Wednesday, April 23, 2008

Real Estate in Jamaica - Title Insurance

There has been quite a bit of excitement in the real estate industry lately with talk about the introduction of title insurance by NEM insurance company. You will recall my earlier post about the complicated and bureaucratic experience inherent in transactions in the Jamaican real estate market.

Take a look again at my description of the structure of our land ownership system which comprises the Torrens title system and the common law title. In the case of the former, the land title is registered and this means among other things that it is guaranteed by the government of Jamaica. Demonstrating ownership to common law title/unregistered land is less certain however and depends on proof of an unbroken chain of title back to a good root of title.

The idea of title insurance is to combat the defects in the systems by providing protection against loss. Whereas registered title has lots of advantages the process of obtaining same can be very time consuming and even confusing whether it is applying to register splinter titles in a new subdivision or just transferring ownership in one title. With the introduction of title insurance financial institutions will be offered the security they need to make loans allowing land developers access to mortgage financing without the actual perfected title.

In the case of owners of common law title, if their titles are covered by title insurance, they will also have access to financing as, as they would now be able to get mortgage loans.

Indeed Jamaica National Building Society's general manager Earl Jarrett has said that they will accept NEM's title insurance policy. We look forward to the anticipated benefits that are to flow from this intiative.

Saturday, April 19, 2008

Real Estate in Jamaica - Watch the Market


As I had pointed out in my first post, the Jamaican real estate market is not currently experiencing the downturn seen in the US market. Townhouse developments and apartments are still being established by developers and prices are still sky high. It continues to be a vendor's market especially in the attractive residential areas of Upper St. Andrew and the tourist mecca areas on the North Coast like Ocho Rios, Montego Bay and Negril. Just take a look at these listings on Craig List and the Gleaner classifieds.

There is some concern though that the market may trend downwards in light of the stress being placed on the economy with the increase in inflation and in particular the fall out caused by the crash of the unregulated financial institutions. This recent debacle involving Cash Plus and others has resulted in property mortgages going unserviced and cash flow being reduced. One probable consequence of this is that the real estate market could start to show signs of sluggishness such as:

  • The volume of high priced houses currently on the market could face difficulty attracting buyers at the current rates.
  • Also some holders of heavily mortgaged properties and other debts will need to liquidate properties expediently and expeditiously.

If you are a propspective buyer with the available cash you might wish to watch this carefully. In any event keep the market in mind at all times when negotiating the price. Get assistance from your realtor and your attorney. If there is no demand for the property at the quoted price, it will not sell. Some properties especially those on the beach front are so high end however, they are like diamonds and you know you can barely place a price on those.

Monday, April 14, 2008

Jamaican Real Estate - Money and Foreign Exchange Issues

One of the issues foreign purchasers/vendors often concern themselves about is the money aspect of the real estate transaction in Jamaica.

This is due to a number of reasons. Such as:
  1. Money will have to be transmitted to Jamaica from a foreign country
  2. Money will have to be transmitted away from Jamaica to a foreign country
  3. Money laundering laws require persons to declare the movement of large sums of money to bank accounts
  4. Foreign Exchange rates can affect the cost of the transaction or the value of the proceeds of sale.
If you are obtaining your funds from abroad. You should confer with your attorney as to the logistics of the process. In addressing this issue it is important to bear in mind that if a buyer’s cheque is drawn on a foreign account then it will take upwards of 20 working days to clear at a Jamaican bank depending on the particular bank. 20 working days is equivalent to a calendar month so this can delay a transaction seriously. There are other alternatives to having quick access to foreign funds such as, wiring the funds to an account in Jamaica. It is therefore necessary to discuss this with your attorney to address the best method available to facilitate the purchase.

If you are a seller and the funds are to be sent from Jamaica you must consider the customs requirements to declare any funds above a certain amount if you are traveling with the money. Again you may choose the better option to wire same from Jamaica and you will be required to classify the funds. In this case you would identify them as proceeds of sale of real estate. Remember money laundering laws are in effect and large sums of deposits attract attention. Also bear in mind that there are bank costs associated with wiring funds.

