Incomes Not Moving with Property Prices — Campbell

Added: 06 Aug 2017

Published: Sunday, August 06, 2017

The Sunday Observer

by Karena Bennett

President and CEO of the Victoria Mutual Group, Courtney Campbell, has red-flagged the miniscule increases in income granted to individuals annually in comparison to rising real estate costs, as the main impediment for young adults looking to purchase a house in Jamaica.

His remark follows a presentation by the Jamaica Chamber of Commerce last month on the Business and Consumer Confidence Index, which revealed that house buying plans of consumers fell to eight per cent over the period April to June – the lowest level in nearly two years.

“Property prices in Jamaica have moved up significantly, but incomes have not moved commensurately. Additionally, transaction costs such as deposits and closing costs associated with real estate purchases have also attributed to the marginal movement recorded for home buying plans,” Campbell said in an e-mailed response to Jamaica Observer queries.

According to the CEO, the requirement for house buyers to pay a deposit of 10 per cent of the purchase price and the associated closing costs which can amount to as high as an additional 10 per cent, has been a deterrent to many individuals seeking to purchase real estate.

Efforts by the Government through the National Housing Trust (NHT) to partner with credit unions in setting up a House MicroFinance Loan Programme for individuals earning $30,000 or less weekly to access up to $1.5 million for the initial transaction costs, including lawyer fees deposits and closing costs, could prove beneficial for some but still leaves many scrambling for a solution without incurring significant debt.

Pollster Don Anderson, in presenting the findings of Business and Consumer Confidence, noted that while consumers expressed a more cautious outlook on spending over the April to June quarter, vehicle buying intentions recorded a small increase to 16 per cent, up from a year earlier’s increase of 15 per cent. Still, the results for vehicle purchase remained below the average level over the past 17 years.

“Any apparent correlation between the two [the decline in home buying and the increase in vehicle purchase] is coincidental. These are two distinct markets, both of which are segmented and dissimilar, in terms of demographic, motivations, transaction costs and terms, with motor vehicle prices a small fraction of what real estate would sell for,” Campbell said.

He added that young graduates, especially males, aspire and work towards owning a motor car first before they think about buying a property, as research shows that these young adults are staying at home longer.

The surge in vehicle purchases, as explained by Campbell, could be a reflection of various tactics used by motor vehicle vendors, including loan terms and providers, in attempts to increase sales.

“Conversely, more goes into decisions related to home purchases, particularly current and long-term income potential, given the long-term nature of the funding (mortgage),” he reasoned.

Mortgages at the NHT span an average 40 years for repayment depending on the age and the type of loan product granted to the mortgagor.

The benchmark interest rate for financial institutions in Jamaica was last recorded at 4.75 per cent, moving from an all-time high of 33 per cent in 1996. But despite the declining interest rates over the years, house buying plans of consumers have moved up only marginally or declined.

Moreover, the introduction of the use of credit reports from licensed credit bureaus by the NHT, effective immediately, could also see a number of Jamaicans not being eligible, getting higher interest rates or lower benefits from the Trust because of their inability to pay off other debts.

In a Notice of Intention to use Credit Reports, the NHT has advised that as of August 2017, it will be using credit reports in the processing and management of loans and will shortly thereafter also begin to share information on its mortgagors with the credit bureaus.

“Factors impacting home ownership include income levels, property values and the cost of mortgages as well as the priorities of purchasers. Our experience is that prospective purchasers are indifferent to the fact that we have credit bureaus operating in Jamaica. Applicants typically become concerned only when their reports return a high-risk rating,” he told Sunday Finance.

Campbell notes that as an alternative to the impediments to property investments, individuals are turning to REITs listed on the Jamaica Stock Exchange and unit trusts such as the VM Wealth Property Fund, which would appear to be preferable to a wider cross section of investors because of the low initial costs.

Nonetheless, the CEO anticipates that house buying plans of consumers over the next quarter will be sustained as several new property developments come on the market.

“Numerous developments in St James and St Catherine, as well as smaller developments in the Corporate Area, have recently come on the market and we have seen consistent demand for these housing solutions. Not to be forgotten is the fact that Jamaicans in the diaspora are active purchasers as well,” he said.