Now, may be the best time.

For the past few years, housing costs in Jamaica, and more so in the golden triangle of Kingston & St Andrew have been astronomical. Thanks to Airbnb, investors have been buying properties like hot bread. Young (and not so young) professionals have been struggling to buy even a starter home. A simple 2-bedroom apartment can easily cost upwards of $25M while NHT benefit still stands at only $6.5M.

With the Airbnb market crashing, most proprietors are scrambling to pay the mortgages on their investment properties. Not everyone has the resources or the patience to wait out the COVID storm. Some are bound to go into foreclosure while others may just want to get the properties off their hands because of the uncertainty of the future.

As we watch and wait, now, may just be a great time to start thinking about buying a property in Jamaica.

Keep reading and hopefully when you are done, you will feel empowered to take the bold step to home ownership.

Know what you can afford

If you are like me and watch way too much HGTV, then you know there is a huge difference between your dream home and what you can afford.  The best way to know what you truly can afford is to schedule a mortgage appointment with a financial institution. Be prepared to provide them with supporting documents including your pay slip (last three months), job letter, NHT contribution letter, list of all your monthly expenses, etc. They will be able to tell you what you can afford and what your monthly payments will be.

If the property which you are eyeing (and it most likely will) exceeds the National Housing Trust (NHT) loan, be sure to choose a mortgage lender which has a joint venture mortgage programme with NHT.

What is a joint venture mortgage programme?

In short, the financial institution along with NHT will lend you the total amount of your loan. The real advantage of this arrangement is that the financial institution will make the application for you and coordinate with NHT so that you do not have the headache of  dealing with both places at once. After the loan has been disbursed, you also make one mortgage payment to the institution which will thereafter remit payment to NHT without any further action on your part.

Side note: remember that you won't qualify for NHT loan if your name appears on a title for property which has benefitted from NHT loan even if you did not obtain a loan yourself. This most often happens when a parent puts you on their title.  There is a process for making a formal appeal to the NHT for an exception and approval, but that is for another post.

Back to the main course.

Shop around

I recommend talking with your banker to get a good sense of what you can afford. But don’t just stick with your bank because you have been with them for ages. Shop around. I know this is tedious, but I promise it’s worth the effort. Take the time to meet with as many institutions as you can. Remember you are spending millions of dollars to purchase what will most likely be your largest asset. Financial institutions are all now offering extremely competitive loans, some even giving up to 110% of your mortgage needs. They want your business, so do not be afraid to ask questions and negotiate their fees.  If you are really sentimental and want to stick with a particular institution, do not be afraid to tell them when you are being given a better option so they can match.

 Get expert help

I can feel you side eying me right now. But take my word for it, talk to an attorney and a realtor if you are seriously considering purchasing property. I know you are trying to save all you can because of the hefty price tag, but don’t skim on expert advice when you are spending millions of dollars that you will perhaps take a lifetime to repay.

A relative of mine living abroad once bought property in Jamaica which turned out to be in the sea. My aunt (again living abroad)  also bought property which turned out to be in one of the worst areas in Spanish Town fully occupied by squatters. Needless to say, she has been there only once.

Your realtor and attorney are there to ensure that you are not being scammed. Your attorney will conduct the requisite due diligence exercise to ensure that you are purchasing a property (1) from someone with the legal authority to sell it (2) that all  taxes  and utilities are paid up (3) has no breaches or encroachments and if they do will obtain a undertaking  to have them remedied (4)  review and negotiate  amendments to your agreement for sale to ensure that the terms are not unfavourable to you (5) liaise with the vendor’s attorney while acting in your best interest and taking you through the process to completion and home ownership.

 

The Process

So, let's get started on the road to homeownership. Pretend we are on an episode of HGTV home purchasing with me as your host (I did say I watch way too much HGTV).

A realtor has shown you several homes and you have found one that you absolutely love. You know it’s within budget because you have already met with your financial institution and you have a pre-approval letter.  You confidently tell the realtor, “Yes! This is it!” and you complete the form with all the relevant details for your offer.

The vendor receives the offer and sometimes a copy of your pre-approval letter (which some may require before even allowing you to view the property). The vendor accepts your offer and passes your information to his/her attorney so that they can contact your attorney (this information will be on the offer sheet which you will complete) and begin the process.