The value of Jamaican currency fluctuates regularly and sometimes the movements can be alarming. Yesterday the value relative to the US currency was J$71.06:US$1.00. You can consult the Bank of Jamaica to learn more. The important issue however is to remember that at the beginning of the transaction the cost of the transaction in the case of a purchaser and the value of the sale proceeds in the case of the vendor could be higher or lower than the cost or value at the end of the transaction depending on the exchange rate. One method often used by the parties to avoid the uncertainty is to transact the business in the foreign currency. Consult your attorney about this and discuss how the local costs are to be calculated if the price payable is in foreign currency.

Friday, April 11, 2008

Real Estate Transactions in Jamaica - Completion

The contract for the sale of land in Jamaica usually specifies a date for completion of the sale. Both parties should make their best efforts to provide all documents, make all payments and affix all signatures so that the completion date can be met.

If the contract does not make the completion date of the essence of the contract it does not mean that delays will be condoned. The contracts often include provisions for the payment of interest on the balance of the purchase money from the date set for completion until the actual date of payment. This clause as to interest can make it payable in the event of delay due to:

1. any reason 2. the purchaser’s fault 3. any reason except the vendor’s fault

Hence you must have your attorney explain to you all clauses and their implications.

In any event time can be made of the essence of the contract in respect of the completion date by either the vendor or the purchaser. Either party must give notice to the other party to complete within a prescribed period which ought to be reasonable in the circumstances.

The contract will usually state whether or not the property is sold with vacant possession. If yes the vendor must remove all persons and goods from the premises as the purchaser is entitled to possession. If the property is sold subject to existing tenancies however the purchaser is entitled to the rents and profits of the property apportioned as of the date of completion.

On completion the purchaser usually obtains title endorsed in his name and possession of the property with the attendant benefits and the vendor gets his net sale proceeds.

Monday, April 7, 2008

Real Estate Transactions in Jamaica - Post Contract

After executing the contract and paying his deposit the Purchaser then has to work on getting the balance purchase price to hand. If he is getting a mortgage loan he must meet with his lender(s) to ensure that they send out a letter of commitment to the Vendor within the time stipulated in the contract.
The lender(s) also referred to as the mortgagee(s) will have indicated to the Purchaser certain conditions which must be met before they can commit to the loan. They will instruct the Purchaser to present information relating to:
  1. Income & Expenses – income statements must be presented to substantiate the declaration as to the amount earned; bank statements must be presented to substantiate claims as to savings
  1. Credit report – this is crucial to determine whether you are a credit risk
  1. Property
    1. Valuation report to confirm whether the value of the premises is high enough to support the investment by the lender. This is important as if the Purchaser defaults on his payments the lender would wish to recoup his investment;
    2. Surveyor Identification report – this is necessary to reveal whether there are any breaches of restrictive covenants, any discrepancies between the registered boundaries and the boundaries on earth and any other defects in title.
The issue of examining and inquiring about a property is a most important obligation of a purchaser. The rule of caveat emptor (let the buyer beware) is a rule which tells a buyer that he is to take responsibility for what he is planning to buy. Therefore even if the purchaser is buying cash he should avail himself of the services of a surveyor and a valuator to ensure that he is getting good title, good quality property and value for the money his is expending.
Once the purchaser delivers the mortgage commitment to the Vendor’s attorney he should get a statement of account to ascertain whether the loan covered all money payable (both purchase price and closing costs). If not he will have have to pay the balance before the Vendor’s attorney usually lets him sign the Instrument of transfer.
The Instrument of transfer is the document which will be sent to the National Land Agency along with the certificate of title so that the buyer’s name can be endorsed on the title.

Thursday, April 3, 2008

Real Estate Transactions in Jamaica – Contract

It is recommended that all contracts for the purchase/sale of land in Jamaica be in writing. This is essential if the contract is to be enforced in the courts. There is an exception to this called “acts of part performance” but this will not be discussed here.

In Jamaica the vendor’s attorney usually prepares the contract and sends it to the Purchaser or if he has one, the purchaser’s attorney. It is recommended that the purchaser contracts the services of an attorney especially as some of the clauses in the contracts can be lengthy and require clarification. Some Purchasers use the same attorney as the vendor in a bid to reduce costs. This is often frowned upon and in any event it can cause problems if a conflict arises between the vendor and purchaser.

