Caribbean Property & Investment Review — July 2010: BP Well Capped, Summer Recovery

Publication Date: 3 July 2010  |  Coverage Period: 3 June – 2 July 2010

Morning Briefing

• Caribbean summer 2010 recovery underway; global recovery from 2009 recession trough shows consistent momentum despite ongoing external risks and headline volatility
• BP Deepwater Horizon well capped mid-July, effectively ending spill crisis perception risk for Caribbean tourism sector; tourism boards report summer bookings recovery to year-ago levels
• T&T new PM Persad-Bissessar establishes early economic agenda; coalition government announces energy and fiscal policy priorities with implications for property investment through late 2010
• Jamaica IMF programme shows strong Q2 2010 compliance; fiscal discipline anchor supports continued North Coast property appreciation and tourism investment momentum
• Dominican Republic property market reaches peak activity in summer 2010; FDI pipeline for Punta Cana and residential real estate continues strong despite hurricane season active phase
• Atlantic hurricane season active; early July tracking shows system formations; Caribbean property and tourism investors maintaining seasonal monitoring; no major Caribbean landfalls thus far

BP Well Capped: Caribbean Tourism Perception Risk Relieved

Following eighty-seven days of continuous crude oil gushing into the Gulf of Mexico, BP’s Deepwater Horizon well was successfully capped on July 15, 2010, effectively ending the acute environmental spill crisis. The well capping represents a watershed moment for Caribbean tourism and property markets, which had operated under low-level perception risk throughout Q2 2010. While the wellhead remains uncapped and will require permanent remediation through a relief well (not expected until August or later), the capping of the primary source stops new oil from entering the Gulf. Caribbean tourism boards immediately seized on the capping as a signal to international travellers that the environmental threat has passed. Summer booking recovery, which had begun to show resilience through late June, accelerated in early July as travel agents and tour operators resumed active Caribbean marketing campaigns. Property investors, who had monitored tourism bookings as a proxy for revenue stability and resort valuation support, are now recalibrating upward their expectations for Caribbean hospitality real estate valuations through Q3 2010. The consensus forming by July 3 is that the BP spill perception crisis has effectively concluded; tourism flows are expected to return to trend by mid-July, supporting Caribbean real estate market fundamentals.

T&T Government: Persad-Bissessar’s Early Policy Direction

In her first five weeks as Prime Minister, Kamla Persad-Bissessar has begun establishing the People’s Partnership coalition’s economic agenda. Her government has announced commitment to maintaining Trinidad and Tobago’s energy sector as the backbone of the national economy, while reorienting fiscal policy toward social programmes, education, and infrastructure. Energy policy signals from the Persad-Bissessar government indicate that while the pace of new mega-projects may slow, the scale of capital investment in refinery, LNG, and petrochemical infrastructure remains substantial. This positioning is moderately positive for T&T property investors: government property development spending may be lower than Manning-era precedent, but private commercial real estate serving energy sector operations is expected to grow. Port-of-Spain commercial property developers report increased corporate inquiry from energy and financial services firms positioning for expanded T&T operations under the new government. San Fernando’s energy-sector industrial and commercial property is showing renewed leasing activity. The Persad-Bissessar government’s early focus on anti-corruption, transparency, and social equity is reshaping T&T business environment expectations; foreign direct investment in energy-supporting property and services is expected to remain strong through 2010. Property investors are recalibrating T&T valuations upward as post-election clarity solidifies and government policy direction becomes evident.

Jamaica: Sustained IMF Discipline, Tourism and Property Momentum

Jamaica’s IMF Standby Arrangement continues to deliver credible results through Q2 2010. Government fiscal consolidation, currency stability, and foreign exchange reserve accumulation are all tracking on programme targets. The Central Bank of Jamaica’s management of the Jamaican Dollar has succeeded in stabilising the currency within narrow bands, removing inflation and devaluation uncertainty that constrained property investors through 2009. North Coast tourism, the barometer for Jamaica’s property and resort valuations, is showing strong early-July bookings as BP spill perception risk clears and summer 2010 travellers confirm Caribbean beach vacations. Kingston commercial real estate continues to post active leasing and sales markets; BPO and telecommunications firms are increasing real estate commitments. Jamaica’s residential market, particularly high-end segments in Kingston, Montego Bay, and Ocho Rios, is showing genuine appreciation as foreign buyers return with confidence. Property investors view Jamaica as one of the highest-conviction Caribbean recovery plays entering summer 2010; IMF programme credibility, currency stability, and tourism recovery confluence are supporting valuations. Expect continued appreciation in Jamaica’s property market through Q3 2010, with particular strength in North Coast tourism-related real estate and Kingston commercial properties.

Dominican Republic: Peak Summer Activity and FDI Acceleration

The Dominican Republic is experiencing peak activity in Caribbean property markets in summer 2010. Punta Cana resort developers report record hotel development pipeline with international operators announcing new properties and expansions at accelerated pace. Residential real estate, particularly beachfront and golf-course communities, is seeing strong European and North American buyer activity. FDI commitments from hospitality operators, residential developers, and financial services are flowing into the DR at levels that exceed year-ago and pre-recession activity. President Leonel Fernández’s government continues to provide stable, business-friendly regulatory framework; currency stability and predictable tax policy support investor confidence. Santo Domingo’s commercial property market, serving Dominican and multinational corporate headquarters activity, is posting strong leasing and sales momentum. Santiago’s manufacturing and logistics real estate is benefiting from supply-chain FDI related to Caribbean regional trade integration. The DR’s economic diversification, beyond tourism into manufacturing, financial services, and call-centre operations, is underpinning property market breadth. Property valuations across Dominican Republic sectors are showing appreciation; early summer 2010 represents peak market activity with highest transaction volumes and strongest investor sentiment visible in Caribbean region.

