Ashford W. Meikle, Staff Reporter
Inner-city housing on Little King Street in Denham Town in Kingston. - NORMAN GRINDLEY/DEPUTY CHIEF PHOTOGRAPHER
JAMAICANS ARE borrowing more money to purchase and build their homes, according to statistics from the Bank of Jamaica.
Figures from the central bank indicate that building societies lent almost $29 billion in mortgages last year, a 23 per cent increase over 2003. And it is expected that the growth momentum will continue into 2005. Up to February, loans amounted to $1.7 billion - a 76 per cent increase over 2004.
During the same period, outstanding loans and advances showed a 25 per cent increase, jumping from $24.5 billion to $30.5 billion. It is important, however, to point out that the figures include both mortgage and non-mortgage loans.
Mortgage officials are not surprised at the figures.
"A number of factors have contributed to the increase," explained the senior vice-president of
operations and senior credit officer at Victoria Mutual Building Society (VMBS), Frank Harrison.
He said these include the fact that "Confidence has been restored in the economy, the lowering of interest rates and the lowering of inflation."
Loans to first time owners also appear to be driving the growth.
Noted Mr. Harrison, "Over the past several years building
societies anticipated a reduction in interest rates and took the brave move to offer lower rates for first time home owners... People responded favourably. The lower rates spurred demand, especially for first time owners who are getting a good deal. This demand has, in turn, increased construction by developers."
Housing completions numbered 5,832 in 2004, up 47 per cent on the 3,967 houses built in 2003, according to the 2004 Economic and Social Survey of Jamaica. But the 11,455 morgages issued in 2004 was just 7 per cent above the 10,667 in 2003.
At Victoria Mutual Building Society (VMBS) the mortgage rate starts at 13.5 per cent for first time owners. However, there are different rates for home improvement and building on lots.
Pointing to other factors, Mr. Harrison noted, "Remember the National Housing Trust (NHT) has increased its own limit and reduced its interest rates. The combined effect is that people had a relatively lower payment which is manageable."
His colleague, general manager for mortgage financing at FirstCaribbean Building Society, Lenworth Tracey agrees. "There is a greater degree of market intelligence of the financing options available to acquiring homes and people are becoming more aware of the value of real estate as an investment option outside of the usual intrinsic reasons, such for shelter. There is increased market intelligence,
At FirstCaribbean Building Society, for example, a first time owner can access a mortgage at 13.5 per cent. However, the mortgage rate can be lower, said Mr. Tracey. "Based on current mortgage special we are giving the customer half of one per cent cash that will be credited to their savings account. This results in an effective interest charge of 13 per cent. And the same would apply for all our lending rates," explains Mr. Tracey.
At the same time, the executive cautioned that inflation must be taken into account when interpreting the numbers. For the same period inflation was approximately 13 percent. Notwithstanding the inflation factor Mr. Tracey said, "Even when adjusted for inflation the growth is still respectable at eleven per cent."
According to Mr. Tracey the highest demand is for homes below ten million dollars. "Based on our portfolio, the housing range which have the highest demand is between six to eight million dollars price region," he said. He explained, "The average loan size is $3.5 million. Then when you take the NHT contribution of a further $2 million [for a couple] and take into consideration the ten to twenty per cent down payment ... it seems to indicate that most purchases are in that region."
Mr. Harrison also pointed to another factor, which has spurred the demand for mortgages - expectation of property appreciation. People expect prices to go up ... in fact prices have moved up considerably this year especially in gated communities. He agreed with Mr. Tracey "People are diversifying their investment into real estate. And because of the lower interest rates it is attracting interest.
