Purchasing Property in Jamaica – COVID Considerations
August 24, 2020
The anxieties brought on by the COVID pandemic has not spared those of us living in Jamaica. Like elsewhere there are concerns about general wellbeing and economic livelihood. Unlike other periods of uncertainty and economic contraction the most recent being 2008, the real estate market has had an inverse response to this crisis. Like the US real estate market, housing demand continues to be robust and this trend is likely to continue in the foreseeable future, at least unless there is a severe contraction in the economy that would impair the banking sector and its ability to grant new credit.
Although certainly not out of the woods, the Jamaican economy has become more resilient in the last few years with significantly improved foreign reserves, reduced debt to gross domestic product (GDP) and interest rates that have almost been halved to single digits hovering in most cases at around 7.0% per annum.
With a partial lock down in March 2020, real estate activity slowed, however, many real estate developers recognized the need to remain operational and those projects already out of the ground moved to completion. Many Jamaicans living overseas dealing with the pandemic in their host countries, also saw Jamaica with its relatively low infection numbers as a potential safe haven and this too reinvigorated the market. By June many real estate agents reported that sales activity not only resumed to pre-COVID levels but in many cases buoyed by increased local and overseas demand saw multiple offers on properties with bids exceeding initial list prices.
Having said this, would the advice to potential buyers vary in the COVID environment ? Not to any great extent, except to say that the longer the crisis continues and our economic recovery becomes protracted there will be an inevitable fall off in market demand, particularly in the multi-story segment which continues to push steady inventory into the market. Where developers are financially able to withstand any reduction in demand, many may hold prices in anticipation of a recovery and the experience so far, is that our current slate of developers are less leveraged than in the past, as financial institutions have strengthened their underwriting criteria and pre-sales requirements. So while prices may not plummet they are very likely to remain fixed in US dollar terms, bearing in mind that as our currency steadily depreciates from reduced tourism inflows the cost of new construction will go up, and so this counterbalance may not result in prices falling precipitously.
What does all of this mean. Real estate remains at the top of the list of wealth accumulators. Where prices fall there has generally been a rebound through economic cycles. The Income generated from real estate for those purchasing as an investment will offset any temporary fall in the market price of the asset. For new home purchasers the consolation is that if prices fall a recovery is likely in the medium to long term as the cost of construction given the imported inputs and the rising value of the USD versus the Jamaican Dollar will also be rising.
The take away therefore for those buying in this market remains as it always has been. While there may be residual uncertainty, time has shown that real estate acquisition ranks paramount as an asset class. Location is the number one determinant that will assure future value. Do your due diligence. If purchasing off plan or new construction, the reputation and track record of the housing developer will also be a determinant of the rate of property appreciation. Do your homework in this regard and be guided by an experienced real estate agent who has his or her ear close to the ground and has a grasp on the market and how it may be evolving. As a Purchaser it does not cost you to retain a realtor as the seller pays the sales commission. Too often persons make the mistake of thinking they will save money by forgoing the assistance of a professional. This is a risky proposition especially for such a significant spend with so much at stake. Of course, retain an Attorney-at-Law with the requisite experience that can protect your interest and effectively and expeditiously manage the closing process.