JAMAICA'S BOOMING REAL ESTATE MARKET

UNCLAS KINGSTON 000279

SIPDIS

SENSITIVE
SIPDIS

STATE FOR WHA/CAR (JTILGHMAN)
WHA/EPSC (VDEPIRRO)
TREASURY FOR SARA GRAY

E.O. 12958: N/A
TAGS: ECON ECPS ETRD SENV EINV JM XL
SUBJECT: JAMAICA'S BOOMING REAL ESTATE MARKET

REF: KINGSTON 098, KINGSTON 05

SUMMARY
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1. (SBU) Jamaica is undergoing a historic real estate boom, with
five straight years of price increases in real terms. Prices in the
residential sector jumped by more than 20 percent in the last year,
and show no immediate signs of abating. Resort properties, which
have become the most dynamic segment of the market, have seen prices
double in the last year as Jamaica reclaims its status as a
playground for the rich and famous. Although prices continue to
climb, they still remain some of the lowest in the Caribbean,
suggesting there is still room for additional upward movement.
Despite soaring prices, demand continues to be vibrant because of
limited supply, particularly in middle income residential
developments. Surprisingly, this robust growth has occurred against
the background of bureaucratic red tape, increasing crime, high
inflation and rising interest rates. Increasing infrastructure
investment, the possibility of casinos coming to the island, and
large scale investments in luxury housing developments by private
equity funds could continue to fuel a strong sector in the coming
years. End summary.

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Jamaica's Sellers' Market
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2. (SBU) Jamaica's real estate market is experiencing a momentum not
seen since independence, with significant price increases in real
terms for the last five years. Prices in the residential sector have
risen by over 20 percent in 2007 with no indication of slowing.
Real estate activity in the resort and luxury home sectors has been
even more robust as prices of some units have doubled over the same
period. Jamaica's demand driven 'sellers market' has spilled over
into 2008, with demand for properties remaining strong and re-sales
attracting multiple offers. Each of the 28 unit complex of 5,000
square foot homes in an upscale area of Kinston is pre-selling for
USD 950,000. The builder expects prices to reach USD 1.2 million by
the time the complex is completed in October 2009. Even more
impressive is the fact that most new developments are being pre-sold
well before construction begins. According to Andrew Issa, a broker
with U.S. Realtor franchise Coldwell Banker, many high end
residential properties are fetching up to USD 1 million, while land
being sought by developers is averaging more than USD 1 million per
acre in Kingston.

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What is Driving Prices?
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3. (SBU) The local real estate market is buoyed by ever rising
demand amidst low inventory and insufficient housing starts.
Compounding this problem is the fact that land suitable for
development in Kingston is limited. Those who own undeveloped land
are reluctant to let it go since replacement land is difficult to
find. Issa said the biggest challenge he faces as a realtor is the
unavailability of inventory for his clients. The market is
benefiting from increased access to credit from financial
institutions, with the quasi-government National Housing Trust (NHT)
raising its loan limit for joint applicants (any relationship, but
usually married couples or family members) to USD 100,000, while
reducing loan rates to as low as 2 percent depending on in an
applicants income levels. Demand, and by extension prices, also
have been buoyed by declining front end cost, as applicants can put
less down and secure a mortgage for up to 95 percent of the purchase
price. Although prices are soaring for resort properties, they
remain up to 30 percent below similar properties in the rest of the
Caribbean, suggesting that crime is making resort properties in
Jamaica a bargain.

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What Does This Mean?
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4. (SBU) Rising prices have had the effect of skewing residential
construction toward units for the upper income brackets. House
prices in Kingston are starting to exceed the reach of the average
Jamaican; some developers have been forced to look outside the
Kingston Metropolitan Area (KMA) for land to satisfy demand from
middle and low income earners. Issa said these segments of the
market are so under serviced that when developers do provide units
for this market they do not even need realtors to sell. To satisfy
this market over nine developments have been completed in nearby St.
Catherine in the last ten years. This build out has been
facilitated by the construction of two major highways, which make
these developments attractive to prospective buyers who now find it
easy to commute to and from the KMA. The major drawback is that it
magnifies the already chronic traffic congestion in the KMA. The
NHT also has increased its activity in this segment of the market by
purchasing lots and subdividing and constructing modest starter
homes. The GOJ also has been entering into joint venture
partnership with private sector developers to provide housing units
in the USD 55,000 to USD 110,000 price range.

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Demand In Middle and High End Sectors
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5. (SBU) Although demand for properties has grown in all segments of
the market, most demand is concentrated in the middle segment of the
market in a price range from USD 110,000 to USD 350,000. The
average selling price for residential properties rose from USD
85,000 in 2006 to USD 170,000 in 2007. In a meeting with Emboffs,
Reynold Scott, whose company GEON builds homes for the high end
market, said that "the cost of land to house the middle of the
market is just too expensive in the KMA." Scott added that the NHT
only provides a maximum of USD 100,000 for joint applicants. This
is not enough funding to purchase a home which leaves a majority of
professionals to rent or purchase small apartments in the KMA which
are not large enough for a family. Scott added that demand for high
end residential properties remains strong, driven by business
executives, business owners, and retirees. Scott said most of his
clients demand gated communities to insulate themselves from high
crime, while some buy for rental income, which can reach up to ten
percent returns in USD plus capital gains.

