From BusinessSuite Magazine 8 March 2013

AII is not well within the Jamaican real estate sector and the major players are not happy that   their businesses are facing imminent closure and prolonged periods of losses. Three distinct factors are now being looked at in great detail to fully assess the possible impact and fall out.

Firstly, according to recently published sources, industry experts are worried that the latest tax measures imposed by the PNP Government will help to further slow down activity in the real estate sector, maybe even bring it to a virtual standstill.

Government’s increased transfer tax from four to five per cent and stamp duty from three per cent to four per cent on properties as part   of its recently announced $16.4-billion tax package has the industry experts worried.

Chairman of DC Tavares  & Finson, William Tavares-Finson, was quoted recently saying that the “number one concern” is the psychological effect of what is happening on the market. All indicators point towards a contraction in investment in a sector that was already flat before the latest wave of measures.

“What you are going to find is that developments will start to slow, people will start to second guess everything, and the expected revenues that they are hoping to get from transfers may not even arrive, because people are not selling or buying,” he said.

Secondly, the Governments plan to draw down close to $45 billion from the coffers of the National Housing Trust (NHT) has further created uncertainty as to whether it will have the capacity to continue building low cost housing.

The 2009 index   is a   multiple of 590 of the 1979 base, while the comparable    wage     index, the minimum wage, has risen to approximately $200,000, a multiple of 80 over the base of  $2,500 meaning that the worker can afford 80/590 = 13.5 per cent of the housing value he could afford in 1977.

It now requires eight minimum wages to afford a two-bedroom 700 sq. ft. house.

The only significant change in housing policy in all this time has been the abandonment of GPMs and the substitution of low-interest fixed rate mortgages, using a sliding scale of interest dependent upon beneficiaries’ incomes. Further, access to solutions has become regressive, meaning better off contributors monopolise the benefits (NHT research).

Concurrently, and even more significantly, has been the diminution in the number of solutions annually produced, which was always less than the need, ever so long ago estimated at 20,000 pa  (1976, Derek Gordon and others), and production has now been reduced consistently into the region below 5,000 pa (inclusive of the private sector) because the real value of the NHT fund has diminished due to inflation.”

In this environment it would seem that the alluded housing bubble in Jamaica is associated with   the rapid increase in housing prices relative to average income and average price of goods and services in the country.

Dr. Andre Haughton is his article has left a number of questions that need to be answered by those inside and outside the industry in order for a much clearer picture to seen.   Businessuite Magazine now poses these questions and invites your response.

1.Do you agree or disagree that a housing bubble arises from the artificial increase in prices beyond their true value?

2.Do you agree or disagree that we presently have a housing bubble?

3.Do you agree or disagree that there is possible collusion between developers, brokers, bankers and lending institutions, to restrict the supply of houses, hence inflate the prices.

4.Do you agree or disagree that the general rule of thumb is that the average household expenditure on housing should be approximately 25 per cent to 32 per cent of total income; this includes principal, interest payments, property taxes and insurance.

5.Do you agree or disagree that in Jamaica, average mortgages in some instances is more than 70 per cent of middle-income earners’ income and more are more than 100 per cent of low-in­ come earners?

6.Do you agree or disagree that there is a housing problem that is fostering generational poverty and a diminished quality of life for countless Jamaicans?

7.Do you agree or disagree that the NHT, by not building houses or facilitating such, is helping to keep the supply low?

8.Do you agree or disagree that not enough houses means the demand is high, so the price of houses will increase. This biases the market, which can only be corrected if the supply of housing increases.

The question of adequate low cost resources to Fund development and the ability of the population to earn the required income to afford the developed houses is a balance that for many years has eluded the industry and seems to be one that will not be resolved for some time to come. As Maslow’s Hierarchy of Needs teaches us, that until an individual’s basic needs are met, in this case housing, he or she is unable to recognize or maximize their potential. This becomes a loss not only for the individual but contributed to diminished economic vibrancy for an organization or a nation. Sad to say, the housing issue, whatever the catalyst, is contributing to the underachievement of Jamaica’s people and the nation’s performance in the global marketplace.

Who will answer the housing question?

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