5 reasons to consider purchasing property in Jamaica
The view has been expressed by many that now is a great time - maybe even be one of the best times - to buy real estate in Jamaica.
Now I am not an economist by any means, however, if you are contemplating purchasing property rest assured that the factors highlighted below are on your side.
Closing costs are down
You may or may not be aware that the total cost of real estate acquisition is not what you see advertised. Now I am not suggesting that there is a scam of any nature in the advertisement of property prices. What I mean is that if a parcel of land is advertised for sale for $10 million, if you were to purchase it, it would cost you more than that stated amount. This is the case whether the property is being sold by a realtor, a company, the government or your family member. The cost of the purchase is always the purchase price plus closing costs.
Closing costs are a combination of various associated fees. Therefore when you browse online and search for properties and you see, for example, an apartment for $16 million, you need six times that amount and a buffer of additional funds to close the deal. Closing costs include taxes and legal fees. Your property purchase may also include other incidental costs such as the cost for a survey plan and valuation.
In the first quarter of 2019, the Jamaican government significantly reduced the taxes associated with transferring real estate. The tax associated with purchasing property is stamp duty. Stamp duty was previously assessed ad valorem, meaning as a percentage. Stamp duty was four per cent and split equally between the buyer and seller. Stamp duty has now been reduced to a flat fee of $5,000 which is split between buyer and seller.
Therefore if you purchased a $15 million in 2018, stamp duty would have been $350,000 for the purchaser. On April 1, 2019 stamp duty was reduced to a flat fee of $5,000. That results in savings of $297,000 for a purchaser!
The amendment to tax rates by the government has created an incentive for purchasers and this is a significant economic benefit that the general public should understand.
Stamp duty traditionally made up a large portion of closing costs. Its reduction has consequentially caused a reduction in the overall closing costs associated with purchasing, making property acquisition more affordable. Purchaser should also be aware that they are expected to pay .25 per cent of the value of the property as registration fee, as well as half of the cost for the preparation of the agreement for sale and half costs for letters of possession and utility letters. If you are taking a mortgage, you must also consider discussing your mortgage commitment fee with your bank.
Interest rates are down
Financing for acquiring property has become more accessible. This is because banks are reducing their interest rates for mortgages. Whilst interest rates are on the decline, banks have maintained their standard of carrying out due diligence on prospective applicants. This is in my view important for the stability of the mortgage and housing markets. As you may be aware, reckless lending by banks contributed to the housing crash in the United States of America and this led to a decline in property values in that country.
Focusing on our domestic market, I would like to highlight that the Bank of Jamaica has been consistently decreasing interest rates. Interest rates on government paper are down. The government of Jamaica has been borrowing less money. You may wonder what that has to do with the mortgage market. I will connect the dots. Financial institutions buy government paper and make money on that return through interest on their investment. They now have to target other avenues for revenue like the stock market and increasing their loan portfolios. This provides healthy competition which adds to the benefit of consumers.
Shop around, you will see that some banks are offering lower rates as compared to a year or two ago. Additionally, the amount they are lending is on the rise as some institutions are now offering loans to cover the purchase price and additional expenses. You may already have seen advertisements for what bankers say are a 110 per cent mortgage loan.
NHT is providing more housing solutions
The National Housing Trust (NHT) is aiming to build 22,000 housing solutions by the end of the financial year. The institution is also partnering with private developers to bring more housing solutions to the market through their guaranteed purchase programme, which sees the National Housing Trust providing financing for projects and purchasing them from developers to increase housing stock.
In addition to the increase in NHT housing solutions, the government institution now offers 100 per cent financing on their units. This means that individuals and families can now obtain financing at a cheaper rate for their entire purchase as compared to rates offered by commercial banks.
Jamaicans at home and abroad can access benefits from the National Housing Trust. Many members of the diaspora are not aware that they can contribute voluntarily to the Trust and in return are able to access all the benefits offered.
Jamaica is a top tourist destination
Trip Advisor has ranked Jamaica as one of the top 25 tourist destinations in the world. Jamaica was ranked #14 on the Trip Advisor Travellers’ Choice Awards’ “World’s Best Destinations” list and is also listed as the best destination in the Caribbean.
In the Jamaica Gleaner article titled "Airbnb spurs Jamaica’s home share market" published on May 3, 2019, it was stated that the Minister of Tourism Edmund Bartlett reported to Parliament on the previous Tuesday that home stays booked through Airbnb grew 62 per cent, from 55,000 to 89,500 guests in 2018.
It was also reported that the Minister stated that the average stay was about five days, while the typical host in Jamaica earned revenues of up to US$2,600 in 2018.
Whilst some persons may be searching for a home for primary residence, others may be interested in an investment property or a second home. Jamaica's reputation as a tourist destination and the rise of home stay vacation rentals may be worthwhile considerations in deciding whether you wish to purchase.
The economy is on the rise
The economy is improving by macro-economic standards. The country has recently successfully concluded its International Monetary Fund Programme and according to the data published by the Planning Institute of Jamaica, the country has consecutively recorded growth in recent quarters. Some say the economic improvement and geographic location of Jamaica makes it an excellent place to invest.
In an article published in the Jamaica Gleaner on May 20, 2019 titled "Lee-Chin urges to save more and invest in assets", the billionaire tycoon was reported as saying the following at a press briefing of the Economic Growth Council:
"Because of Jamaica's excellent location, no different from Harlem to Manhattan, no different from Jamaica to South America; and because Jamaica is being gentrified and because us in Jamaica, we are not historically asset owners, we will be displaced, prices will go up, and foreign investors will come in, buy up the assets, as they did Harlem"
Mr Lee Chin encouraged Jamaicans. He was quoted as saying "own assets, own a home, pay down on something, pay down on a piece of land, join up in a partnership and do that. But we should be saving and owning assets".
Is the decision to purchase real estate right for you?
Only you can answer this question. Purchasing real estate is a significant investment. You should consider your own personal circumstances and seek professional advice.
*This article does not constitute legal advice and is intended for informational purposes only. For comments or questions you may contact the author Ms. Carissa Mears at firstname.lastname@example.org .
Carissa Mears is an attorney-at-law. She has served as an Adjunct Lecturer in law at the University of the West Indies Mona, The University of the Commonwealth Caribbean and The Caribbean Maritime University. She is the Vice-Chairman of the Board of Governors of the St. Catherine Primary School. She is passionate about making legal issues understandable to the general public.