Real estate trending towards a 'buyers market' - Transactions down an estimated 30-40%
Published: Friday | July 24, 2009
Nine months ago, the owners of real estate could name their price for rentals or sale, but now realtors say a weak economy has dampened demand, properties are staying on the market longer and buyers can, in some locations, cherry pick for bargains.
It is now, said Deborah Cumming, a buyer's market.
"We started to see the market slowing down from about October/November of last year where it was just taking longer for things to sell," said Cumming, managing director of Century 21 Heave-Ho-Properties.
"Before, something went on the market and it will sell immediately. Now you have developments complete and they still have units in there for sale; so that's a sign of the change in the marketplace."
Listed properties take, on average, one to four months to sell, but now its two to six months.
"What we have found is that anything that we have rented or sold this year has been at about 20 per cent below the asking price," noted Cumming.
The adjustments follow a downturn in the economy that has seen companies scaling back, thousands of jobs cut, and a five per cent contraction in the construction sector in 2008.
Due for a correction
But even before the recession hit, Stocks and Securities Limited, a Jamaican stockbrokerage and investment firm, asserted that residential real estate prices were overvalued and due for a correction.
The analysis at the time was grounded on the argument that the average income of a working Jamaican could not support the price at which residential real estate was selling.
Since then, the National Housing Trust (NHT), which puts some of the cheapest houses on the market, disclosed that 80 per cent of its contributors could not afford its two to eight per cent mortgages.
Realtors at the time contended that it was very much a seller's market with prices being dictated by vendors. But now Cumming said, buyers are successfully beating down prices.
"To sell in this kind of market you have to be aggressive with your pricing because anybody that is buying right now they are looking for a deal," she said.
Experts across the sector estimate that real estate revenues are down by 30 per cent to 40 per cent, according to different estimates. The larger correction is at the high end of the market according to Edwin Wint, president of the Realtors Association of Jamaica.
Wint argues that real estate is now more of a "balanced market" but has been trending towards a buyer's market in some segments since this year.
"For a new-build residential properties with asking price over $50 million, we are now more or less in a buyer's market," said Wint, who is also chairman and chief executive officer of La Maison Property Services Limited.
"Some high-end real estate are experiencing a price correction in the market as buyers are more discerning, and negotiating for better price points."
Mendell Thompson, sales manager at Victoria Mutual Property Services Limited, also contends that there are still some locations - example the Mona, Hope Pastures belt - where sellers still rule.
"If say, there is property in Kingston 6, that is still a seller's market. They can determine price, while for places in say Kingston 8 it is more of a buyer's market," said Thompson.
Real-estate transactions were last estimated back in 2007 at more than $50 billion.
"I would say transactions are probably down by at least 30 to 40 per cent, and I am saying that based on what we are seeing reflecting in our own business which is similar to all other real estate companies right now," said Cumming.
"The market still has a long way to go before it comes back up, we are looking at a three to five years before a turn-around."
Demand remains high, however, for residential properties under $10 million and for commercial property in the $30 million to $40 million range.
Take up on the mid-range, $15 million to $20 million, properties is much slower, said Thompson.
Driving the low end is the mortgage terms offered by NHT - which according to Cumming is still "very busy giving loans but of course their interest rates are very reasonable and so that end of the market is still very, very active" - whereas the tight credit market and the cost of funds in the private mortgage market has put a damper on acquisitions.
Mortgage interest rates
Said Wint: "The increase in mortgage interest rates has rendered some mortgagors unable to meet their monthly mortgage obligations."
Added Cumming: "Mortgage companies are reluctant to lend ... they are wary of lending in this type of climate."
However, Bank of Jamaica data shows that the mortgage market was still growing in the March 2009 quarter - up by more than $3 billion since December 2008 to $76 billion in the residential segment, and up $100 million to $1.96 billion in the commercial segment.
The commercial sector is usually the least affected, because there's "not a tremendous amount of space available."