KINGSTON, Jamaica – The correction underway in the real estate market is affecting mainly the more expensive residential properties, says Jamaica National Building Society (JNBS) Mortgage and Operations Executive Wanica Purkiss.
There has been a falloff in demand for residential properties costing over $20 million, said Mrs. Purkiss. This decline became particularly noticeable over the past six months.
“The year before last was really an anomaly,” she stated. The JNBS mortgage operations had a 50 percent surge in disbursal of funds in to 2007-8 financial year, with disbursals slowing substantially, afterwards.
Extra cash in the market helped drive up prices and the subsequent slowdown in financing has in turn, put prices under pressure. This slowdown is having different impacts at different levels in the market.
Wanica Purkiss
“There is still a strong demand for properties in the $5-15 million range,” Mrs. Purkiss said. “The difficulty for realtors, is marketing those over $20 million.”
Much of the housing being made available at the relatively more affordable price levels consists of apartments and housing schemes, she stated. It is transactions in more expensive stand-alone houses which has been hardest hit.
A whole range of factors affect the price at which a property will be sold, she stated. But essentially, the price is based on the interplay of demand and supply.
Supply factors affecting the price include the availability of properties, tax changes, administrative changes affecting marketability of land and transportation system changes. The major supply factor to effect major change in recent years was Highway 2000, which transformed the real estate market in central Jamaica.
Highway 2000 has been responsible for an increase in the supply of properties at the tight lower end of the market, but has had little impact on the oversupply at the upper end, she said.
Demand, on the other hand, is determined by interest rates, wage rates, liquidity in the financial system and the pricing of other investments. Change on the demand side has been the most dynamic aspect of the Jamaican market.
Treasury bill rates increased from 12.5 percent in January last year to 21.29 by December. The rate increase was accompanied by measures to ‘mop up’ liquidity in the system as the financial authorities sought to contain the local impact of the global financial sector fallout late last year.
The money market measures triggered an increase in mortgage institution lending rates, with JNBS, the island’s biggest building society, raising minimum rates from 12.99 per cent to 14 per cent. The main public sector lender, the National Housing Trust, scaled up its rates from a 4 per cent base, with some mortgagors paying up to one third more than before, early last year.
Wage rate expansion has been compressed for some time by external pressures on the economy. Effectively, wage rates have been falling, when inflation is considered, making real estate less affordable.
This is compounded by the fallout last year in local alternative investment schemes. The Caribbean Policy Research Institute estimates that tens of thousands of Jamaicans, most of them professionals, put more than $100 billion in these flawed investments.
A heavy inflow of foreign investment had earlier triggered an increased demand in the upper-end rental market by project-linked expatriates. That buoyancy ended with the global financial sector fallout late last year.
“Many developments are simply unaffordable at their current price points,” Mrs. Purkiss said. “This is masked by the fact that few transactions are taking place.”
Some decline in prices is expected at the upper end of the price range before there will be a recovery, she stated. “We may be entering a new phase in the market.”
