Caribbean Property & Investment Review — Edition 172 | April 2012

Publication Date: 3 April 2012  |  Coverage Period: 3 March – 2 April 2012

Morning Briefing

• The Dominican Republic’s spring tourism season is performing exceptionally well, with hotel occupancy rates in the Punta Cana corridor and the north coast both tracking strongly ahead of the previous year.
• Jamaica’s government advances its IMF programme discussions, with Finance Minister Peter Phillips signalling that a formal agreement is expected to be concluded before the end of the second quarter.
• Barbados faces mounting fiscal pressure as the government acknowledges that tourism revenues have fallen short of budget projections, largely due to softness in the critical European source market.
• Antigua Sailing Week preparations are in full swing, with the island’s annual regatta expected to draw over 100 yachts from across the globe and generate significant economic activity for the island’s hospitality sector.
• The CBI sector reports a record first quarter for combined application volumes across St Kitts and Nevis and Dominica, with Chinese and Gulf state nationals representing the largest applicant groups.
• Turks and Caicos Islands reports strong interest from North American buyers in the Grace Bay area, with several new ultra-premium villa and branded residence projects scheduled for launch before the end of the year.

Dominican Republic: The Caribbean’s Development Engine

The Dominican Republic’s performance in the first quarter of 2012 has reinforced its position as the Caribbean’s most dynamic tourism and property development market. Visitor arrival data for January and February confirm that the DR is extending its lead as the region’s single largest destination by volume, with the Punta Cana airport handling passenger numbers that would have been considered extraordinary just five years ago. The country’s all-inclusive hotel sector — the largest in the Caribbean by bed count — is operating at peak occupancy through the spring, and several major international hotel brands are advancing plans for new properties in both the established eastern corridor and the emerging north coast market.

The property investment market in the DR is reflecting this positive momentum. Foreign buyers — predominantly from North America and, increasingly, from Russia and Eastern Europe — are active in the Punta Cana, Cap Cana, and Las Terrenas markets. The DR’s legal framework for foreign property ownership is relatively straightforward, with freehold title available to non-nationals, and the country’s combination of beautiful beaches, affordable living costs, and improving infrastructure is making it a compelling choice for buyers seeking a Caribbean second home at more accessible price points than those prevailing in established markets such as the Bahamas or Barbados.

The north coast, from Puerto Plata through to Samaná, continues to attract the attention of developers seeking to create more boutique and experiential offerings than the mass-market model that dominates the eastern coast. The Samaná Peninsula in particular — with its dramatic landscape, whale-watching season, and relative underdevelopment — is generating significant interest from developers targeting affluent buyers who seek authenticity and natural beauty alongside Caribbean sunshine. Several new luxury villa projects in this area are expected to come to market before the end of 2012.

Jamaica: Fiscal Austerity and Its Investment Implications

The Simpson Miller government’s pursuit of an IMF programme agreement is moving forward with some urgency, as Jamaica’s debt service obligations and fiscal position leave little room for delay. Finance Minister Peter Phillips has been conducting intensive discussions with IMF technical teams, and the broad outlines of a programme framework — involving primary surplus targets, public sector wage discipline, and structural reforms in the energy and tax collection sectors — are becoming clearer to market participants.

The property investment implications of Jamaica’s fiscal austerity path are mixed. On the negative side, domestic demand is likely to remain constrained as the government pursues spending restraint and tax revenue enhancement. Mortgage lending is unlikely to improve significantly in the near term, and consumer confidence among Jamaican households will be affected by any reduction in public sector employment or wage growth. These factors weigh on the residential property market, particularly in the middle-income segment.

On the positive side, a credible IMF programme — if successfully concluded and implemented — would gradually reduce Jamaica’s sovereign risk premium and lower borrowing costs, creating conditions for improved private sector investment over the medium term. International investors in tourism infrastructure and commercial real estate, who tend to operate on longer time horizons than domestic mortgage borrowers, are more likely to be encouraged by fiscal stabilisation than deterred by the short-term demand compression that austerity entails. The spring season on the north coast is showing encouraging transaction activity from this international investor cohort.

Barbados: Navigating Headwinds with Resilience

Barbados is facing a more challenging investment environment than most of its regional neighbours. The island’s tourism model has historically relied heavily on British and European visitors, who account for a larger share of Barbados’s arrivals than at almost any other major Caribbean destination. The continued Eurozone crisis and the specific pressures on British consumer spending — driven by the UK’s own fiscal austerity programme — are weighing on hotel occupancy rates and average spending per visitor.