The vendor will send your attorney the Agreement for Sale for review. Your attorney may request changes (usually in your best interest) and will also walk you through the agreement explaining all the terms and special conditions. Once the attorneys have agreed on the changes and you fully understand the terms and conditions of the agreement(s) and are ready to sign, then it’s time to talk money.

Costs

I did say that buying a home may be your largest purchaser ever, right? This is because there is quite a bit of costs associated with buying property in Jamaica.  Some costs are shared equally between yourself and the vendor, some are solely your expenses.  Here, I will take you through the major (but not all) costs:

Legal fees 

I am an attorney, so of course I have to defend my colleagues fees. You must pay for your expert help. Your attorney’s fees are likely to cost 3% (plus GCT if applicable) of the purchase price. Some attorneys may go be willing to negotiate, but this is the average cost.

Agreement for Sale

The cost for preparation of the Agreement for Sale is shared equally between vendor and purchaser. The cost for this Agreement varies but I would recommend budgeting between $70,000.00 to $150,000.00 (plus GCT where applicable). Depending on the property that you are purchasing, expect added costs.

For example, if it is a new Strata, you will also be charged for obtaining Strata Title and imposing by-laws for the use, control, and management of the Strata. If the property is being built, there may also be an accompanying Installation Agreement. If you are purchasing the property with fixtures and furniture, there may also be a separate Chattel Agreement. Please note that payment for the preparation of these agreements is non-refundable even if the sale falls through.

Surveyor’s Identification Report and Valuation report

I have lumped these together, but they are two separate reports and will be especially important if you are obtaining a mortgage. Some financial institutions may include the cost for these items in your total loan amount. Note, however that in most cases, you will be required to upfront these costs as both reports will be required by the financial institution for approval of the loan.

Both valuators and surveyors often charge an average of 0.3% of the purchase price/value of the property and these costs are borne solely by the purchaser.

So, why are these documents required?

Surveyor’s Identification Report

The commissioned land surveyor confirms that the address and the property as described on the Duplicate Certificate of Title are the same. The surveyor will also ensure that the boundaries are properly established and will most importantly tell us if there are any breaches or encroachment on the property. This is important information which both NHT and your financial institution will require.

Valuation Report

The valuation report will provide a detailed analysis of the property and its surrounding environs. What is especially important for you and the financial institution is the Market Value of the property. This is important because the mortgage lender wants to know that the property values the money which it is lending you. In short, it will not lend you more than what the property is valued. You also want to know this, so that you are confident that you are paying the correct price for the property.

Stamp Duty

This used to be a whopping 4% of the value of the property. Thanks to relatively recent changes by the government, it is now a flat fee of $5,000.00. This cost is shared equally between vendor and purchaser.

Transfer tax 

This also used to be a hefty 5% of the value of the property, now it is 2%. This is solely the vendor’s cost, but do not get too excited because it is paid from your deposit (which I’ll discuss below). Also note that the Tax Commissioner may or may not accept the sale price (what lawyers call the ‘consideration’) stated in the Agreement for Sale.  Therefore,  a representative may conduct a site visit to make their own assessment. If they end up assessing at a higher value than you anticipated, there should be a clause in your agreement to address this (see why you need expert help?)

Letters of possession

These letters are prepared by the vendor’s attorney upon completion of the transfer of the property into your name. They will be addressed to the National Land Agency and utility companies to state that you are the new owner of the property and they should deal with you accordingly. This cost varies, but I would recommend budgeting about $25,000.00 (plus GCT where applicable). This cost is also shared equally between the parties.

Registration fee

This is approximately .5% of the value of the property and is shared equally.

Real Estate Agent’s fee 

This is 5% of the sale price plus GCT. The real estate agent's fee is paid by the vendor on completion of the sale by the vendor’s attorney.

Deposit

The deposit is extremely important because it is money you will need to have in hand. Let me explain. Even though you may be approved for 100% or 110% of the purchase price, you will need to make a 'down payment' on the property. The standard deposit is between 5% and 10% of the purchase price. Most vendors are now willing to accept 5% because of the reduced costs associated with stamp duty and transfer tax discussed above. However, some are still insistent on receiving a 10% deposit upfront.

The deposit is paid over to the vendor’s attorney along with your half cost for their preparation of the Agreement for Sale. Thereafter, you will receive a signed and dated copy of the Agreement  from the Vendor’s Attorney along with other documents (receipt evidencing payment of the deposit, Property Taxes Certificate, Water Bill and receipt) that your financial institution will require if you are obtaining a mortgage.

