Realtors eye housing rebound
Real estate experts are eyeing a rebound in the sector following the reduction in interest rates and an uptick in demand for properties.
Take a look at the recent Oakmont townhouses offering in the prime ‘Golden Triangle’ residential area in Kingston and you may agree.
The 15 high end units, priced at US$430,000 ($37 million) each opened for public viewing last week Saturday and Sunday November 13 and 14. Realtor, Anya Levy executive director, Valerie Levy and Associates said all but two units were sold within the two days.
“We had an overwhelming crowd for both days. There were only 15 units and only two units are left. We almost sold out and we haven’t really been pushing the marketing,” Levy told Sunday Finance last week. Delivery of the units which feature air conditioning units in all bedrooms and the basement, a pool, hot tub, generator and a rear wood deck among other amenities, takes place within the next month.
Levy said even though there were many offers, some who turned out just wanted to see what US$430,000 could buy. “It was good exposure for the whole development,” she said. “And contrary to what you hear about the real estate market, there are not a lot of high end units on the market,” she said, pointing to one of the reasons the units sold so quickly.
Levy, who has been a critic of the high interest rates environment in Jamaica, which she said severely affected the viability of real estate development in the past, has softened her stance now that borrowing rates are trending downwards and developments are resuming.
“We welcome it for more than one reason. Persons can have options because they are looking at real estate now,” she said of the rate reductions, while describing the Jamaica Debt Exchange (JDX) as a “phenomenal move” which boosted the real estate industry.
According to Levy, this has stimulated the market in two ways: It has made accessing loans and mortgages more affordable and with a reduction in deposit rates and rates on government paper, investors are now looking at real estate as one way of earning better returns on their investment.
“People are looking at ways to invest their money and to me real estate is the answer. You get a much higher return on real estate investment now than you get on paper,” she said. According to Levy, that return is around eight per cent, even without the capital appreciation on the property itself. As a result, she said many of the units were purchased by investors who want properties to rent and earn even more.
“Pension Funds have bought into it. We have done very well and we feel we have delivered value for money. We sold to investors who are going to purchase to rent out to expatriates,” Levy disclosed.
Levy believes that this could be an indication that things are improving in the economy as well. “I think it is an indication because it shows the confidence that people have in Jamaica because they wouldn’t purchase in Jamaica if they were not confident in the country. There are so many options outside Jamaica where people can get deals, for example the US where there is a large supply of inventory,” she said.
However, added to the interest rate reductions is the move by the National Housing Trust (NHT) to make home ownership more affordable to contributors who can now access financing of up to $4.5 million per person and $9 million as a couple.
“This is a significant contribution to moving real estate,” said Levy. “Customers can use this in conjunction with a JN (Jamaica National Building Society) mortgage or a Scotiabank mortgage.”
The Joint Financing Mortgage allows borrowers to access up to the maximum allowed by NHT along with additional financing from lenders such as JN towards the purchase of their homes. JN has reduced its mortgage rate to 14.49 per cent to borrowers, but qualified savers can get rates as low as 13.25 per cent.
This model was used recently to generate massive interest in the Rhone Park Estate development in Old Harbour where members of Jamaica National Building
Society could purchase a two bedroom unit valued at $5.9 million with a down payment of just $100,000, plus closing costs. Each 800 sq ft residence features French windows, fibre-glass shingle roofing, rafted ceilings and ceramic tiling. NHT offered nine per cent financing and the developer offered a second mortgage of up to $500,000 for three years, with flexible mortgage payments. The units sold out quickly.
Ainsley Hutchinson, a JN representative at the Ocho Rios Mortgage Centre, noted that JN is now the preferred mortgage lender for over 23 new developments taking place, including the Sea Cliff Resort and Spa in Portland, and Huddersfield and Seaview Heights, both in the Ocho Rios area. These developments are not yet completed, but Hutchinson said there has been significant interest from buyers.
He said this could mean that the real estate market could be turning around. “I’d like to think that things are changing. If you look at the reports from Statin… and what NHT is doing by offering more to borrowers,” he said.
“It might be a bit slow but something is happening and JN is in a strategic position so that when the economy takes off we are there to play a part in the growth of the market,” Hutchinson added.
The JN representative believes that with a growth in employment, the sector can see even more activity.
Levy said for the sector to continue to grow there should be further reductions in the interest rates.
“The significant thing that affects real estate is the borrowing rate and the transfer tax,” she said. “There is still that big spread between loan rates and deposit rates, but at least the loan rates are inching down.”
Transfer tax has moved from 7.5 per cent of the value of the property two years ago to four per cent today. Levy said that when combined with the other costs that developers are faced with, it amounts to approximately 20 per cent of the value of the property.
“When you are selling a property and you take off 20 per cent that’s a lot. Now its about 15 per cent but that is still a lot. If they want to stimulate the market even more then the rates should come down more, both borrowing rates and transfer tax and all the charges that you are saddled with when you purchase property,” Levy said.
“Things are picking up, but if the rates go down further you will have more people borrowing,” she said. “Lower it and you will see more volume.”