Shirley, left, and Tracey
Dennise Williams, Staff Reporter
IS THE real estate market overheated? Will real estate prices come down and create buying opportunities for the thousands who can watch on the sidelines in frustration?
Well, ask any real estate agent - as we have several times - and the answer is, unfortunately, no.
Time and again for the last year, we have been told that this is a seller's market where top dollars can be demanded. The concept was clearly demonstrated last week when Sunday Business viewed a two bedrooms, one-bathroom apartment off Slipe Road, a little above Torrington Bridge.
Located in an unkempt, dark and dingy complex - which was viewed in broad daylight - situated on an equally unkempt, dark and dingy dead-end road, the seller is asking for $2.3 million, non-negotiable mind you.
BUBBLE COULD BURST
Now, despite the current situation, there are rumblings that the real estate bubble may just burst. High prices cannot be sustained forever or Isaac Newton's law of gravity will have to be re calculated. Just look at the stock market.
In 2004, paper millionaires were made weekly and the party seemed unending. One year later, the party is clearly over and several investors have bitter hangovers.
However, the professionals who interact with the real estate sector say that that real market is different. There is not the ease of entry and exit in the real estate market that exists in the equities market and so prices are not so elastic.
Sandra Shirley, president of First Global Financial Services, says that one of the major, albeit quiet, players in the real estate market is pension funds.
It is their enormous purchasing power that helps keeps the market extremely buoyant.
Her company has $16 billion in pension funds under management; and it must be invested so that contributors can draw down funds on retirement.
"Pension funds have to be carefully managed. Therefore, once you max out in the equity, foreign exchange and fixed income investments, what is left? Real estate.
Pension funds will take a position in real estate developments in good locations where they can get a 10 per cent return on investment and U.S. dollar monthly rentals.
As long as expatriates are coming to Jamaica to work on the variety of projects taking place in the country, there will be a steady stream of tenants for these properties.
When people ask, 'Who is buying these $20 million properties?' it is the pension funds. So, as long as these economic conditions prevail, the real estate bubble will not burst.
Not good news for the bargain hunter, but while the bubble may not burst, price increases may just slow down.
PRICES STABILISING
For example, Lenworth Tracey, general manager of First Caribbean International Building Society, believes that prices will stabilise.
"Over the last year and a half, you have seen prices increase by 60 per cent or double in some cases. Two years ago, townhouses that were selling for $8 million now sell for $16 million. Do you think that $16 million townhouses will sell for $32 million next year? No, I think prices will stabilise."
However, for those still hoping for a miracle, Mr. Tracey says the entire economy would have to take a hit before real estate prices drop significantly.
"In the last 20 years, the only time the real estate market had a bubble-bursting effect was during the financial sector crisis in the mid-1990s.
During that time, the banks collapsed and individuals went bankrupt. Since customers could not continue to service their mortgages, foreclosures occurred and there was an oversupply of property in the market and real estate prices dropped. Things are different now. There is a great demand for property. The amount of new house stock is not meeting demand and that will keep prices from falling.
That said, prospective buyers have to make a hard decision. Sit and wait for the real estate bubble to burst or 'shut yu eye' and buy the first property, even if it is not your dream property, which is available in your price range.
