Caribbean Property & Investment Review — Edition 177 | November 2011

Publication Date: 3 November 2011  |  Coverage Period: 3 October – 2 November 2011

Morning Briefing

• Andrew Holness sworn in as Jamaica’s Prime Minister on 23 October 2011, becoming the country’s youngest-ever PM at age 38 following Bruce Golding’s resignation
• Golding formally stepped down on 21 October, citing the political fallout from the Christopher Coke extradition affair as having run its course under his watch
• Greece’s debt crisis deepens through October as EU and IMF negotiate a second bailout package, rattling investor confidence across emerging markets including the Caribbean
• Italy’s borrowing costs surge past 6% during the coverage period as Prime Minister Berlusconi faces mounting pressure, widening the Eurozone contagion concern
• Trinidad and Tobago’s energy sector posts strong third-quarter revenue, with LNG export earnings keeping the twin-island economy on solid footing
• Caribbean hotel groups report cautious booking inquiries from European markets for the 2011–12 winter season amid the continent’s financial turbulence

Jamaica’s Political Transition and Its Property Market Implications

The resignation of Bruce Golding on 21 October 2011 and the subsequent swearing-in of Andrew Holness two days later marked one of the most significant political transitions Jamaica has seen in the new millennium. Holness, a career politician who entered parliament at 26 and served as Minister of Education, inherits a government that must call a general election within 90 days under Jamaican constitutional requirements. For the property and investment community, this creates a window of political uncertainty that typically introduces a measure of caution among both domestic buyers and foreign investors.

Real estate professionals in Kingston and Montego Bay note that transaction volumes remain steady in the short term, as the underlying demand drivers — a chronic housing shortage and a diaspora with sustained purchasing interest — are not sensitive to short-term political cycles. However, larger commercial deals and foreign direct investment decisions that require governmental clearances may see processing delays as the new administration settles in and appointments are made across key ministries.

Holness has signalled continuity on major economic commitments, including Jamaica’s IMF Extended Fund Facility arrangements, which reassures bond markets. The Jamaica dollar has remained relatively stable in the days following the transition. For property investors with a multi-year horizon, the fundamental case for Kingston’s New Kingston commercial corridor and Montego Bay’s tourism-adjacent residential developments remains compelling, even as short-term political noise encourages a wait-and-see posture among some buyers.

Eurozone Crisis: Ripples Reaching Caribbean Shores

The Eurozone’s deepening sovereign debt crisis, centred on Greece but rapidly drawing in Italy and Spain, is having measurable effects on European travel patterns and investment flows to the Caribbean. Tour operators in the United Kingdom, Germany, and France have reported a shift in booking behaviour, with consumers favouring shorter-haul or domestic breaks over long-haul Caribbean holidays. This trend, if it solidifies into the 2012 winter season, would disproportionately affect islands that rely heavily on European source markets — particularly Barbados, Antigua, and St Lucia.

For property investors, the European crisis cuts in two directions. On the negative side, prospective buyers from Britain and continental Europe — historically a significant cohort of villa and apartment purchasers across the Eastern Caribbean — are more cautious about discretionary luxury expenditure when domestic economic outlooks are uncertain. On the positive side, Caribbean real estate priced in US dollars offers a partial currency hedge for European investors whose euro-denominated assets are underperforming, and prime Caribbean freehold can be attractive as a capital preservation vehicle.

Investment advisers active in the region counsel that the medium-term outlook for Caribbean property remains positive provided global contagion from European banks is contained. The IMF’s October World Economic Outlook downgraded global growth expectations, but Caribbean jurisdictions with diversified revenue bases — notably T&T, the Cayman Islands, and the British Virgin Islands — appear better insulated than smaller, tourism-dependent OECS economies.

Trinidad and Tobago: Energy Revenues Sustain Property Confidence

While political uncertainty clouds Jamaica and financial turbulence buffets European source markets, Trinidad and Tobago stands as the region’s most economically stable property market in this period. Prime Minister Kamla Persad-Bissessar’s government continues to benefit from sustained hydrocarbon revenues, with third-quarter energy receipts running ahead of budget projections. The government’s housing drive, the Housing Development Corporation’s active construction programme in east Trinidad and South Trinidad, is keeping mid-market property supply moving.

