The Caribbean island of Jamaica is a beautiful location, but it has a range of issues preventing it from becoming a top international real estate market. Are these problems too much to make Jamaican real estate a viable investment? See the following report by Global Property Guide to learn more.
Jamaica’s housing market has been weak for the last two years due to weak economic growth and high inflation, not helped by a high crime rate. In early-2009, property prices and sales volumes dropped further, as foreign demand weakened.
The luxury property market, i.e., houses valued from JM$30 million (US$340,000) and above, has seen little activity from 2008 to early-2009. Houses that used to sell in just two months have been sitting on the market for almost a year now, local real estate agents complain.
Real estate developers, especially those in the high-end market, have been forced to stall projects because of weak demand, expensive raw materials and high domestic interest rates.
In prime areas like Negril and Montego Bay, villas and houses sell for at least JM$89 million (US$1 million). On the other hand, in the less developed areas like Treasure Beach, oceanview houses are priced at around JM$62.3 million (US$700,000).
During the 20-year period from 1998 to 2008, property prices in Jamaica rose by a modest 43%, according to figures from Jamaica-real-estate.net. In the north coast, where all the major developments are located, prices have risen by more than 100% over the same period. However, with an average inflation rate of 10.3% from 1998 to 2008, nominal property price increases have not been enough to keep pace with inflation.
Security concerns are at the heart of the problem. Jamaica has one of the highest murder rates in the world, according to UN reports. Gang violence and shootings occur regularly in Kingston, the capital, and nearby St. Andrew and certain areas of Montego Bay.
Crime and violence
Jamaica’s high level of crime and violence means many foreigners buy in gated communities, which are among the highest-priced properties.
In 2009, property crimes in Jamaica rose sharply. In the first quarter of 2009, larceny cases increased by 145%, break-ins by 105% and robberies by 28% from the same period last year, according to Police Commissioner Hardley Lewin.
Tourists often become the victim of theft and robbery. Because of this, most visitors seldom leave the resort’s compound. Tourist visits to “attractions” in Jamaica are guided by the resorts and these selected areas are tightly controlled by the police.
"If we could get control of crime, Jamaica would have the most expensive real estate in the Caribbean," says realtor Andrew Issa.
Expensive north coast
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The north coast has the most expensive residential properties in Jamaica. Montego Bay, Discovery Bay, Negril and Portland are among the prime locations that have seen numerous developments in recent years.
- Palmyra Resort and Spa –a development located in Rose Hall, Montego Bay, which offers 26 villas and 5 condo buildings. Prices range from JM$44.5 million (US$500,000) for studio units, to JM$311.5 million (US$3.5 million) for villas.
- The Colony – offers 18 new plantation houses at Half Moon, Montego Bay. Pre-construction house prices start from JM$204.7 million (US$2.3 million). About three-quarters have been reserved. Construction is expected to finish in 2010.
- Goldeneye Resort – an 18-acre seaside community in Oracabessa. Prices range from JM$66.8 million (US$750,000) for one-bedroom ‘Bond’ suites, to JM$284.8 million (US$3.2 million) four-bedroom lagoon villas.
- Richmond Development – a 500-acre resort residential community in St. Anne, on the northern coast. Two-bedroom apartments cost JM$14.7 million (US$165,000); three-bedroom apartments are priced at JM$17.4 million (US$195,000); and four-bedroom townhouses at JM$32 million (US$360,000).
- Highlands – a gated subdivision in Montego Bay. The development offers 100 lots for about JM$31.2 million (US$350,000) per lot.
Prolonged economic recession
Jamaica’s economy is fundamentally weak—a result of a series of troubles that hit the country in the past decades. Jamaica suffers from serious debt problems (with debt-to-GDP ratio at 135%), high inflation, excessive depreciation of the Jamaican dollar, high unemployment rates and very low economic growth. From 2000 to 2007, the average GDP growth rate was 1.7% per year.
The global economic meltdown has aggravated the country’s already bad situation. Together with the Bahamas, Jamaica was the only Caribbean country to fall into recession in 2008, with GDP shrinking by 1.2%. Construction declined sharply in 2008, reflecting the continued weakness in the residential housing sector. In Q4 2008, the construction sector registered its third consecutive quarterly drop of 13.1%, after a 7.7% decline in Q3 2008 and 2.2% drop in Q2 2008.
