Wednesday, December 3, 2008

Jamaican Real Estate in Trouble


Well another blow has been delivered to the housing markets with reports of climbing interest rates. Amusingly, this comes one day after an article in AXIAFX waxing about the phenomenal returns on investments in the Jamaican real estate market. It will be interesting to watch whether these so called high returns will be able to be sustained.

The fact of the matter is that the real estate market has been in decline for sometime and this should come as no surprise as the Jamaican economy is not immune to the shocks being felt in the United States and elsewhere. To compound the matter is the fall out encountered at the hands of those unscrupulous captains of the alternative investment schemes who exploited vulnerable and in some cases greedy participants. Now we have banks and mortgage institutions increasing interest rates under pressure from the Bank of Jamaica. This is supposedly an attempt to curtail the free fall of the Jamaican dollar relative to the US. It will however definitely impact negatively on local businesses on a whole and the real estate market is no exception as pointed out recently in the Jamaica Observer. For what this means is the cost of money will go up in circumstances where not much money is floating around anyway. It is no wonder that small business owners protested today about the hike in interest rates. They and we are staring at serious financial crisis a fact supported by the looming lay-offs and redundancies expected in some industries.

If this high interest rate policy is allowed to continue it is my humble opinion that the real estate market will not be able to yield the "phenomenal" returns referred to above. It will instead lead to more non-performing mortgage loans, more foreclosures, less purchases; in other words a general slow down if not collapse of the market. Fortunately these things are cyclical and the market will rebound. The question is when.