Real Estate Market Update 2nd Quarter 2022

Background Economic Conditions

The Jamaican economy continues to recover from the contraction that took place during the

Covid pandemic of 2020-21.

Inflation at the end of April was appx. 11.7 percent annualized. There are reports that the

annualized rate at May was reduced to 9%. Both rates are much higher than the 4-6% that was

targeted by the government’s planners.

STATIN reported the January –March 2022 results compared to 2021.

Tourism & entertainment sector plus 105.7%

Foreign visitors plus 200%

Mining & quarrying declined by 64.3%

Bank Rate Increases of Jamaica

BOJ base rate increased from 0.5% to 5.5% since July 2021.

From the perspective of the policy makers, another objective for the increase in the Bank of

Jamaica’s base rate is to reduce the incentive for “capital flight” and devaluation since the return

on savings and money market instruments are negative, when adjusted for inflation.

On May 30, 2022 the Minister of Finance supported the rate increases by the Bank of Jamaica:

The rate increases are beneficial to Jamaica in the long-term

Jamaica’s debt to GDP ratio was the lowest in 35 years.

There are fears, among the leaders of the private sector, that these higher rates will likely lead to

a contraction of long-term borrowing for capital projects, reduction in aggregate demand for

goods and services and eventually an economic recession.

Protecting the J$ against devaluation by selling foreign currencies from the BOJ reserves cannot

be sustained in the long run because the reserves will be depleted.

President of the World Bank has stated that inflation and the disruption of the supply chain due

to Covid in 2020-21 and now the Russia/Ukraine war may lead to a global recession.

International Monetary Fund has forecasted a growth of:

United States -3.7%

World – 3.2% (lowered resulting from the Russia /Ukraine war.

In Jamaica, two sectors have rebounded significantly during the past year – tourism and the

Business Process Outsourcing.

BPO Sector

54,000 employees

2M sq ft of space leased

300K sq ft of space in the pipeline to be completed in 2022.

Impact on the Real Estate Sector

Prime Minister announced that NHT has been mandated to accelerate the construction of

“affordable housing.” The concept of “affordable housing” may be an oxymoron given the high

and escalating cost of land and construction. A prudent supplementary solution is to revise the

lending regulations and payment structures.

Intergenerational mortgages – announced by the Prime Minister for the NHT

Rent to own- announced by the Prime Minister for the NHT

Graduated payment mortgages – implemented in the 1980s but was mismanaged and then

abandoned. Mismanaged because the GPM was not targeted to suitably stratified socio-economic

groups.

Based on conventional practice, the increase of the base lending rate by the Bank of Jamaica is

likely to adversely impact mortgage rates. Concomitantly, there will be a deleterious effect on

the residential subsector of the real estate market.

The Minister of Local Government (Desmond McKenzie) in the Sectoral Debate stated that over

4,542 building permits were issued for the fiscal year 2021-22 – refurbishing and new

construction. These permits had a total value of $171.5Billion.

Eighty– nine percent of the projects were for residential projects and eleven percent for

commercial ventures.

Since the start of 2022, we have observed a slowdown in new starts of “middle and high priced”

residential units.

Two-bedrooms residential units selling for $$15-25M continue to be in greatest demand. These

are scarce in Kingston and other urban areas due to the cost of land, construction and

infrastructure. The St Jago plain in St Catherine is the logical zone for expansion. But, conflicts

between developers and agricultural interests will likely recur.

With the post-Covid economic recovery that is underway, there continues to be good demand for

commercial spaces – Business Process Outsourcing, Warehouses and Offices outside of the

congested and high priced town centers. One exception is downtown Kingston where extensive

refurbishing of older buildings is underway in response to a demand for lower cost office spaces.

Firms in several sectors have realized that the “work from home” model, introduced during the

Covid epidemic, has positively impacted their administrative costs and benefited their staff. For

example, in New Kingston, office vacancies have increased and the demand for parking reduced.

Given the higher than projected rate of inflation, it is likely that commercial rents will be

stabilized to partially offset the higher cost of maintenance services.

The Jamaica Observer of May 27, 2022 reported on the short-term investment plans by

SAGICOR and SYGNUS in the commercial real estate in St Catherine. SAGICOR’S plans have

not been detailed. But Sygnus Real Estate Finance Limited plans to develop an industrial

complex on 55 acres in Lakes Pen. The estimated cost is in the region of US$9-10M.

‘July 7, 2022

Ian B. Hall