Economic Condition

The Statistical Institute of Jamaica (STATIN) recently published its August 2021 Consumer Price Index report. The findings revealed that the Consumer Price Index for the period August 2021 increased by 0.9 percent, while the point-to-point (August 2020-July 2021) inflation rate was recorded at 6.1 percent. This annualized rate of inflation is higher than the Bank of Jamaica & Ministry of Finance targeted rate of 4-6 percent. In response, on September 30 the Bank of Jamaica utilized its role as manager of the Jamaica’s monetary policy and raised the “policy interest rate” from 1.5 percent to 2.5 percent. Several organizations and the opposition party has questioned the logic of this action. The core bases of the objections are:
1) The inflation is primarily an import based “cost-push” phenomenon that is derived from worldwide shortages and the resulting price increases of imported goods that comprise 52 percent of Jamaica’s economy (Gross Domestic Product).
2) This increase of the interest rate will trigger an increase in the costs of financial capital. These higher costs will be passed on to goods and services and further exacerbate the inflation.
During this week the local news media reported that a major international rating agency, Standard & Poor (S&P), had upgraded Jamaica’s economic outlook from negative to stable. S&P is predicting GDP growth of 3.7 per cent for calendar year 2021, largely due to the continued recovery in tourism, as evidenced by the data showing that during the June to August quarter, stopover tourists is at 70 percent of the comparable 2019 level. S&P also reported that the 10 percent contraction of the Jamaican economy in 2020 was below the fallout in several other Caribbean countries.
During September the Planning Institute of Jamaica (PIOJ) provided additional data about the ongoing recovery of the economy during the first quarter of the fiscal year (April to June):
1) Economic growth was 12.5 percent.
2) Taxes collected were $17 Billion above budget which includes $11 Billion from import duties. Import duties is a key barometer of economic activities because the economy is heavily dependent on imports.
Conversely, the Covid -19 induced lockdowns and attendant contraction of the economy in 2020-1 has led to an estimated 74,000 people withdrawing from the labour force due to layoffs, frustration, transfers to the informal sector and migration. The Small Business Association has also reported that a third of its members have closed their businesses.

Impact on the Real Estate Sector

Imports comprise an estimated 90 percent of the components of the construction sector. Nevertheless, during the economic contraction caused by COVID-19, the vibrancy of the sector continued but is skewed.
1) Rental rates continue to trend downwards especially at the US$ high-end of the market.
2) We have not yet seen the expected downturn in developments catering to the upper socio-economic groups and firms as groundbreaking continues for both residential and commercial projects of various sizes. There is also a resurgence of new construction and extensive refurbishing in downtown Kingston.
3) Demand outstrips supplies for residential units that cost less than $25M.
4) The demand in the BPO sector continues for “move-in ready” facilities. These are extremely scarce because developers are building “shells” – walls, roof, windows and elevators. We have seen some market resistance to this trend due to the cost of the infrastructure that is required without the commensurate reduction of rental rates which remain in the US$16-18 per sq ft.
5) Warehousing spaces for the distributive and retail trades will continue to be in demand.
6) The “work from home” option that has been widely implemented should have led to a short-term contraction in demand for office space. However, we have not seen any significant increase in vacancies of commercial properties. Given the investment in their infrastructure, firms may have decided to hold and renegotiate for lower financial terms of occupancy rather than give up space which will most likely be needed when the economy rebounds.
7) The selling prices of units have remained stable and in some sub-sectors, prices have increased.

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October 7, 2021