Jamaica
News - Real Estate - Finance
Source: Jamaica Gleaner, Andrew Mighty, February 25, 2007)
National Housing Trust
partly responsible for housing price hike
The experts might not know enough about economics
to make a complete assessment of the situation in the housing market. The fact
is that the availability of credit at lower rates of interest does stimulate
demand.
Before proceeding, it is important to make a
distinction between a 'desire' and 'demand'. A desire is a strong wish to have
something, while demand is desire plus ability to pay.
Many young professionals (in particular, those
from the rural areas and ghettos) have always found the $6m houses desirable,
because they are located in 'decent' areas and acquisition signifies progress
and is a good initial investment. However, before the National Housing Trust (NHT)
increases, many would not have qualified to get mortgages from the building
societies.
Demand and Supply
Over the last three years, the Government,
through the NHT, has increased the loanable amounts available to contributors
who are first-time home owners in a bid to address the affordability issue for
lower and middle-income groups in particular. The amounts moved from $800,000 to
$1,000,000 in May 2004, which represented a 25 per cent increase. It again moved
in August 2005 to $1,500,000, a 50 per cent increase and finally to $3,000,000
in April 2006, which is a 100 per cent increase over the previous year's figure,
but did this contribute to increase affordability?
While the intention of the Government was
good, its actions have largely served to increase the price of houses. This is
because the increase in loanable funds has resulted in an increase in demand for
houses. Simultaneously, housing stocks are not rising sufficiently fast to meet
this expansion in demand. Consequently consumers are bidding up the prices for
existing units, and some suppliers are using the opportunity to get higher
prices for their property.
Crude Methodology
Real estate prices were basically dormant
until early 2004, when the NHT increased its loanable funds by 25 per cent. By
December 2004, a three bedroom house in greater Portmore moved from $2.8m to
$3.5m, representing a 25 per cent increase. In other communities including
Patrick City, the typical five bedroom house moved from $5.5m to $6.5m,
representing an 18 per cent appreciation. Notice how closely related these
movements are in relation to the movement of loanable funds available to the
individual over the same period.
The real estate market was again given a
significant boost in 2005 when the NHT increased its loanable funds available to
each first time owner by 50 per cent. Again, real estate prices moved upwards,
further pushing prices out of the reach of the very individuals who were
supposed to be helped.
To be fair, other factors have also influenced
the current buoyancy in the real estate market. These include money from the
informal economy, returning residents and foreign nationals with higher levels
of income. There are also ongoing increases in building costs, thus affecting
the price at which the new units are appearing on the market (so-called
supply-side).
The Government plans to build about 23,000 units
between 2006 and 2009 which will address some of the supply needs, but the pace
of supply is too slow and the additional stock of housing units is woefully
inadequate. The evidence of this inadequacy is that the prices of existing units
have not cooled but instead continued to rise.
Solutions
In retrospect, if the Government's intention is
to make home ownership more affordable for ordinary Jamaicans, then the better
policy would be to facilitate the construction of more houses in order to
respond more adequately to the excess demand in the market, and more importantly
especially for low-income persons, keep price within affordable ranges.
Another issue that should be speedily resolved
is the length of time it takes and the exorbitant costs associated with the
buying of property. Currently, it takes in excess of three months to complete a
transaction and the costs (excluding deposit) that must be paid by a purchaser
for a $6m property (for example) is in excess of $200,000. Government must find
a way to reduce the bureaucracy associated with such transactions in order to
reduce the time taken to transfer the asset. It must also seek to reduce the
cost of the transfers to make it more affordable to undertake such transactions.
If implemented, these will serve to stimulate the
real estate market and are more likely to achieve the Government's stated
objective of making home ownership more affordable.
|
