Morning Briefing
- Greece secured a second EU-IMF bailout package in late June after its parliament approved a further round of austerity measures, temporarily stabilising European financial markets but failing to resolve the underlying sovereign-debt dynamic.
- The 2011 Atlantic hurricane season recorded its first named storms of the season in June, consistent with the above-normal forecast, reinforcing the need for Caribbean preparedness measures ahead of the August–September peak.
- UK visitor arrivals to Barbados fell approximately 9% in the first five months of 2011 compared with 2010, reflecting consumer confidence pressures in Britain and a weaker pound against the Barbados dollar.
- The Dominican Republic reported record visitor arrivals in the January–May period, driven by growth in North American and Latin American travellers partially offsetting European softness.
- Trinidad & Tobago’s Heritage and Stabilisation Fund crossed TT$15 billion in assets, marking a significant rebuilding milestone following recessionary drawdowns in 2009–2010.
- Cayman Islands residential property listings rose 8% year-on-year as of June 2011, with agent commentary noting a gradual increase in viewing requests from North American buyers.
The Eurozone Crisis and Its Caribbean Consequences
When Greek lawmakers voted in late June 2011 to approve a further package of fiscal austerity measures — thereby unlocking a second tranche of EU-IMF emergency financing — European financial markets rallied with relief. But the structural problem of unsustainable sovereign debt across the Eurozone periphery remained unresolved, and the impact on consumer confidence in the United Kingdom, Germany and across the eurozone was already being felt in Caribbean tourism data with a clarity that no amount of political reassurance could obscure.
For Caribbean islands that draw a substantial share of their visitors from European source markets — Barbados, St Lucia, Grenada, Antigua and, to a lesser degree, Jamaica — the Eurozone crisis represents a slow-moving but significant headwind. British tourists, who historically account for 30–40% of arrivals in Barbados and similar shares in St Lucia and Grenada, are spending less freely. The combination of domestic UK austerity, uncertain employment prospects and a sterling exchange rate that has weakened against both the US dollar and the euro has reduced the disposable travel budget of the average British visitor and, in some cases, led to the substitution of a Caribbean holiday with a cheaper European alternative.
Caribbean tourism ministers have been tracking these trends closely and have been accelerating efforts to diversify source markets. The Caribbean Tourism Organization convened an emergency strategy session in late May to review the response, with the consensus emerging that North America — and in particular the United States, which is showing early signs of economic recovery — must be the priority market for short-to-medium term promotional investment. Several island tourism boards have reallocated marketing budgets from UK to US campaigns, a pragmatic but not without cost response to the European headwinds.
Caribbean Property: European Buyers Reassess
The Eurozone crisis is registering in the Caribbean property market beyond its effect on tourism flows. European buyers — particularly British, but also German, French and Scandinavian — have historically been a significant segment of the Caribbean luxury property market, especially in markets like Barbados, St Lucia and Antigua that benefit from direct flight connections to European cities and established expatriate communities. In the current environment, several of these buyers are pausing or deferring purchase decisions as they assess the implications of the European financial situation for their own wealth positions.
Real-estate agents in Barbados report that British buyer enquiries in the first half of 2011 are running about 15% below 2010 levels, and that when British buyers do enquire, price sensitivity has increased markedly. Several deals that would previously have proceeded to signed contracts stalled at the negotiation stage as buyers sought price reductions that sellers were unwilling to concede. The result has been a modest widening of the bid-ask spread and a slight lengthening of average time-on-market for properties in the US$500,000–US$2 million range.
The counterweight to the European softness has been the gradual recovery of North American demand and the continued growth of Latin American buyer interest. North American enquiries into Caribbean property markets are running ahead of 2010 levels in most jurisdictions, buoyed by improving US employment figures and a recovering US housing market that is, for some buyers, restoring the equity positions that were eroded during 2008–2009. Latin American buyers from Brazil, Colombia, Venezuela and Mexico continue to expand their presence in the market, drawn by the Caribbean’s proximity, political stability and dollar-pegged legal systems.
T&T: Mid-Year Economic Review
Trinidad & Tobago’s mid-year economic position reflects the dual character of an energy exporter in a world of elevated but volatile commodity prices. On the positive side, natural gas prices and LNG contract realisations have tracked oil benchmarks to a significant degree, supporting government revenue and providing headroom for capital spending that the Persad-Bissessar administration has used to accelerate infrastructure projects. The Heritage and Stabilisation Fund’s continued growth provides a financial buffer that most Caribbean peers can only envy.
On the less positive side, T&T’s non-energy economy — manufacturing, retail, finance and services — continues to face structural challenges. Inflation, partly imported through the energy-price channel and partly domestic in character, has been running at 7–8% on a year-on-year basis, eroding real wages and compressing consumer spending power. The construction sector, which had been a major driver of activity during the energy boom years of the mid-2000s, remains below its peak levels of activity, partly because some of the major state-led projects of that era have been completed or scaled back.
Real estate in T&T presents a mixed picture. The residential market in the Diego Martin, Maraval, Westmoorings and Santa Cruz corridors of north-west Trinidad continues to attract demand from the domestic professional class, with prices broadly stable at the upper end. Commercial real estate in Port of Spain’s CBD is experiencing some absorption of the space that came to market during the construction boom, though vacancy rates remain elevated by historical standards. Tobago’s tourism-linked property market is showing early signs of recovery, with the Tobago House of Assembly marketing the island aggressively to international developers.