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Commercial Real Estate
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6. (SBU) While residential real estate is experiencing a boom,
commercial real estate construction remains slow, as rents for this
sector have not recovered from the financial sector crisis of the
1990s. However, some new projects are starting to emerge. Life of
Jamaica (LOJ),a major insurance company which suffered from
overexposure to commercial real estate in the 1990s, is starting to
reinvest. The LOJ recently completed a large business complex,
consisting of small offices, which sold out. Cecile Diston of LOJ
told emboffs that this is a clear indication that demand exists for
the purchase of small offices space. Another of Jamaica's large
commercial real estate developers, PANJAM, also has confirmed
reports it is seeking land in Kingston to construct a four star
hotel to cater to business travelers. CEO Stephen Facey said the
company also is looking at other real estate ventures, but is being
hampered by rising land prices. "Real estate prices have
skyrocketed on speculation" added Facey.

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Challenges Still Remain
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7. (SBU) Despite growth in the real estate sector, many challenges
still remain. The cost of transferring property is between 12 and
14 percent, composed of transfer taxes and lawyers fees. Slow
attorneys and bureaucratic red tape make the transfer of property
tedious, taking up to six months to a year to complete. Approval
for large commercial projects can require the approval of as many as
28 government offices which can take from six months to as long as
five years. A vast amount of land is unusable due to the lack of
clear title or proximity to high crime areas. Issa and Diston are
also nervous about the possible collapse of some of the burgeoning
alternative investment schemes (reftels). Both believe the schemes
are the single biggest threat to the market, as any fall out could
lead to voluntary and involuntary liquidations increasing the supply
side and shaking investor confidence. Scott, a Harvard trained MBA,
told emboffs that the absence of structured data on the sector was
one of the biggest problems impacting his ability to plan. He has
had to resort to indicators such as cement and electricity usage and
mortgage growth in an attempt to predict demand.

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But Rich and Famous Return
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8. (SBU) But even as the challenges mount, Jamaica has continued to
re-emerge as a strong player in the high end real estate market, a
position it had held years ago. Recognizing the growing importance
of this market, billionaire investors led by Michael Lee Chin (AIC
Limited and National Commercial Bank of Jamaica),Chris Blackwell
(Island Records) and Joe Lewis (Tavistock) are all in the process of
investing huge sums in high end properties such as Trident, Golden
Eye, and Harmony Cove, respectively. The Harmony Cover project
covers 2,000 acres and will consist of USD 1 to 3 million villas
surrounded by a yacht club, high end golf courses, and retail
complexes. American investor Michelle Rollins is marketing Palmyra,
luxury beach front condos, and a hotel at Rose Hall. The entire
north coast and in particular Montego Bay and its environs, where
most resort developments are taking place, have exploded with a
development momentum never seen before in Jamaica. Construction of
more than 7,000 new hotel rooms is underway on the north coast. As
an indication of the upswing, land in the area is fetching up to USD
600,000 per acre. The villa market also is making a strong
comeback, with the north coast now dubbed the 'billionaire strip'.
This recent explosion has been largely underpinned by soaring demand
for second and third homes for high net worth individuals. Vacation
and investment properties are springing up to take advantage of
Jamaica's strong brand appeal underlined by its reggae music,
natural beauty, excellent beaches, and hospitable people.



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Comment
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9. (SBU) Strong demand amid low inventory could continue for the
foreseeable future, allowing sellers to continue exerting influence
over prices. The expansion of the Montego Bay airport also should
continue to make the north coast attractive to prospective buyers.
Demand could be further buoyed if the GOJ keeps its promises to
improve the infrastructure and focus government spending on
pro-business initiatives. The unspoiled eastern end of the island
also remains a great investment opportunity. To increase the number
of foreign buyers, the GOJ needs to reduce property transfer taxes,
improve clarity of title, and consolidate the development approval
process. Given the rapid pace of construction the GOJ also will
need to address rising environmental concerns with inadequate waster
and sewer infrastructure. Jamaica's risk adverse mortgage market
coupled with a general lack of housing supply has reduced the
likelihood of loans going to those who lack the capacity to pay if
prices should decline in the near term. Thus, a housing bubble as
seen the U.S. housing sector with sub prime lending is not as likely
in Jamaica. The moribund commercial real estate market also could
see renewed growth if the GOJ makes good on its promise to redevelop
the long abandoned but attractive waterfront in downtown Kingston.
Indications are that this could become a reality, as the GOJ has put
a stop order on the movement of government agencies located in the
area, while convincing some foreign missions without permanent homes
to relocate to the area. Against this background, it is hard to
argue with realtors who suggest that the time to buy is now, despite
record prices. END COMMENT.
JOHNSON