Commercial property in Port of Spain’s central business district shows resilience, with Grade A office space maintaining low vacancy rates. Energy-sector companies and their supply chain partners continue to require quality commercial accommodation, providing a natural floor under prime rents. Maraval and Westmoorings residential markets remain competitive, with dollar-denominated transactions a feature of expatriate community demand linked to energy-sector postings.

Regional CBI and Investment Migration Outlook

Citizenship by Investment programmes across the Eastern Caribbean continue to attract applicants from the Middle East, China, and increasingly Russia, even as European applicant numbers show some softening attributable to general economic uncertainty. St Kitts and Nevis, whose CBI programme is one of the region’s longest-established, reports steady inflows that are supporting the construction pipeline in the South East Peninsula and Christophe Harbour development areas. The Nevis Island Administration’s separate investment programme has also seen renewed marketing activity in Asian feeder markets.

Dominica’s economic citizenship programme, positioned as the region’s most affordably priced option, continues to generate interest from a broad applicant base. Practitioners note that the programme’s real estate investment route, while less prominent than the direct contribution option, drives meaningful villa and boutique hotel development on the island. Antigua and Barbuda, following the establishment of its CBI programme earlier in 2011, is beginning to see its first approved real estate projects move through the approvals process.

Caribbean Leaders This Month

Andrew Holness, Prime Minister of Jamaica: The 38-year-old JLP leader was sworn in on 23 October as Jamaica’s youngest prime minister, inheriting a government that must face the electorate within 90 days. His immediate challenge is to project economic competence while managing a party transition under electoral pressure.

Bruce Golding, outgoing PM of Jamaica: Golding’s resignation on 21 October ended a tenure defined by the controversy surrounding the extradition of Christopher Coke to the United States in 2010. His departure was broadly anticipated and had been widely discussed within JLP circles for several months.

Kamla Persad-Bissessar, PM of Trinidad and Tobago: The People’s Partnership government continues to manage the twin-island republic’s energy-driven prosperity. Persad-Bissessar’s housing initiatives are producing tangible results in the mid-market segment, and her government’s relations with the energy majors remain stable.

Freundel Stuart, PM of Barbados: The Democratic Labour Party government faces the challenge of sustaining Barbados’ economic model in the face of reduced European tourism demand and a high public sector wage bill. Stuart’s administration has been cautious in its public statements on the Eurozone fallout.

Denzil Douglas, PM of St Kitts and Nevis: The Labour administration oversees one of the region’s most successful CBI programmes at a time when global demand for alternative citizenship remains elevated. St Kitts continues to attract upscale resort development backed by CBI-eligible real estate.

Roosevelt Skerrit, PM of Dominica: Skerrit’s government continues to position Dominica as the eco-tourism and CBI value proposition of the Eastern Caribbean. Infrastructure investment funded through CBI receipts is gradually improving the island’s accessibility and appeal to higher-end visitors.

Baldwin Spencer, PM of Antigua and Barbuda: The United Progressive Party government is navigating Antigua’s fiscal consolidation while attempting to stimulate new hotel and resort development. The nascent CBI programme is seen as a potential diversification tool for an economy heavily dependent on tourism arrivals.

Looking Ahead

The Holness government’s primary near-term task is to prepare for a Jamaican general election that must be called by late January 2012 at the latest. The political calendar will dominate domestic conversation over the coming weeks, and property market participants should anticipate a period in which major public-sector procurement and planning decisions may be deferred pending electoral clarity. The JLP and the opposition People’s National Party are expected to contest the election on economic management credentials, with housing policy and infrastructure development likely to feature prominently in both platforms.

In the broader region, the G20 summit in Cannes on 3–4 November will be closely watched by Caribbean finance ministries and central banks for signals on how the major economies plan to contain the Eurozone crisis. A disorderly Greek default or Italian debt crisis escalation would have material consequences for global growth, tourism spending, and foreign direct investment flows to Caribbean markets. Regional central banks have contingency planning underway, though their firepower to respond to external shocks remains limited.

Caribbean winter tourism bookings for the December–April peak season will begin firming up over the coming weeks. Early indicators from tour operators suggest demand from North American source markets remains solid, which provides some buffer against European softness. The 2011–12 winter season’s performance will be a key data point for investors assessing the region’s resilience to external headwinds and for developers planning pipeline projects for 2012 and beyond.

Caribbean Property & Investment Review is published monthly for property investors, developers, and financial professionals with interests across the Caribbean region. Edition 177 covers the period 3 October to 2 November 2011.