Jamaica: Tourism Peak and BPO Growth
Jamaica enters its critical summer tourism season with cautiously optimistic advance data. The Jamaica Tourist Board reports that stopover visitor arrivals for January–May 2011 are running approximately 7% ahead of the same period in 2010, driven primarily by growth in North American arrivals that has more than offset a decline in European visitors. The island’s major resort areas — Montego Bay, Negril, Ocho Rios and the Treasure Beach area of the south coast — are reporting strong hotel occupancy levels for July and August, with several properties already at or near capacity.
The business-process outsourcing sector continues to be Jamaica’s most dynamic growth industry. At least four major international BPO operators have either expanded existing Jamaica operations or announced new site openings during the first half of 2011, collectively committing to several thousand additional jobs. The sector’s growth is generating demand for purpose-built office facilities in Kingston and Montego Bay, and several speculative commercial-property developments are under way in both cities to accommodate anticipated BPO expansion. The Portmore Special Economic Zone in the Kingston Metropolitan Area is being actively marketed to BPO investors by the Jamaica Promotions Corporation (JAMPRO).
The residential property market in Kingston is experiencing some recovery in the mid-range segment, defined locally as properties in the J$15–40 million range. First-time buyers benefiting from improved employment prospects in the BPO sector and from a government-backed mortgage scheme operated through the National Housing Trust are accounting for a growing share of transactions. Developers of smaller apartment and townhouse units in the Kingston 6, 8 and 10 districts are reporting improved pre-sales, a positive signal for the residential construction pipeline.
Caribbean Leaders This Month
Kamla Persad-Bissessar, Prime Minister of Trinidad & Tobago, delivered her government’s mid-year economic review, citing progress on the Heritage and Stabilisation Fund, improvements in social-housing delivery and the ongoing Point Fortin highway construction as evidence of responsible energy-revenue management. She acknowledged the need to diversify the economy beyond energy and announced further consultations on an economic diversification strategy.
Bruce Golding, Prime Minister of Jamaica, presided over the opening of the summer tourism season in an atmosphere of carefully managed optimism. His government faced ongoing political challenges including criticism over the pace of crime reduction, but the tourism outlook provided a positive economic narrative that the PM used to argue the case for continued investment in Jamaica’s hospitality infrastructure.
Freundel Stuart, Prime Minister of Barbados, oversaw the mid-year review of Barbados’s fiscal position, which showed the deficit tracking slightly better than budget due to stronger-than-expected corporate tax receipts from the financial services sector. The PM used the occasion to reaffirm the government’s commitment to fiscal consolidation while protecting core social spending on health and education.
Hubert Ingraham, Prime Minister of the Bahamas, focused on the development of the Baha Mar resort project in Nassau, a US$3.5 billion mixed-use resort development that represents the largest private investment in Bahamian history. Construction was actively under way, with the project expected to generate thousands of direct and indirect jobs upon completion. Ingraham cited the project as evidence that the Bahamas remained a magnet for large-scale tourism investment.
Perry Christie, Leader of the Opposition in the Bahamas, continued to mount a vigorous challenge to the Ingraham government, raising questions about the terms of the Baha Mar financing and the degree to which the project’s construction contracts had been awarded to Bahamian versus Chinese firms. Christie’s PLP was positioning itself as the champion of Bahamian jobs and local economic participation.
Ralph Gonsalves, Prime Minister of St Vincent and the Grenadines, returned from a CARICOM heads of government meeting in Suriname, where regional leaders reviewed the state of CSME implementation and discussed responses to global food and energy price pressures. Gonsalves used the occasion to advocate for greater Caribbean solidarity in negotiations with international partners on preferential market access for regional agricultural exports.
Roosevelt Skerrit, Prime Minister of Dominica, announced progress in negotiations with potential geothermal development partners, with a memorandum of understanding signed with a consortium of development-finance institutions for a feasibility study on a 60-megawatt geothermal plant. If successfully developed, the plant would give Dominica exportable electricity capacity and provide the island with a renewable energy income stream alongside its existing eco-tourism revenues.
Dean Barrow, Prime Minister of Belize, addressed the country’s deteriorating fiscal position as a result of the Belize Bank litigation and ongoing disputes over the nationalisation of the Belize Telecommunications Limited and Belize Electricity Limited utilities. The compensation claims arising from these nationalisations represented a significant contingent liability for the government, and Barrow sought to assure investors that Belize remained committed to the rule of law and due process in resolving the disputes.
Looking Ahead
August is the month that Caribbean hurricane-watchers regard with the greatest intensity, as warm sea-surface temperatures and favourable atmospheric conditions combine to create the environment in which the most powerful storms of the season typically develop. With above-normal activity already forecast and the early-season activity consistent with those expectations, the regional focus over the coming weeks will be on the National Hurricane Center’s track of tropical wave systems moving westward off the African coast — the primary seedbed of Atlantic hurricanes.
For property investors, the August–September window is simultaneously the season of maximum hurricane risk and the traditional season of maximum buyer activity. The paradox is familiar to Caribbean real-estate professionals: the buyers who are most likely to be in the region — summer holidaymakers — are visiting at precisely the time when weather uncertainty is at its highest. The management of this tension requires agents and developers to be proactive in discussing storm preparedness and insurance arrangements with prospective buyers.
The next edition will review whether the European debt situation has continued to deteriorate and what further market-share shifts in Caribbean tourism source markets have resulted. It will also assess the performance of Caribbean governments’ hurricane preparedness systems against the first significant tropical weather events of the 2011 season. The stakes in both domains are high for the region’s economic prospects in the second half of 2011.
Caribbean Property & Investment Review is published on the first business day of each month. Coverage period for this edition: 3 June – 2 July 2011. Next edition publishes 3 August 2011.
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