By McPherse Thompson, Staff Reporter
VETERAN real estate dealer and president of the Realtors Association of Jamaica, Don Glanville, said the property market was not yet feeling the effect of the pending sale of the bad debt portfolio being held by the Financial Sector Adjustment Company (FINSAC).
"I do not feel it is having an effect on the market at this time," said Mr. Glanville. However, he was expecting that, "when the take-up of those properties begins in earnest, it will have a ripple effect on real estate properties," especially commercial real estate, some resort real estate and possibly the higher end of the residential market.
In an interview with The Financial Gleaner yesterday, Mr. Glanville explained that there could be changes in the market when FINSAC sells its portfolio, which includes pools of commercial real estate loans, "because I believe that is where the demand is at its lowest and the law of economics -- supply and demand -- will be at work."
Mr. Glanville was responding to questions posed by The Financial Gleaner, against the background of the decision by FINSAC to sell its $52 billion bad debt portfolio and the effect, if any, that it would have on the real estate market. FINSAC is reported to have said that the bad debt portfolio would be divided into multiple loan pools of residential and commercial real estate assets, business assets, and secured and unsecured consumer debt.
The Realtors Association president explained that the real estate market has been "soft" since around 1995 and got progressively worse up to last year "when we began to see a slight movement upwards."
The "softness" was most pronounced in commercial real estate, the high end of the residential market -- those properties costing more than $10 million -- and the resort property market, he said.
According to Mr. Glanville, a real estate market mirrors the economy of any country, and over the period 1995 to 2000, the Jamaican economy had been in a state of stagnation with zero or negative growth. Noting that the collapse of the financial sector has had a devastating effect on the market during that period, he pointed out that in order to complete a real estate transaction, funding had to be sought from financial institutions unless it was a cash transaction. Insurance companies and banks were the major sources of funding real estate, "so obviously with their demise that segment of funding went, leaving just the building societies and the National Housing Trust," both of which cap their loans to facilitate mostly those purchasers at the lower end of the market.
Mr. Glanville said the lack of funding was one of the reasons the high end properties would have been in a soft and depressed state over the period, and in that regard, prices fell by some 25 per cent to 30 per cent over the period.
He said there has been increased activity at the lower end of the market being financed by the National Housing Trust since 1998, and since last year, there has been a gradual taking off of the inventory in the mid-market range, that is, those properties going for between $4 million and $9 million. There had also been very little construction starts, he said.
Mr. Danville said that for the future, "I see signs of a market rebound, but this will be contingent on growth in the economy."
