NO HOUSING BUBBLE
Even with the continued speculation that there is a bubble in the Jamaican real estate and construction sectors, several prominent practitioners who are involved in the space have denied these comments as they reiterate the growth in cost per square foot and demand for construction materials.
With National Housing Trust (NHT) loan limit at $6.5 million and borrowing capacity constrained to the income of a working person’s salary, many ordinary working persons lamented the inability to afford a home of their own in the more costly, upscale segments of Kingston.
However, this has not been the case for spaces outside of Kingston and St Andrew with thousands of housing developments being built in St Catherine and adjoining parishes. Phoenix Estates and the Bernard Lodge Development are expected to have 5,000 and 16,000 units, respectively, when built up.
“What is critical is that we design and build in such a way that it’s affordable and within budget. I’ve been in this business for more than 20 years and this is the most construction units I’ve ever seen. There is a desire and willingness to pay for these properties. If we continue to look at where the greatest need is and try to fulfil that need, we will always be building because people want to move up. Jamaicans love to show upward mobility in our achievements, beliefs and way of life,” stated founder and CEO of Garco Construction Services Limited Rohan Grant in an interview with the Business Observer.
Garco has been working on several real estate projects across the country with the firm getting explosive demand in St Andrew, St Ann and St Catherine. Garco is listed as the official contractor for Hambani Estates on Bamboo Avenue and Ocean’s Edge Country Club in Discovery Bay, St Ann. Garco has also been involved in a new development called Real Equity on 218 Mountain View Avenue and other expansion projects for some of Jamaica’s largest financial institutions.
“For every conversation you have about construction, there are people who will say that there’s an oversupply. If you’re in your mid 20s, you’d be looking at a quad in Portmore with your upwards movement in an organisation seeing you go to Caribbean Estates or to Kingston. The gap that is being left at the entry level needs to be filled. When you move to Kingston around 40 in senior management, you either want to live in Kingston 6 or 8 as you matriculate to a more upscale
type of living. At no time, you won’t have that bottleneck as there will always be a need for new housing solutions,” stated Grant on the nature of the construction and real estate market for working persons in the country.
Housing demand has exploded over the last few years due to a myriad of events which have been attributed to the improving economy and confidence by investors in the country.
Finance Minister Dr Nigel Clarke reduced the transfer tax from a rate of five to two per cent in addition to making the transfer tax rate a flat rate ranging from $100 to $5,000 in his 2019 budget presentation. Previously, the transfer tax was four per cent of the purchase price of a property. This reduced the barrier for many persons to afford the cost of a housing transaction and should spur renewed interest by many persons to take advantage of the low interest rates by the banks to finance their home ownership dream.
Audrey Tugwell Henry, the president and CEO of Scotia Group Jamaica, outlined that banks are not fuelling a real estate bubble. “What we’re doing as banks is providing financial solutions for customers interest in real estate through their desire to own a home, a second home or use real estate as a vehicle of investment. Even though there are these higher end price point properties, the large majority of properties are in the mid-range. At Scotiabank, we’re putting our risk management expertise at the forefront of the growth opportunity, ” she added.
“The mortgages that we’re seeing are running somewhere between $20 - $30 million. That is where the mass and bulk of the mortgages are being booked. Certainly, for the mortgages that we’re putting on our books, we also have input from our customers on their equity input and the mortgages are properly priced. Each transaction goes through risk assessment to determine the suitability of the customer to undertake the mortgage loan at that point in their life cycle,” noted the Scotia Group Jamaica CEO.
Mortgage rates by commercial banks have declined from a high of 25.20 per cent in January 2000, mid-low of 18.29 per cent in November 2010 to a historic low of 7.22 per cent in May 2021, according to data from the Bank of Jamaica (BOJ). The BOJ recently released a 2020 Financial Stability report where it noted that there exists no bubble in the space even amid increased credit exposure in the pandemic. Construction loans somewhat slowed in 2020 for many of the large commercial banks with JMMB Bank and First Global Bank being the notable outliers as its loan book for the segment growing by double digits. First Caribbean International Bank’s mortgage book expanded by 14 per cent in its 2020 financial year to $12.31 billion. Construction loans for National Commercial Bank and Scotiabank declined to $11.94 billion and $4.68 billion, respectively.
Publicly listed companies in the real estate and construction space have been steadily improving results during the pandemic. This has been driven by increased land valuations and improvements in rental income. Real estate entities, Kingston Properties Limited and Sygnus Real Estate Finance will be tapping the equity market shortly for more than an expected $2 billion each. Local cement producer Carib Cement Company Limited (CCC) produced a record 940,005 tonnes of cement and sold 975,008 tonnes on the local and export markets in 2020. CCC’S first quarter sales rose by 31 per cent to $5.97 billion with the month of March seeing it hit a record monthly production of more than 100,000 tonnes of cement. Even construction-related companies such as Lumber Depot Limited and Berger Paints Limited are seeing an uptick in sales. Proven Investments Limited’s Via at Braemar project is more than 90 per cent sold out while Panjam Investments Limited expects the uptake for its Rok Hotel development in downtown to be substantial.