Caribbean Property & Investment Review — Edition 197 | March 2010

Publication Date: 3 March 2010  |  Coverage Period: 3 February – 2 March 2010

Morning Briefing

• Haiti earthquake reconstruction enters its second month — international pledges begin translating into on-the-ground procurement and contracting opportunities across the region.
• Jamaica’s IMF Standby Arrangement, signed in February 2010, sets a demanding fiscal path: wage freezes, debt restructuring, and hard targets for the public sector.
• Trinidad & Tobago under Prime Minister Patrick Manning continues to benefit from buoyant energy revenues, with natural gas export volumes holding firm.
• Barbados tourism arrivals show cautious improvement after a bruising 2009; the winter season is outperforming expectations at major resort properties.
• Dominican Republic reports strong advance hotel bookings through the spring quarter, supported by competitive airlift from North America.
• Regional construction materials prices are rising on the back of Haiti-related import demand, creating both opportunity and cost pressure for developers.

Haiti Reconstruction: Implications for Caribbean Investment

The earthquake that struck Haiti on 12 January 2010 — registering 7.0 on the Richter scale and killing more than 200,000 people — has reshaped the near-term development calculus across the Caribbean basin. Port-au-Prince lies in ruins, and reconstruction will be a generational undertaking. For investors in neighbouring markets, the immediate consequences are multifaceted. Construction firms, logistics companies, and engineering consultancies headquartered in Jamaica, the Dominican Republic, and Trinidad & Tobago are fielding enquiries from international relief agencies and development banks seeking local partners with regional expertise.

Beyond the humanitarian dimension, the scale of international capital mobilising toward Haiti is vast. The Inter-American Development Bank, World Bank, and bilateral donors have pledged billions in reconstruction assistance. While Haiti itself is not a conventional investment destination in the short term, the reconstruction economy is generating ancillary demand — for cement, aggregate, steel, prefabricated building systems, and professional services — that flows substantially through Dominican Republic ports and regional freight networks. Caribbean construction executives with capacity and relationships are positioning accordingly.

Longer term, questions are being raised in development finance circles about whether the reconstruction could lay the foundations for a more stable Haitian economy and, eventually, a property market of its own. That horizon remains distant, but the direction of international attention is fixed. For now, the immediate investment story is in the supply chain surrounding Haiti rather than within it.

Jamaica: IMF Discipline and the Property Outlook

Jamaica’s decision to enter into a Standby Arrangement with the International Monetary Fund in February 2010 marks a significant inflection point for the island’s economy. The programme, which involves quarterly performance reviews and stringent fiscal targets, requires the Golding administration to contain the public sector wage bill, restructure domestic debt through the Jamaica Debt Exchange, and demonstrate primary surplus improvement. For property investors, the short-term implications are sobering: consumer purchasing power is under pressure, mortgage credit remains tight, and construction activity is subdued.

Yet the reform programme also carries a longer-term promise. International investors with a multi-year horizon view IMF engagement as a credibility signal — an indication that Jamaica is serious about fiscal sustainability and macroeconomic stability. If the programme stays on track, the reward could be lower sovereign borrowing costs, improved credit ratings, and a gradual restoration of confidence in Jamaican assets. The Kingston commercial office market, which experienced significant vacancy increases during 2008 and 2009, could be among the first beneficiaries of a stabilisation narrative.

Residential property in Jamaica’s resort corridors — Montego Bay, Negril, Ocho Rios — tells a somewhat different story. These markets are insulated from domestic purchasing power trends by the concentration of international buyers and vacation rental income. Dollar-denominated transactions remain the norm, and select villa and condominium developments continue to attract North American and European interest, albeit at more disciplined price points than the peak years of 2006 and 2007.

Regional Recovery: A Differentiated Picture

Across the broader Caribbean, the early months of 2010 present a differentiated recovery pattern. The markets most dependent on US leisure tourism — the Bahamas, Turks and Caicos, parts of the Dominican Republic — are benefiting from improving American consumer sentiment as unemployment in the United States begins, slowly, to recede. The Federal Reserve’s near-zero interest rate policy continues to support asset prices and encourage risk appetite among institutional and high-net-worth investors, some of whom are looking at Caribbean real estate as an alternative to compressed yields in conventional fixed-income markets.

