Chronic oversupply of apartments, especially in Kingston
No real estate bubble developingSunday, July 21, 2019
BY DURRANT PATE
Jamaica is currently facing a chronic oversupply of apartments, especially in Kingston, where there are upwards of 1,000 unsold units.
This according to real estate broker Anya Levy and veteran real estate entrepreneur and developer, Peter Rousseau. Both are of the view that the apartment segment of the real estate market is already over-saturated, with very little takers based primarily on the price being demanded by developers.
They made the point that the demand for town houses remains strong while highlighting the growing opportunities in the commercial real estate market, particularly as in regards to warehousing and car parks.
Speaking recently at the Sygnus Business Breakfast panel discussion under the theme, 'Using Flexible Capital to Unlock Value in Real Estate', both real estate experts dispelled the notion that given this oversupply, an imminent real estate bubble could arise.
Rousseau argued that if there is to be a downturn in the real estate market — it would be in the apartment segment, pointing out that this oversupply of apartments is evident in the Corporate Area. He pointed to the many vacant apartments in places like Liguanea, Barbican and other upscale neighbourhoods.
“When you drive around parts of Barbican, Liguanea and a number of areas at nights and look at the number of apartment buildings built recently, the number of lighted apartments to non-lighted apartments, sometimes you see upwards of 80 darkness,” Rousseau lamented, making the case that many of these apartments are unsold and unoccupied.
He was adamant that there is no real estate bust on the horizon but admitted that he is concerned about this oversupply of apartments in Jamaica.
“There is a saying in real estate, 'Behind every boom is a burst in the market,' but the market will correct itself,” Rousseau posited as he shared his experience of boom and bursts in the real estate market in Jamaica and the Caribbean, where he has done many real estate development projects.
“In my view, if the economy is progressing as it is doing then the chances of overheating is some years away,” Rousseau emphatically stated.
Levy was also of the opinion that a burst in the real estate market in Jamaica is some distance away, and expressed confidence that if this happens the result will not be as catastrophic as seen in the not-too-distant past when several institutions went into real estate and got burnt.
She then made the point that given this excess supply, “if you don't adjust rate downwards, they (apartments) are just going to stay vacant”. She cautioned developers in their pricing of residential real estate because of the current high demand.
“They have been inching up their prices, going from US$200 per square foot, to US$250 per square foot and now climbing to US $340 per square foot …What we want to see is for developers to taper off on the prices, because what's gonna happen is that the mortgages persons have to service — there is going to be a disconnect with the anticipated income of prospective buyers,” Levy explained.
Rousseau also spoke about pricing distortions in the real estate market and also cautioned developers about pricing their properties, while observing that some developments are priced too high and have little uptake. Other developments, he said, are reasonably priced in which the developers get a reasonable rate of return rather than aiming too high and missing sales targets.
Warehousing and car parks
Both Rosseau and Levy identified warehousing and car parks as the next big thing in the real estate market in Jamaica, based on the demand.
“In the commercial and warehousing market there is an under-supply, and I suspect that investment in those areas pretty much will have a good run in the coming years,” Rousseau declared. For her part Levy offered: “warehousing is a market, which is emerging but has been untapped for so long”.
She explained than many of the lands identified for warehousing and other industrial purposes are owned by the Government, which is changing them out from agriculture to industrial use. However, the time in making this adjustment has caused many projects to be stalled or not yet come to market.
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