Real Estate Market Update 4th Quarter 2023

Background Economic Conditions

A review of the Bank of Jamaica Policy Report for November 2023 highlighted the following:
The inflation target of 4-6 percent was established by the Minister of Finance and the Public Service in consultation with Bank of Jamaica in April 2021.

The Bank uses a variety of tools to achieve its inflation target, the main one being the interest rate on overnight balances in the current accounts of deposit‐taking institutions at Bank of Jamaica (BOJ).

At the end of September 2023, the level of Jamaica’s gross international reserves was US$4.8 billion. Bank of Jamaica “policy interest rate” remained at 7.0% This relatively
high rate was implemented to tighten Jamaican dollar liquidity (curtail demand) and assist in stabilizing the foreign exchange market.

The BOJ’s report that at the end of November 2023 the rate of inflation was 6.3 percent, marginally outside the target of 4-6 percent.

The foreign exchange rate was relatively stable during the year. For the September 2023 quarter, the Jamaican dollar depreciated by 1.7 per cent relative to September
2022.

STATIN Labour Force @ July 2023
Labour force – 1.377M
Employed – 1.315M
Outside of labour force – 721K
Unemployment rate 4.6%
Job seeking rate 3.1%

On January 5, 2024 there was an article in the Jamaica Observer newspaper which states that the market capitalization rate of companies that were listed on the Stock
Exchange declined by $88.9 billion during 2023.

“Real estate has been a main staple for investors with larger pools of capital who can afford those bigger outlays… and people have continued to make investments in real
estate last year, both directly and indirectly, through funds.”

Pension funds are accumulating a lot of cash and other investment vehicles that have structural cash inflows, like insurance companies which get premiums every month,
pension funds that get payments every month. These large institutional pools of capital are swelling with cash but have very limited investment options.

The Real Estate Sector

The BOJ report that was referenced above states that the construction sector declined 7.1 percent during the September quarter.

Anecdotes are banded about that in 2023 Jamaica lost the potential for an additional 8,000 employees in the Business Processing Outsourcing (BPO) sector because of a
shortage of “employable” workers. We may speculate that there are factors for the large number of persons who are outside the labour force, three of these are:

1. Relatively low salaries compared to expectations. There are stories that in several sectors, the cost of transportation and lunch exceed the daily income.
2. Persons are unqualified academically and/or lack certification.
3. Socialization – indiscipline and low desire to work.

During the past ten years the astonishing growth of the BPO was a significant factor in the growth of commercial office space throughout Jamaica. Fueled by the reported
shortage of “qualified” workers, there are indications of a stabilization of the sector. Consequently, we have seen commercial buildings that were being constructed to target
the BPO sector now advertising for buyers and/or tenants.

Given the high levels of liquidity held by institutional investors and a cadre of individuals, decisions may be made to buy and hold real estate, without tenants, rather than maintain their growing stock of cash. This trend started in 2022 and appears to have accelerated and is evidenced by the high levels of vacancies and declining rental rates in many “luxury” complexes.

As routinely projected and reported, demand continues to be vibrant for distribution and retail facilities. And as expected, demand continues to exceed supply for residential units priced below $30M.

IBH/WIHCON Properties Limited ‘January 9, 2024