Reuters, a major international news service reported on March 1 the following;
“The prospects for an immediate economic recovery in the face of a slow vaccine roll-out are dim, said Therese Turner-Jones, general manager of the Caribbean Country Department for the Inter-American Development Bank.
“It’s going to be another difficult two years ahead,” Turner-Jones said. “Absent a healthy environment, there is not much you are going to do that will get back to business as usual.”
The Caribbean Development Bank said last Thursday it projected growth of 3.8% in its 19 borrowing member countries this year (2021) after a contraction of 12.8% last year, with vaccine availability one risk to that forecast.”
On February 24 The Gleaner carried an excerpt from the Director General of the Planning Institute of Jamaica speaking about the fourth quarter of 2020:
“While the goods sector declined by a marginal 0.6 per cent, services shrank by 11.5 per cent in the October-December 2020 period, amid continued weakness in the tourism and travel markets.
The PIOJ stated that the economy suffered from weakened business and consumer confidence associated with uncertainties regarding the duration and impact of the pandemic; and weakened demand associated with lower disposable income due to job losses and reduced work hours.
“The prevalence of COVID-19 cases globally and locally which has negatively impacted economic activities through reduced demand and a slowing in the pace of re-opening. The Jamaican economy is projected to contract by 10 – 12 percent resulting from the Covid-19 pandemic. If there is a rebound in 2021, it will be directly correlated to the control of COVID-19 and the full reopening of economic activities including the critical tourism sector.
Jamaica’s tourism sector is usually the largest contributor to the country’s foreign exchange earnings and a major employer. The Covid-19 induced global economic turmoil has led to the contraction of the tourism sector by estimates ranging from 53 -70 percent. A glimmer of hope is the report that in January remittances increased by over 30 percent compared to the same period last year. There are anecdotes that much of this inflow is a factor underpinning the continued buoyancy of the construction sector.
It was reported that unemployment increased by over 130,000 since the outbreak of COVID-19 in March 2020 and the unemployment rate increased from 7 percent to 12 percent. Surprisingly, the income tax inflows to the government from PAYE remained stable. This result suggests that the job losses occurred primarily in the lower paying “services sector” as reported by the PIOJ and among persons whose incomes did not exceed the “tax free” threshold.
Impact on the Real Estate Sector
During the quarter the demand for cement had remained stable even in the face of the actual and forecasted economic contraction. This result also applies to the general hardware sub- sector which provides inputs to the developers and owners/contractors who are building and refurbishing real estate. This results in construction being the most vibrant economic sub-sector.
The actual and forecasted contraction in the general economy became more apparent in the real estate industry, during the fourth quarter of 2020. The Realtors Association of Jamaica reported that its data showed the following:
- 1) The selling prices of units have remained stable and in some sub-sectors, prices have increased.
- 2) Short-term Airbnb rentals are at 20 percent occupancy levels.
- 3) Rental rates have trended downwards especially at the US$ high-end of the market.
This trend from the fourth quarter of 2020 continues into early 2021.
The restrictions on travel and changed economic conditions have significantly slowed reassignments and transfers among the corporate and diplomatic sectors which were the preferred targets/clients of the owners of “high–end” apartments and townhouses.
We have not yet seen the expected downturn in developments catering to the upper socio- economic groups and firms as groundbreaking continue for both residential and commercial projects of various sizes in Kingston 5,6,8,10, 19 & 20 and other areas of the country Given the prospect of perennial devaluations, developers and some corporate investors may have taken the decision to continue building and investing because costs will continue to increase and so will prices. For example, the valuations we have recently received usually show increases compared to the values in 2019. These trends in valuations are inimical to the forecasted 10-12 percent economic contraction.
We envision there will be a “buyers’ market” in which “cash rich” entities and persons will have more leverage to negotiate purchase prices and the rental rates if they are prepared to risk negative cash returns on investments for the next two years.
- The “work from home” option that has been widely implemented may lead to a short- term contraction in demand for office space.
- During the budget debate in March the government reinforced its commitment to improve the country’s housing stock. Projects sponsored/promoted by government agencies – National Housing Trust and Housing Agency of Jamaica for middle income persons are in greatest demand since that sector encompasses the majority of the “working class.”
- The demand for BPO facilities has stabilized as the companies have implemented an extensive “work from home” strategy as a result of the COVIB-19 pandemic and this short-term change was been sanctioned by the government. However, there are uncertainties about the additional time the government will allow these Free Zone functions to be undertaken at private residences and the inherent risks to corporate and clients’ data. We remain optimistic that demand for commercial spaces for BPO operations will begin to recover during the latter part of the year.
- Warehousing spaces for the distributive and retail trades will continue to be in demand.