In contrast, markets with significant European visitor dependence — Barbados, St Lucia, Antigua — face a somewhat more complex picture. The eurozone is grappling with its own fiscal anxieties, and sterling has not fully recovered from its 2008 depreciation against the US dollar. British second-home buyers, who were a major demand driver in Barbados’s luxury segment through the mid-2000s, remain cautious. However, pricing adjustments at the premium end of the Barbados market have begun to attract opportunistic buyers who see value at levels unavailable during the peak.

Trinidad & Tobago occupies a position of relative strength. High energy revenues have insulated the twin-island republic from the worst of the recession’s fiscal consequences, and the Port of Spain commercial market retains genuine corporate demand from the energy sector and its service industries. Residential prices in the affluent western corridor of Trinidad — Westmoorings, Goodwood Park, Diego Martin — have held better than comparable markets elsewhere in the region.

Caribbean Leaders This Month

Patrick Manning, Prime Minister of Trinidad & Tobago, continues to manage a strong fiscal position underpinned by natural gas export revenues. His government’s investment in new smelting and petrochemical capacity is proceeding, and T&T’s role as a regional financial hub shows no sign of diminishing.

Bruce Golding, Prime Minister of Jamaica, faces the most demanding economic moment of his tenure. The IMF SBA accepted in February imposes real constraints on spending, but his government’s willingness to accept the discipline is being noted approvingly by multilateral lenders and institutional investors who had grown frustrated with Jamaica’s fiscal drift.

David Thompson, Prime Minister of Barbados, is steering his island through a challenging tourism cycle with characteristic composure. His government has resisted the temptation to stimulus spending beyond Barbados’s means, maintaining the island’s long-standing reputation for fiscal prudence and sound monetary management.

Leonel Fernández, President of the Dominican Republic, is leveraging Haiti’s tragedy to reaffirm the DR’s position as the region’s most stable large economy. The government has positioned itself as a logistics partner for reconstruction efforts, and DR tourism operators are working hard to differentiate their product from any negative spillover association with Haiti in the minds of international visitors.

Perry Christie and the PLP opposition in the Bahamas are watching Prime Minister Hubert Ingraham manage the fallout from a difficult year for Bahamian tourism. New resort development pipeline projects that stalled in 2009 are beginning to show signs of revival as financing conditions improve incrementally.

Haiti’s interim government is overwhelmed by the scale of the reconstruction task. International donors are increasingly working with NGOs and multilateral agencies rather than channelling funds through Port-au-Prince ministries, a pragmatic response to institutional capacity constraints that is shaping the contracting landscape for regional firms.

Ralph Gonsalves, Prime Minister of St Vincent and the Grenadines, has been an active voice at regional forums calling for concessional financing access for smaller island economies. His argument — that CARICOM’s smaller members lack the fiscal buffers to absorb external shocks — has gained traction in the post-recession environment.

Looking Ahead

The spring season will be the first meaningful test of whether Caribbean tourism has genuinely turned the corner after two difficult years. Advanced booking data from major tour operators and airline load factors will provide early signal, and property developers across the region are watching closely — sustained occupancy improvement is the precondition for any meaningful revival in resort real estate development activity.

Jamaica’s first quarterly IMF review is approaching, and the outcome will be closely watched. A clean review — demonstrating programme compliance — could materially shift sentiment toward Jamaican assets and encourage investors who have been waiting on the sidelines to re-engage. Conversely, any sign of slippage would reinforce caution among the international community.

Haiti reconstruction coordination is intensifying ahead of the major international donors’ conference planned for March 2010 in New York. The pledges made there will define the scale and pace of capital deployment into Haitian reconstruction and, by extension, the secondary demand that flows to regional construction and logistics sectors. Caribbean businesses with the capacity to engage should be positioning now.

The Caribbean Property & Investment Review is published monthly for professional investors, developers, and advisers active in Caribbean real estate and financial markets. This edition covers the period 3 February to 2 March 2010.