Sabrina N. Gordon, Business Reporter
A Jamaican stockbrokerage and investment adviser has labelled residential real estate prices overvalued, following an analysis of the market, and concludes that the market is due for a correction.
Residential properties on the market, says Stocks and Securities Limited, now sell for $14,000 to $15,000 per square foot, representing a 67 per cent to 75 per cent increase since 2005, when the comparative prices were $8,000 to $9,000 per square foot.
"However, the average income of a working Jamaica is not supporting the price at which residential real estate is selling," said Lisandra Rickards, research analyst for Stocks and Securities.
Statistical Institute data place Jamaicans' average income or GDP per capita at $90,700 in 2005; World Bank figures in 2006 estimate it at US$4,520, which then converted to about J$303,000.
Mixed views
On the real estate side of the market, however, the views were mixed.
It is still very much a seller's market, they say, meaning that the vendor dictates the price, under conditions where land and houses on the market still represent a fraction of the demand.
Transactions last year across the entire real estate market were valued at more than $50 billion.
"Until supply catches up with demand, prices will continue to increase," said Deborah Cummings, realtor and managing director of Century 21 Heave-Ho Properties, Jamaica.
Stocks and Securities' analysis rested on the means of financing.
"If properties are being financed through debt, normally by persons taking out a mortgage, then a correction is due if the ability to repay is compromised," said Rickards.
Interest rate increase
According to the analyst, the recent increases in interest rates were likely to exacerbate the ability to repay mortgage loans.
Prior to February, borrowers could acquire mortgages at 12.99 per cent from top lenders Jamaica National Buil-ding Society (JNBS) and Victoria Mutual Building Society (VMBS).
But JNBS, the market leader with about a 47 per cent lock on mortgage loans, according to latest industry figures, has repriced its mortgages at 13.5 per cent.
VMBS followed with rates of 13.5 per cent to 13.99 per cent, effective this month.
The spike in the cost of credit followed Bank of Jamaica's hike of interest rates by 2.5 points.
What the numbers mean is that property purchases, house or land, are immediately more expensive.
"However, the correction will not be immediate and may not come until the next one to two years," Rickards pointed out.
Cummings rejects the notion of unaffordability, saying that when a development hits the market, the units are usually sold off well in advance of the start-up of contruction.
"I don't see a correction coming. If the houses were not selling, then that would be a different thing," she said.
'Artificial boom'
Similarly, Brian Campbell, general manager of Victoria Mutual Property Services Limited, said for a correction to occur, there would have had to have been an "artificial boom" in real-estate prices.
"If anything, there will be a plateau in pricing, not necessarily a fall-back," he told Sunday Business.
"With inflation, one could see some flattening in the appreciation of real estate as one's ability to purchase falls."
Still, one of the factors driving prices is the availability, or lack of property, within particular income brackets.
There is a high demand in the $3 million-$15 million, but little supply.
Any reduction in prices, said Canute McFarlane, vice-president of the Realtors' Association of Jamaica and broker from Scorpio realtors, would depend on the cost of construction.
"If there is plenty in the market, sellers will adjust prices to take a smaller margin in order to compete," said McFarlane. "But this is not likely to happen anytime soon."
The price of a 'quad', a basic house, built on less than 4,000 square feet in Portmore, St Catherine, he said, is now being sold for $2 million.
While he agrees that there has been some 30 to 50 per cent increase in prices over the last three years, McFarlane said the scarcity of land to build, the increasing cost of construction material and lately, the jump in oil prices, means a correction is unlikely.
"With the decrease in liquidity, added to the increase in mortgage rates, we may begin to see a slight slow-down in the market over the next eight-12 months, but demand is still very strong," said the owner of Valerie Levy and Associates Limited.
According to the real-estate agent, prices at the lower end of the market now stand at $4 million- $10 million, depending on size and location for basic two-bedroom units; while in the lower-middle range, two-and three-bedroom units cost $12 million-$18 million.
In the upper-middle segment, such as the Mona area, houses are priced from $18 million-$30 million, depending on the need for repairs.
At the high end, properties are being sold in excess of US$1 million (J$71 million) in the Kingston 6 and 8 areas.
Those prices can only prevail, analysts insist, if home buyers have seen a sustained windfall of cash, outside of which, a correction is due.
sabrina.gordon@gleanerjm.com
