FEARS that rising interest rates will dampen the real estate market are yet to materialise, with mortgage demand remaining robust, according to data from the Bank of Jamaica (BOJ) and players in the industry.

The conventional wisdom is that, with rising policy rates — the BOJ has increased its benchmark interest rate over the last year from 0.5 per cent in September 2021 to 7 per cent in November 2022 in an effort to control runaway inflation — mortgage companies will start to hike rates, which will make owning a home more expensive and eventually lead to a reduction in the demand for housing.

“The central bank’s benchmark interest rate [that influences all other lending rates] has been pushed up again, now to 7 per cent. This means further dampening of spending power. Rising mortgage rates, with so much residential construction underway, should be, ahm, ‘interesting’,” Damien King, a senior economist and former head of the Department of Economics at The University of the West Indies, Mona, tweeted recently.

Asked to elaborate by the Jamaica Observer, King replied: “It raises concerns about the possibility of a property crisis with too many units coming on the market while potential homebuyers are disincentivised by higher mortgage rates.”

But, based on the data available, that ‘crisis’ has not started to materialise as yet and players in the industry, while uncertain about how higher rates will impact the market in the coming months, point out that their own information shows the market remains robust.

First the data: According to the National Housing Trust (NHT), the target is to provide approximately 4,000 new housing starts by the end of this year, while over 4,000 housing solutions should be completed. The trust says it is also on track to disburse almost 8,000 mortgages by the end of 2022.

And while the Planning Institute of Jamaica (PIOJ) pointed out recently that the construction sector was in contraction, declining by an estimated 5.2 per cent in the July to September quarter, the decline was not caused by a slowdown in the real estate sector, but rather by a slowdown in road construction as various projects are completed.

Wayne Henry, director general of the PIOJ, told a recent press briefing that the building construction segment of the construction industry grew, with that growth driven mainly by the performance of the residential component, supported by a 103 per cent increase in housing starts by the NHT, as well as a 23.9 per cent increase in the value of mortgages disbursed.

Then there is the data from the BOJ.

In the July to September 2021, just ahead of the start of the BOJ’s rate hikes after cutting them for 13 years to a historic low of 0.5 per cent, the total mortgages disbursed by building societies were valued at $5.6 billion. In the July to September quarter of this year, when the policy rate was 6.5 per cent and mortgage rates were increasing, total mortgages disbursed by building societies were valued at $5.9 billion.

The value of mortgages on the balance sheets of building societies have not shown any decline either. In September 2021, building societies reported having $96.3 billion in mortgage loans on their books. By September 2022 that figure had climbed to $106.3 billion. At the same time, the interest rate on local currency mortgage loans, which was 7.23 per cent in September 2021, declined on average to 7.22 per cent.

“All in all, the market has not moved; it has stayed where it was earlier this year,” Peter Reid, chief executive officer for building society operations at VM Group told Sunday Finance. He was responding to queries about whether he was seeing any changes in the demand for mortgages given rising interest rates.

The VM Group has been increasing interest rates in response to the BOJ’s moves. Reid pointed out that the VM Group’s mortgage rate, which was 6.5 per cent last year, has been increased to 7 per cent and is moving again to a range of 8 per cent to 8.25 per cent.

“There is currently no evidence to suggest that the increase in interest rates is having an impact on the demand for mortgages, or loans in generally, Leesa Kow, managing director at JN Bank said in an e-mail response to the same query.

“The demand for mortgages remain high,” she added, pointing out that, “perhaps because there is a wide range of mortgage interest rates being offered in the market as bank’s have responded to the policy rate increases.”

JN Bank and the VM Group together control “about 70 per cent to 80 per cent of the mortgage market outside of the National Housing Trust”.

It was also pointed out that, while the building societies have been hiking rates, the rise in interest rates is not across the board. Banks, which are pushing into the mortgage market, have kept rates below that of the building societies. For example, financial organisations like Scotiabank, which is using the opportunity to build its mortgage portfolio, has kept its mortgage rate at 6.99 per cent, which has resulted in some switching by consumers.

Sure there is expected to be some slowdown, but as the data show, it is not happening yet.

Richard Byles, governor of the BOJ, was clear on that point during the central bank’s monetary policy press briefing in August.

“I would think that if rates continue to increase it could have an impact on our housing market here,” he told journalists while acknowledging that some of the robustness in the mortgage market is driven by the NHT, which is “not necessarily driven by market impulses”.

“We do recognise that there is a risk, but we don’t think that certainly at these levels of interest rates it will push the construction sector or the housing sector into recession,” Wayne Robinson, senior deputy governor at the BOJ added then.

For now, developers are not worried.

Jason Morris, chief investment officer of Sygnus Capital Limited, which is the investment manager of Sygnus Real Estate Finance, told an investor briefing on Thursday about the new Monadh Rois — a forthcoming luxury residential development set for the upscale golden triangle area of St Andrew.

“The people who we are targeting with Monadh Rois aren’t going to be concerned with mortgages, to be honest. If you think about people who buy townhouses; a townhouse in Jamaica is a luxury item. If you have eight, 10 or 15 townhouses, you’re not going to be targeting people who are concerned with mortgage rates per say. That is not to say that as interest rates go up it won’t affect liquidity, and if liquidity is being impacted then clearly that can spill over into the residential space. These developments that we’re doing are very small scale, and these are the lessons we’ve learned over the past three years. It’s a manageable scale, small size, you build to quality, then effectively half of your unit sales are going to come from overseas investors based on what you’re offering at the location and the price point you put it at, etc. We’re not in the business of trying to go to a price point where when someone is looking at it, whether for investment purposes or to live in, they have to think twice and thrice.”