8 months ago
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Despite salary increases, persons in the lower-middle to upper-middle income bracket and the typical senior civil servant are hard-pressed to balance their household budgets, and real estate purchases are feeling the knock-on effects, according to real estate attorney and construction sector expert Deanall Barnes.
However, there is still life in the low end of the market, other real estate experts say.
While inflation is currently hovering in the six to seven per cent range, officially, householders are feeling a lot more pain than that, Barnes noted.
“Economists will tell you that single-digit inflation is really theoretical. The truth is that in their pockets, people are feeling more like 25, or 30, or even 40 per cent inflation,” Barnes asserted.
The higher transportation, fuel, and grocery bills mean that there is less in terms of disposable income for the purchase of assets such as cars and real estate, especially the latter.
To tame inflation, the central bank raised interest rates and that, in turn, has led to a spike in the cost of borrowing.
However, the prospect of having to deal with heavier mortgages is said to have made some purchasers wary of entering into transactions at certain price points.
“Interest rates have trended northwards. If you look at two years ago, we are now operating at about 300 to 400 more basis points or three to four per cent increase in interest costs. That translates to a payment of between $4,000 to even as much as $100,000 more per month,” Barnes said, regarding the cost of debt servicing.
Newton Johnson, president of the Realtors Association of Jamaica, RAJ, says interest rates are seen as being “just too high right now, both for the developer on one hand and purchasers on the other. Now that we’re into double-digit interest rates, people are bound to pull back.”
Additionally, representatives of the realtor community say there has been a lot of heavy discounting of prices in the mid to-upper tier of the market as inventory is failing to move.
Initially, the softness in the market had been manifested in the luxury segment.
Now, Johnson says, there is also a slowdown in sales across the $30 million to $80 million price range.
Barnes added that the development has seen additional discounting taking place over the past four months in that segment of the market.
“I have seen prices that would suggest heavy discounting over the last three to four months, which would say to me that the demand was not consistent with the initial expectations, or the pricing point was off from the outset,” the lawyer said.
Barnes said real estate in the $40 million to $70 million price range is generally classified as the middle to upper-income bracket.
“These are the mid-level to senior managers within the public and private sector who would be able to qualify to buy these homes, and they are searching for alternatives in light of the interest burden that they have to bear,” he said.
In cases where units are purchased for investment, the anticipated income from renting or leasing often does not materialise, he added.
This has shown up in developments such as The Cambridge, a project done by insurance company Guardian Life. Last Sunday, March 31, the unsold apartments were advertised at discounted prices. VM Property Services has listed the apartments at US$299,160, this is about $46 million at current exchange rates. The previous list price was US$314,280.
Also at one open house in the Wellington Drive area of Kingston, recently, not even one prospective buyer turned up to view apartments advertised at $100 million. Yet another developer has found it difficult to move more than 10 of the 32 superstudios at Belvedere in St Andrew, priced at $28.5 million.
Still, not all of the real estate market has gone soft.
“There is a part of the market that is very vibrant. If you look at any unit between, say, $18 million and $25 million, those are in high demand, and many of those persons are anxious to buy into those schemes,” said Johnson.
Barnes says increasingly, there has been a backlash in the Airbnb and short-term rental sector, and persons are refusing to host those types of establishments in housing complexes.
Real estate experts expect the market to continue along its current soft trajectory until central banks start cutting interest rates again. And that is unlikely to happen for the next 12 months, Barnes opined.
As for Johnson, his response to expectations of a rate cut was: “Not right now.”
That means property sellers may have to be more willing to negotiate.
“One of the factors that will have to come into play is the matter of lowering interest rates. If that doesn’t happen, then, speaking personally, we will have to address the question of lower prices,” Johnson said in a nod to the unfolding price discounts.
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