THE real estate market could rebound this year following a decline in interest rates resulting in an improvement in buyer response, industry experts say. However, not everyone is convinced that this will soon occur.

Anya Levy, executive director at Valerie Levy and Associates says a reduction in interest rates following the successful completion of the Jamaica Debt Exchange (JDX) is the only stimulus that could lead to a rebound in the market.

“In real estate, interest rates are the barometer of how our industry works. What we really need to do to stimulate the industry is reduce interest rates. The rates have to come down and we know that it is inevitable because of the Debt Exchange,” she says. “That is the only thing that will stimulate the sector. Once it comes down the economy will rebound and you will have a lot of action in the real estate market,” Levy predicts.

The Jamaica Debt Exchange, which is extended until Wednesday following a 91 per cent compliance rate among investors, will see the Government exchange high interest bearing Government of Jamaica bonds for ones that bear lower interest rates and have longer maturities. The original bonds attracted as much as 28 per cent interest per year, while newer bonds should attract just under 12 per cent.

“Investors are going to get much less interest now. When they look at other places to put their money, hopefully they will look at real estate as an attractive investment,” Levy says.

She argues that at the current rates, up to 19 per cent for borrowing and between 13 and 17 per cent for mortgages, the real estate market will remain compressed. “The interest rates are too prohibitive. What we want is a reduction in interest rates. The mortgage companies must reduce the rates and give working-class people an opportunity to afford homes,” she says.

Fayval Williams, executive director, Kingston Properties REIT Limited, agrees that a reduction in the interest and mortgage rates is critical to the sector, with buyer confidence now at an all time low. Like Levy who has the Barbican Business Centre plans to open later this year, Williams believes that action in the market will surround commercial rather than residential properties.

“For the commercial sector, we see businesses looking to get developments done and looking for financial partners with which to do so,” Williams says. “Reduction in interest rates is good for the real estate market. To the extent that rates are remaining high, that will put a damper on the market. Upswing in the underlying economy resulting in job creation will provide a great impetus for buyers to be more optimistic about their future and begin the process of shopping for real estate,” she says.

“However, all of the elements have to come together, that is, the interest rate, the transactions cost, the monthly payment, etc, in order for the buyers to feel comfortable that affordability is within their grasp,” she further adds.

Other elements that need to come together, says Levy, include an increase in the amount allowed to borrowers from the National Housing Trust (NHT) and a recognition that not all buyers of real estate have the same profile. Levy says that the $3.5 million maximum allowable under the NHT programme is too low for many of the developments currently available — some of which can cost up to $20 million.

She says that this amount facilitates just a small segment of the larger market demand for real estate and that there are buyers who because of their position and earnings would prefer accessing a higher amount in order to purchase a suitable property.

“It is not equitable for them to access just $3.5 million,” she said. “The ceiling is way too low”.

However, Leo Williams, executive director of Williams and Associates Investments Limited, cautions expectations of a decline in interest rates. Williams, whose company finds capital for businesses seeking to develop in the region, says bank lending rates and mortgage financing will not turn-around as quickly as expected and may even increase as the year progresses, a fact that could further reduce the likelihood of growth within the sector.

“Mortgage rates being variable will have the flexibility to adjust in either direction so the fact that they are sticky on the way down, which is not unusual, will not deter them from adjusting in a delayed fashion or even adjusting upwards at a later time should that be the direction, the market takes.”

“On the residential side, I would expect it to be slow for most of the remainder of the year with a slight pick-up later on in the year when the economic picture would be more stable with cash coming from the international lending bodies in circulation,”

“Relatively high unemployment and the threat of further redundancies should keep the market for residential properties soft,” Willaims adds.

Governor of the Bank of Jamaica, Brian Wynter, who was a guest at the Rotary Club of Kingston’s Weekly Luncheon yesterday, also cautions about too much speculation on the impact the JDX will have on the reduction in interest rates.

“I think we need to take things one step at a time,” he said. “Let us first deal with the Letter of Intent and with the IMF agreement. The JDX is important, steps will have to be taken. Let us complete that. Overall, lower interest rates, from the point of view of the government securities, will certainly not any longer contribute to interest rates being higher in the private sector. Let us get through this first step and then discuss that,” says Wynter.

In the interim, Williams suggests that market players, including buyers, developers and agents, observe tried and tested strategies to make the most of the market as it is.

“Homebuyers should look for the best deals they can get and ask for sweeteners if they think it will make them more likely to close on a purchase,” Williams advises.

“Sellers should look to strengthen the amenities being offered and possibly offer perks to make their properties stand out. Developers need to be more precise in selecting their price point. This year, a traditional escalation in prices of homes should be more resistant to the blanket percentage increase over last years prices due to the softening in prices and it being a buyer’s market. Agents need to know their inventories even better as it is more likely that the buyer will have even more demanding and exacting specifications than before,” Williams notes.

“On the commercial side, businesses should find rental rates softening if their leases are up. But given lease terms that are typically multi-year, not all of them will be exposed to these conditions this year. It should be a buyers’ market for the remaining part of the year,” he forcasts.