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Young professionals driving real estate, mortgage market

Real estate transactions topped $13 billion in value in the first half of this year, with a plurality of the sales concentrated within the top income bracket encompassing the luxury market, data provided by Realtors Association of Jamaica shows.

However, the data, which spanned four income groupings, also shows that once combined, the majority of the sales are within the middle- to high-income block.

In that regard, the data comports with information from members of the banking sector, several of which have said that for them, the demand for home loans is manifested mostly in the middle tier of the market.

But while the banks have said business is fairly robust notwithstanding the uptick in mortgage rates, the data from the RAJ Multiple Listing Service indicates that residential real estate transactions are on the decline.

For all of 2022, the Realtors Association reported that there were 1,608 transactions worth nearly $108 billion spanning the four categories of residential real estate. But that is down from 1,858 transactions valued at $211 billion the previous year.

According to real estate brokers and financiers of home purchases, the current functional definition of middle-income residences relates to homes priced within the $15 million to $25 million range, while high-income residences are priced at $25 million to $45 million.

Most of the demand was said by different banks to be coming from young professionals.

The Realtors Association’s listing service captured 287 real estate transactions from January to June of this year, valued at $13.27 billion.

Broken down into four categories, the most lucrative side of the market and the area with the highest demand related to the most expensive homes.

In the under-$15 million category, RAJ reported that there were 76 transactions valued at $731 million at half-year 2023; in the middle income or $15 million to $25 million band, there were 68 deals valued at $5.2 billion; for those in the $25 million to $35 million range, there were 49 transactions valued at nearly $1.44 billion; while at the top end of the spectrum, for residences costing over $35 million, there were 94 transactions valued at $5.89 billion.

CIBC First Caribbean Jamaica, which once operated a building society but merged it into its wider operations years ago, said the bank has seen a 28 per cent increase in the number of applications for mortgages in the first five months of 2023, relative to last year, and consequently, it has been distributing more home loans in line with demand.

“Approval percentages for the corresponding periods during 2022 and 2023 were 73.33 per cent and 82.46 per cent, respectively,” CIBC FirstCaribbean said regarding the performance of the mortgage market.

And that is within a context where financing charges are 0.5 percentage point higher than last year, the bank said. The loan applications it received mostly related to apartments and single-home properties.

The most recent data published by the Bank of Jamaica, BOJ, shows that after a yearlong period of steady then incrementally small movements, mortgage loan rates have spiked to a three-year high, at 7.76 per cent as of May. That is up 56 basis points since January when mortgage loans were priced at an average of 7.2 per cent.

JMMB Bank says most of the demand for its home loans relates to properties falling within a band of $14 million to $35 million.

“This segment largely consists of young professionals who are first time homeowners taking advantage of the increased NHT loan ceiling which stood at $6.5 million since 2019 and is set to increase to $7.5 million, per single applicant in July 2023,” JMMB Bank’s General Manager of Bank Client Partnership Moya Leiba-Barnes, told the Financial Gleaner back in June. The NHT has since announced the increase in the loan ceiling, effective July 1.

Partnership agreements

“In response to the demand in this segment, JMMB Bank has forged several partnership agreements with developers, some of whom have received financing for their construction projects through JMMB Bank, in keeping with its end-to-end financing of real estate projects,” said Leiba-Barnes.

In May, JMMB Bank adjusted all its variable interest rate loans, including residential mortgages, by up to 1.75 per cent for retail clients, in response to the series of interest rate hikes that the central bank had executed for more than a year. The central bank’s policy rate has rested at 7.0 per cent since last November, but it is coming from a historic low of 0.5 per cent nearly two years ago when the BOJ shifted towards monetary tightening as a check on inflation.

Financing for majority mid-income properties is reflective of recent trends. The central bank, in a review of the mortgage market published in the latest BOJ Financial Stability Report, said acquisition of houses and apartments were mainly financed by banking institutions, inclusive of banks and mortgage banks, and spanned properties priced mainly in the range of $15 million to $30 million, during the period April 2019 to March 2021.

There were also outlier purchases of properties in excess of $60 million, which were spread across all institutions, “suggesting low concentration in high-value real estate,” the central bank stated.

Across all price ranges, the greater share of loan funding was for the purchase of houses, inclusive of apartments priced mainly at $15 million to $30 million, and scheme residences priced below $15 million.

“This was consistent with the affordable housing solutions established in the parish of St Catherine and indicative of joint financing arrangements with other institutions namely the National Housing Trust,” the central bank said.

It added that notwithstanding the spike in mortgage activity, the banks appeared to have a fairly good handle on managing the risk. Since mid-2020, the central bank said that asset quality improved sharply relative to the overall loan portfolio of banking institutions while credit quality was high, with the level of ‘performing’ mortgage loans at March 2022 estimated at 93 per cent of mortgage portfolios.


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