdraw from the sector and invest elsewhere. There has been a significant reduction in the demand for US$ rental of luxury apartments and townhouses in the Corporate Area. Rental rates in this sub-sector are being reduced and many units have been vacant for more than six months. To further exacerbate the contraction in this subsector, units that were started in 2019-20 are now being completed to further glut the market. In contrast, the development of “luxury apartments/townhomes/villas” continue on the North Coast. To illustrate, a new project of over 300 units at Richmond, St Ann (PARADISIAC Beach Club) has shown good sales in phase one. Two years ago the Senior Deputy Governor of the Bank of Jamaica said, “There is a risk, and we do expect to see some slowdown but at this point we don’t think that it would drive the (housing/construction) sector into a recession. There is going to be some slowdown. When we look at the trends in mortgage credit up to June, mortgage credit is still growing pretty strongly.”
Mortgage loans grew by 15.0 percent in 2021 compared to 10.1 percent in 2020 during the pandemic. In 2019, a recession year, mortgage loans grew by 4.7 percent. For example, in September 2022, a major banking group reported a 25 percent increase in its mortgage portfolio compared to the 14 percent increase in 2021. Our analysis of housing affordability and forecasting would have been assisted if we knew the average size of each mortgage in 2021 compared to 2022. However, based on our experience in the market and the portfolio that we manage, prices have stabilized somewhat at the high-end of the market. Nevertheless, demand in the so called “affordable housing sector” – $15-25M continues unabated. The critical factors remain:

1. The ability of developers to build profitably and meet the expectations of buyers in that price range.
2. Availability and cost of suitable land in proximity to the job markets.
3. The ability of prospective buyers to qualify for mortgages as the lenders increase their offer rates in response to the increases in BOJ base lending rates. As a result of completion among the mortgage lenders, we have noted that mortgage rates being offered have increased by 2-3 percent compared to the six (6) percent.
4. The cost and location of common infrastructure – sewage disposal being a major concern.

As a result of the cost of land in urban areas, residential units in this price range are being developed in rural townships. We do not anticipate any change in this pattern during the next three to five years.
Construction and demand continue for the BPO and warehouse/distribution subsectors. There is also demand for small and medium size retail spaces.

January 9, 2023