All contracts are governed by some basic rules and contracts relating to the sale of land are no different whether they are by private treaty or by auction. The contract must contain an offer by the purchaser and acceptance by the vendor. The acceptance in most cases is conditional on formal written contracts being signed and exchanged. An auctioneer can sign a contract as agent in a real estate transaction, but a lawyer has no such authority without clear specific instructions from his client.

The purchaser usually pays his deposit, gets his receipt and signs the contract. The vendor then usually follows suit and each person gets a duplicate of the contract. If the purchaser is abroad he should remember to seek an explanation of all the terms and conditions from his attorney before he signs or has an agent sign on his behalf. All signatures should be witnessed.

The vendor’s attorney usually then submits the contract to the Stamp Office in order to obtain the assessment for transfer tax. Transfer tax which is currently 7½% is a charge which must be borne by the vendor and is calculated on the market value of the real estate as opposed to the stated contract price. Stamp duties are based on the values declared on the face of the contract and are usually shared equally between the vendor and the purchaser.

Update: The Minister of Finance in his recent budget speech announced that effective May 1, 2008 the transfer tax will be reduced to 6%.

Wednesday, April 2, 2008

Selling Jamaican Real Estate - Precontract Matters II

VENDOR

If you are a fan of HGTV you may think that most vendors engage the services of experts who help them to make extensive repairs or enhance the design of their properties in order to effect a big sale. This is not usually the case in Jamaica. If the imperfections are obvious the vendor may make some minor repairs and accept the value likely to be established by the market. The fact is that the real estate market in Jamaica does not typically undergo and is not currently experiencing the shocks now seen in the US market; and so a vendor can usually get a good price especially if the property is situated in a good location.

Prior to entering into a contract to sell his premises it would be prudent for the vendor to:

  1. Explore with realtors, neighbors or a valuator the prices at which similar properties are being sold.
  2. Advertise the property for sale via the classifieds, the internet or through a real estate agent.
  3. Consult an attorney who specializes in real estate to establish the taxes, duties, commissions and other costs involved which will be deducted from the gross sale proceeds.
  4. Check to see that the title is free and clear of defects. Some defects may include breaches of covenants. Consult your attorney about the effects of this as this may affect the sale and/or the net sale proceeds.
  5. Pay all outstanding property taxes and water rates. As to the property taxes, ask for a certificate of payment of taxes and not only your receipt as proof of payment of all back taxes.
  6. If the property is occupied by tenants disclose same to your attorney and seek his advice on the best way to deal with this.
  7. If you own the property jointly with someone make sure that person is capable of agreeing to the sale and can sign or authorize signing of the contracts.

Tuesday, April 1, 2008

Buying Jamaican Real Estate - Precontract Matters

Buying Real Estate in Jamaica.

Some of the preliminary issues that a buyer should consider are:

  • Price: The property is usually advertised in the newspaper classifieds or listed with a real estate agent at an asking price set by the Vendor. Negotiations can take place through the realtor or your attorney to seek a reduction in price.
  • Property: Sometimes the contract contains some strong conditions binding the Purchaser to buy the property as is and/or absolving the Vendor of his standard obligations. Thus a purchaser prior to signing a contract should be mindful to address certain points.
        1. Tenants may be living in the property and the contract may be subject to the tenancy.
        2. Thorough home inspections as conducted in the United States are not usually a condition of the contract so buyers must be willing to take this upon themselves or bear the risk of buying real estate with expensive patent defects.
        3. If you are obtaining mortgage financing you will have to have the property surveyed and valued. The survey will address issues such as breaches of restrictive covenants and discrepancies between the buildings and/or boundaries and the registered plan. These costs are for the Purchaser.
  • Title: Some people conduct title searches after execution of the contract but I prefer to do it before. The title shows the name of the registered proprietor, the description of the property, mortgages and other legal interests. Searches can also be conducted to determine:
        1. any equitable interests such as charges which are not shown on the face of the title.
        2. whether any fraudulent activities have been associated with the relevant title.
        3. if the registered proprietor is a company. Searches should be made at the relevant registry to determine whether the company is still listed and the principals thereof.
In addition, if a prospective buyer is hoping to get a mortgage financing he should visit a reputable financial institution to see if he could pre-qualify.

After satisfying himself about the above issues the Purchaser will then go on to matters of contract.