Loan Processing Fees

One shocker for most people is the fees associated with the loan. These include the loan processing fee, mortgage registration fees and stamp duty for the mortgage instrument, the financial institution attorney’s fees, and other miscellaneous sums. These fees can be significant running over a million dollars depending on the amount of the loan. For example, for a home purchase of about $40M, 3 different financial institutions quoted loan processing fees of over $1M.

Why you should know about these fees?

Because, they are going to be deducted from your loan. Therefore, even if the bank lends you 100% of the purchase price, when they are done deducting their fees from this sum, you will be in the hole. So, it’s important to prepare as you will still need to have some savings upfront to take care of these costs.

But there is good news.

This is one of the areas where you can negotiate, negotiate, and negotiate. They won’t tell you, but financial institutions have lots of flexibility on these fees and can waive, absorb or significantly reduce them. With great negotiation, you can successfully get these fees cut in half. Do not be afraid to challenge them to match or do better than a competitor.

Remember, you are going to pay them back millions over the next 20 to 30 years, it's the least they can do.

Peril and life insurance

To protect their loan, peril and life insurance are mandatory requirements for most mortgage lenders. The easy way to differentiate the two is to remember that peril insurance protects the property and life insurance refers to you. The types of perils covered will be expressly defined in your insurance policy but will generally refer to a specific cause of damage or loss to property arising from incidents such as fire, flood, windstorm, etc.

Life insurance in its simplest terms provides a lump sum payment to your beneficiary in the event of your death. Therefore, if you die before repaying the loan, the mortgage lender becomes the beneficiary which is paid a lump sum which covers your debt.

Most institutions including NHT will have these policies built into the loan, but some may offer you the option of obtaining these polices independently. If they do, shop around as insurance rates vary significantly among insurance companies. Importantly, you are not restricted to obtaining these polices in Jamaica. With some research, you will find that there are several attractive options with lower costs and better coverage outside of Jamaica. Of course, you will want to ensure that these are reputable insurance companies and bear in mind that in the event of legal conflict, this company is outside of your jurisdiction.

However, whether you opt for a local or overseas insurance, the single most important reason I would urge you to consider taking insurance but especially life insurance independently  of the mortgage lender is the fact that you are able to keep this policy after the life of the loan.

Let me explain.

Scenario 1 – 'Built in' Life Insurance

Imagine you’ve bought a home for $40M. The mortgage lender provides a built-in life insurance policy valued at the said amount. God forbid you die before the term of the loan ends; they get back their money and your beneficiary gets the property. But let’s say, you get to age 60 (an approximate age) and you’ve completed paying off your mortgage, that built-in life insurance ends.  You now own your home free and clear so the financial institution gives you back your title and bids you goodbye. Your built-in life insurance also comes to an end since they have no interest in maintaining it. If you do not already have a separate life insurance policy, you do not want to attempt to get one at 60.

Scenario 2 – Independently bought Life Insurance

Now, let’s say you opted to obtain independent life insurance which you then assign to the mortgage lender. If you die before you pay back the loan, you are in the same position as scenario 1, the financial institution gets back its money, and your beneficiary gets the property.  However, you now get to age 60 and you have paid off your mortgage. In this scenario, the financial institution not only gives you back your title, but it reassigns your existing life insurance policy to you. You now have two things of value: your home and a life insurance policy valued at 40M which you can opt to leave for a beneficiary (a favourite grandchild) or cash in for use as you please.

You can thank me later.

So, are you ready to buy a home?

The costs discussed above are paid at various stages during the sale. And since you got expert help, you will be guided by your attorney who will also provide you with a Statement of Account detailing all the sums involved in the sale. If there are no hiccups, you should be able to complete this process within 90 to 120 days. If your pockets are heavy and you happen to be doing a cash sale (that is, you don’t need a mortgage), then you may be able to complete within 30 to 45 days.

If you are seriously considering buying property in Jamaica, start looking around.

There are tons of realtor websites which will help to give you a feel of what is available and what you can afford. You should also start setting aside some money towards the deposit and other costs including those discussed above.

Continue to watch the real estate market keenly just in case COVID really shakes it up to buying property in Jamaica, especially in the urban areas within your reach.

Have you bought property in Jamaica? Share your experience below.

Please note that this article is for general information purposes only and does not 
constitute legal advice.