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Residential market down but not out

Published:Sunday | September 7, 2014 | 12:00 AM

Avia Collinder, Business Reporter

Industry sources say that the sharp decline in mortgage volume seen in the June quarter, as reported by the Planning Institute of Jamaica (PIOJ), is unlikely to persist.

But, they add that stagnant economic conditions may be curtailing debt-financed home purchases.

On August 19, PlOJ reported declines in the number of housing starts - down 46.6 per cent; housing completions - down 42.5 per cent; and mortgage volume - down 55.4 per cent.

The value of mortgages were also down 24 per cent, from $9.9 billion in June 2013 to $7.46 billion in the current period.

However, Earl Samuels, general manager for group finance and mortgage operations at Jamaica National Building Society (JNBS), said the society had detected no fall-off in mortgage demand, and was actually seeing an uptick in business. JN is the largest private mortgage lender, and the second largest when state-operated agencies are factored.

"Overall, we at Jamaica National have not seen any decrease in our mortgage pipeline, but we have not yet disaggregated this to determine the mix between mortgages for existing and recently completed units," said Samuels.

"With the introduction of our lower rates, we provided $7.5 billion in mortgages for the year ended March 2014, which was an improvement on the previous year. We have seen an increase in mortgage applications for the first half of this year; and we do not expect to do less business in the current financial year than we did last year," he said.

Felt across the board

James Stewart, director of the Economic Planning & Research Division at the PIOJ, said the downturn in June appears to be cyclical, given that the December quarter had a 50 per cent increase in housing starts and "there may be a lot of work continuing".

However, Stewart said the decline in the value of mortgages was felt across the board. At National Housing Trust (NHT), which dominates the market, mortgage values dropped 17 per cent, while at other providers - commercial banks, other banks, building societies and the Jamaica Mortgage Bank - values "on average fell more sharply".

Still, Stewart is suggesting that Jamaicans are taking larger mortgage loans, as the decline in value was around half that of the decline in volume.

For the June 2014 quarter, there were only 2,821 mortgages issued, compared to 6,330 for the similar period last year.

Edwin Wint, president of La Maison Property Management Limited, said there has been a slowdown of construction of large developments ranging from 300 to 800 units.

"They have plateaued, [but] will pick up again," he said optimistically.

"It's just cyclical - I am not alarmed - I have not heard of any massive slowdown in sales by low-income developers," Wint said.

Realtors hit hard

Head of the Realtors Association of Jamaica (RAJ), Carlene Sinclair, and a broker with Property Solutions Limited, said realtors have noticed a slowing of the market.

"Our members have been complaining. We are still showing, getting enquiries, but in terms of getting people to commit, that has slowed down," said Sinclair.

The sliding exchange rate is a contributory factor - construction is more expensive - but the RAJ president also cites a build-up of inventory.

"The inventory is getting larger. People looking for one and two bedroom apartments also have a lot more choices. The slowness in committing may be due to this - there are so many things to look at," she said.

Sinclair noted that while home values have gone up, this does not "necessarily mean selling prices are aligned. Demand is not growing", she said, so owners who are very motivated to sell may do so at below replacement cost.

Samuels of JN said that there is a significant amount of construction in progress now, some of which would have started before this year.

"If the Planning Institute is reporting a downturn in housing construction, it is most likely taking place at the more affordable lower and lower-middle income level of the market, where most housing starts occur," he observed.

NHT did not respond to requests for comment for this story. The state agency is the primary provider of affordable housing. Between 2008 and 2013, it contributed 58 per cent of housing completions and a similar percentage of the total value of mortgages disbursed in the residential construction and housing finance sectors.