Hurricane Season Active Phase: Monitoring and Risk Management

July 2010 marks the entry into Atlantic hurricane season’s most active phase (July through September). Early-season activity has produced tropical storms and hurricane formations in the Atlantic basin. Caribbean property and tourism investors are now in active seasonal risk monitoring mode. Insurance costs for hurricane coverage are elevated; development financing is pricing higher risk premiums for summer-to-fall construction projects. No major Caribbean landfalls have occurred through early July, and typical Atlantic hurricane tracks suggest that the season’s greatest threat to Caribbean property would come in August and September. Investors are maintaining diversified geographic positioning across Caribbean islands to hedge hurricane landfall risk; Barbados, further from typical Atlantic hurricane tracks, shows particular appeal as a risk-hedge property positioning. Jamaica, T&T, and Dominican Republic properties are all subject to seasonal hurricane risk, though the DR’s geography and economic resilience position it favorably even if storms do track into the region. Current consensus is that hurricane season represents elevated-but-manageable risk for Caribbean property valuations; no expectation of major season-disrupting Caribbean landfall, though probability risk is priced into property insurance and development timelines through September 2010.

Caribbean Leaders This Month

Prime Minister Kamla Persad-Bissessar, Trinidad and Tobago: Five weeks into office, establishes government’s economic priority agenda with focus on energy sector maintenance and fiscal reallocation; early policy signals support continued private commercial property investment in T&T through 2010.

Prime Minister Bruce Golding, Jamaica: IMF Standby Arrangement delivers Q2 2010 compliance; Jamaica’s fiscal discipline anchor and currency stability support continued North Coast property appreciation and tourism investment momentum through summer 2010.

President Leonel Fernández, Dominican Republic: Presides over strongest Caribbean economy and most active property market in summer 2010; DR’s political stability, business-friendly policies, and economic diversification continue to attract record FDI and property investment flows.

BP Leadership & US Government Officials: BP well capping on July 15 represents critical milestone in resolving Gulf of Mexico spill crisis; US government oversight of spill containment and environmental remediation begins to shift from crisis management to longer-term liability and restoration focus.

Caribbean Tourism Boards & Marketing Authorities: July 2010 represents successful conclusion of BP spill perception crisis management; tourism boards celebrate well capping and resume full market promotion for summer and fall 2010 season with confidence that perception risk has cleared.

National Hurricane Center & Regional Meteorological Services: Active monitoring of Atlantic hurricane season continues; early-July system tracking shows active formation rates; Caribbean property and tourism investors receive regular updates on storm positioning and potential Caribbean landfalls.

Caribbean Real Estate & Investment Community: July 2010 represents confirmation that 2010 recovery is real and sustainable; external shocks (Haiti earthquake, BP spill, T&T election) have been absorbed; property valuations, transaction volumes, and investor sentiment are all positive entering mid-summer season with expectation of continued momentum through Q3 2010.

Looking Ahead

August and September 2010 will test the Caribbean property market’s resilience to hurricane season concentration and global macro conditions. The Federal Reserve’s quantitative easing policy continues to support emerging market capital flows; equity market performance will be critical to investor appetite for Caribbean real estate acquisitions. T&T’s Persad-Bissessar government is expected to deepen policy implementation; further clarity on energy investment pipelines and government property development will shape Q3 and Q4 2010 transaction volumes. Jamaica’s IMF programme enters its second half-year with Q3 reporting expected in September; continued compliance will further validate Caribbean fiscal discipline for global investors. The Dominican Republic property market is expected to maintain its position as the strongest in the Caribbean through summer and into fall 2010. Hurricane season remains the primary external risk factor; if August or September produce major landfalls affecting Jamaica, T&T, or other tourism-dependent islands, property valuations and tourism revenue expectations could face material downside. Current base case is that 2010 Caribbean property recovery continues through mid-year, supported by intact fundamentals, policy clarity, and global monetary accommodation.

The Caribbean Property & Investment Review’s assessment for mid-July 2010 is solidly constructive: the region has absorbed significant external shocks (earthquake, environmental disaster, political uncertainty) and emerged with investment fundamentals intact. Jamaica, Dominican Republic, Trinidad and Tobago, and Barbados all show signs of genuine property market recovery with valuations appreciating from 2009 trough levels. Global capital flows remain supportive; emerging market real estate continues to attract international investor capital seeking higher yields. The critical questions for Q3 2010 are whether hurricane activity disrupts physical property or tourism capacity, and whether global equities remain strong enough to sustain emerging market capital allocation. Current consensus is that Caribbean property valuations have transitioned from cyclical trough to early-recovery phase; if macro headwinds do not intensify, Caribbean property should post positive appreciation through 2010.

July 2010 represents a psychological turning point in Caribbean property investment: the crisis period (2009 recession, earthquake, oil spill) is effectively past, and investors are now positioning for sustained recovery-phase gains. Summer 2010 buying activity, driven by global capital seeking Caribbean real estate exposure, is expected to continue through August and into early fall 2010. Property valuations across Jamaica, Dominican Republic, Trinidad and Tobago, and Barbados reflect this transition from distressed/trough pricing to recovery valuations with earnings power and long-term growth potential. The Caribbean property market of 2010 is building momentum that should carry forward into 2011 if external conditions remain supportive.

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