The Barbados government is responding with a combination of airlift development initiatives targeting North America and a programme of marketing investment in the luxury segment, where European visitors tend to be less price-sensitive. The island’s Sandy Lane and similar ultra-premium properties have maintained their global reputations and continue to attract high-spending visitors from the UK and North America regardless of economic conditions. However, the broader mid-market hotel sector is under greater pressure.

For property investors, Barbados continues to offer one of the Caribbean’s most robust legal frameworks, with a well-established title system, a sophisticated legal profession, and a long track record of transparent property transactions. The Platinum Coast luxury residential market remains resilient, underpinned by the island’s reputation and by the preference of global high-net-worth buyers for established, proven markets over newer and less tested alternatives.

CBI Sector: Record Growth Continues

The Caribbean citizenship by investment sector is having an exceptional year. St Kitts and Nevis’s programme, the world’s oldest operating CBI scheme, is handling application volumes that represent a significant increase over the comparable period in 2011. Chinese nationals represent the largest single applicant group, drawn by the programme’s combination of British Commonwealth passport benefits, relatively straightforward due diligence requirements, and well-developed real estate investment infrastructure. The Gulf state applicant community — from Saudi Arabia, the UAE, and Kuwait — is also a notable and growing presence.

Caribbean Leaders This Month

Portia Simpson Miller, Prime Minister of Jamaica: Simpson Miller’s government is demonstrating the fiscal seriousness that the investment community hoped for, but the domestic political management of austerity measures will require careful handling. The Prime Minister is balancing the imperatives of fiscal adjustment with the social priorities that animate her party’s traditional base.

Leonel Fernández, President of the Dominican Republic: In the final weeks of his presidency, Fernández can point to a strong economic performance record. The DR’s emergence as the Caribbean’s undisputed tourism volume leader is a significant achievement of the era he has dominated, and the legacy of infrastructure investment will benefit the country for years to come.

Kamla Persad-Bissessar, Prime Minister of Trinidad and Tobago: Persad-Bissessar’s government continues to manage T&T’s energy prosperity with a focus on long-term economic transformation, seeking to channel hydrocarbon revenues into the productive diversification of the twin-island economy.

Freundel Stuart, Prime Minister of Barbados: Stuart faces the politically uncomfortable task of managing declining tourism revenues while maintaining the fiscal discipline that Barbados’s credit rating requires. His government is pressing ahead with its adjustment programme with deliberate calm, resisting pressure for quick-fix measures that could damage the island’s long-term credibility.

Denzil Douglas, Prime Minister of St Kitts and Nevis: The record CBI application volumes are providing Douglas’s government with extraordinary programme revenues, which are being applied to debt reduction and capital investment. The transformation of the island’s fiscal position through CBI revenues is one of the Caribbean’s most remarkable public finance stories of recent years.

Baldwin Spencer, Prime Minister of Antigua and Barbuda: Antigua Sailing Week is the high point of Spencer’s spring calendar, with the regatta drawing global media attention and high-spending visitors. The island’s profile as a yachting hub continues to support its premium tourism and property positioning.

Roosevelt Skerrit, Prime Minister of Dominica: Skerrit’s government is managing Dominica’s CBI programme growth while maintaining the island’s commitment to eco-tourism as its primary tourism positioning. The combination of CBI revenues and eco-tourism development is providing a sustainable funding base for national development.

Looking Ahead

The Dominican Republic’s presidential election on 20 May will be the Caribbean’s most significant political event of the second quarter. The race to succeed Leonel Fernández is being closely contested, and the investment community is watching the campaign platforms of the leading candidates for signals about continuity or change in the country’s pro-investment economic policy stance. The DR’s tourism sector has flourished under broadly market-friendly governance, and investors will be seeking assurances that this orientation will be maintained regardless of the electoral outcome.

Jamaica’s IMF programme negotiations are expected to reach a conclusion in the coming months. The terms of any agreement will shape the island’s economic environment for the next several years, and the property investment community is preparing for a period of careful monitoring as the programme’s implications become clearer. Any positive surprises — particularly faster-than-expected progress on debt reduction or economic reform — would be met with enthusiasm by the market.

The approaching Atlantic hurricane season — which officially begins on 1 June — is beginning to attract the attention of Caribbean property and insurance markets. Long-range seasonal forecasts will be published by Colorado State University in April, and the industry will be closely monitoring whether 2012 is expected to be an active or quiet season. The next edition will carry a comprehensive assessment of the hurricane season outlook and its implications for Caribbean property owners and investors.

The Caribbean Property & Investment Review is published monthly for property professionals, investors, and stakeholders across the Caribbean basin. Edition 172 covers the period 3 March to 2 April 2012.