The negative impact of the global crisis on Jamaica’s domestic economy continues to unfold in 2009. In the first quarter, remittances fell by 12.1%, to JM$31.8 billion (US$357.8 million) from a year ago. Construction declined again by 7% over the same period. In the bauxite/alumina industry, some of the major local bauxite plants have been permanently or temporarily closed.
In the first quarter of 2009, real GDP fell by 2.8% from a year earlier, according to the Planning Institute of Jamaica (PIOJ).
"Mining and quarrying and construction are expected to decline significantly. The sectors projected to record growth are agriculture, forestry and fishing. For the fiscal year 2009/2010 the forecast is for domestic output to contract by 3% to 4%,” said Derick Latibeaudiere, Governor of the Bank of Jamaica.
Inflation rate skyrocketed to 22% in 2008 from 9.3% in 2007, as a result of price increases of international commodity products, especially food and fuel. In 2009, inflation is expected to drop to 9%.
The central bank, Bank of Jamaica (BOJ), began to cut key interest rates at the end of 2006, as the foreign exchange market stabilized and inflation dropped. Interest rates for 30-day CDs were in the range 11.5%-14% between Q4 2006 and Q2 2008.
At the end of 2008, the BOJ started to hike interest rates in an attempt to curtail the free fall of the Jamaican dollar relative to the US dollar. From January to May 2009, interest rates for 30-day CDs hovered around 18% to 25%.
The Jamaican dollar (JMD) had of course sharply depreciated over the past two decades, despite government intervention. The exchange rate was around JM$89 per US dollar in May 2009, down from over JM$7 per US dollar in 1990.
However, the high interest rate policy is just a short-run solution to the slipping Jamaican dollar, according to Prime Minister Bruce Golding. "As soon as we are able to stabilize the exchange rate, we will do everything possible to encourage a reduction in interest rates,” said Golding.
Small mortgage market
The Jamaican mortgage market is very small. From 2.3% of GDP in 1999, the mortgage market grew to just 4.3% of GDP in 2007. This sluggish growth is because of two main reasons:
- The real estate market in Jamaica is dependent on wealthy foreign and expat homebuyers, who usually pay in cash and in foreign currency.
- Mortgages interest rates are relatively high and uncertain in Jamaica, driving foreigners to obtain financing in their home countries.
The maximum loan-to-value (LTV) ratio for foreigners is about 70% of the appraised value of the property, with a term period of 20 years.
Total mortgage loans were about JM$33 billion (US$370.8 million) in 2007, 29.4% up from a year earlier. Building societies dominate the mortgage market with about 58.4% market share. The two government-owned companies, National Housing Trust and National Housing Development Corporation, account for 34.6% and 5.8% of the market, respectively. Credit unions and insurance companies hold the remaining 1.2% of the total mortgage loans.
The total number of outstanding mortgage loans was 12,284 in 2007, 16% up from a year earlier. However in the first three quarters of 2008, mortgages loans fell by 8.2% to 8,553 from the same period last year.
Stable rental market
The Jamaican rental market was stable in 2008. Because of very limited supply, locals and expats need to compete for the few rental properties available in the market.
In 2008, the rent for four-bedroom houses rose by 6% to JM$198,377 (US$2,230) from a year earlier. The average rent for one-bedroom apartment climbed by 43% to JM$115,835 (US$1,300) in 2008 from JM$81,012 (US$910) in 2007.
However, demand for high-end rental properties slowed in early-2009.
Luxury houses that rent from JM$356,000 (US$4,000) to JM$1 million (US$12,000) per month have been sitting empty on the market. Demand for properties which rent for less than (JM$178,000) US$2,000 per month has remained strong, due to inadequate supply, and increased urban migration.
In December 2008, two to three-bedroom apartments in Kingston and St. Andrew had gross rental returns of around 10.14%, according to a recent Global Property Guide research. Houses in the same location had lower average yields, of around 8.15% to 8.49%.
This article was reposted from Global Property Guide, international real estate website.