Caribbean Property & Investment Review — May 2012

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

Morning Briefing

• The Dominican Republic’s presidential election on 20 May is dominating political discourse in Santo Domingo as voters prepare to choose a successor to Leonel Fernández, who is constitutionally barred from seeking a further consecutive term.
• The Caribbean spring property market is showing solid transactional activity, with North American buyer interest in particular markets including Jamaica’s north coast, the Turks and Caicos, and Barbados’s Platinum Coast remaining robust.
• The Atlantic hurricane season, which officially opens on 1 June, is being closely monitored by property owners, insurers, and the tourism industry across the region following a series of impactful seasons in recent years.
• Jamaica’s government reports positive progress in its ongoing discussions with the International Monetary Fund, with officials indicating that a programme framework is approaching finalisation.
• The Bahamas general election, expected before the end of May, is generating political attention and some investment caution as the business community monitors the campaign platforms of the two main parties.
• St Lucia reports a strong performance from its annual Jazz Festival in late April, which drew significant international visitor numbers and generated substantial hospitality sector revenues.

Dominican Republic: Election Watch

The Dominican Republic is in the final weeks of its presidential election campaign, with the vote scheduled for 20 May. President Leonel Fernández, whose administration has overseen an extended period of economic expansion and tourism development, cannot seek a further consecutive term under the country’s constitution. The race to succeed him has been closely contested, with the leading candidates presenting broadly similar commitments to economic openness and continued investment in tourism infrastructure, albeit with different emphases on social spending and fiscal management.

For the Caribbean investment community, the DR’s presidential transition is being watched carefully, though not with alarm. The country has a track record of peaceful democratic transitions and broadly consistent economic policy across administrations. The fundamental drivers of the DR’s appeal as an investment destination — its beaches, its accessibility from North American source markets, its competitive price points, and its large and growing hotel infrastructure — are not political variables and will persist regardless of the electoral outcome. Nevertheless, investors in major projects prefer clarity, and the completion of the election will remove a source of uncertainty that has made some international buyers cautious about committing in the period immediately before polling.

The DR’s tourism sector continues to perform strongly in the lead-up to the election. April is one of the country’s strongest months for hotel occupancy, and the run of spring bookings has been tracking well ahead of the previous year at the major resort destinations. The Punta Cana corridor is operating at near-capacity, and the north coast is showing encouraging growth in visitor numbers as new direct airlift from European source markets begins to mature. This underlying strength provides a solid foundation for the post-election investment environment, whatever the outcome.

Hurricane Season: Caribbean Property Preparedness

The approach of the Atlantic hurricane season — which officially begins on 1 June and runs through 30 November — is prompting the annual round of risk assessment and preparation activities across the Caribbean property and insurance sectors. Long-range seasonal forecasts from the Colorado State University Tropical Meteorology Project suggest that 2012 may be a near-normal to slightly active season, though such long-range forecasts carry significant uncertainty and should be interpreted with caution by property owners and investors.

The memory of recent hurricane impacts is fresh across the region. While 2011 was a relatively moderate year for direct Caribbean hits, the passage of Hurricane Irene through the northern Caribbean in August 2011 — causing damage in the Bahamas and previously affecting Puerto Rico — served as a reminder of the vulnerability of island properties to even relatively modest tropical storm activity. Caribbean property owners who are properly insured and who have invested in hurricane-resistant construction are significantly better positioned than those who have not.

The insurance market for Caribbean property has continued to mature, with more sophisticated coverage options available to property owners than was the case a decade ago. Parametric insurance products, which pay out based on measurable storm parameters rather than individual loss assessment, are becoming more widely used by hoteliers and villa developers as a way of managing both the physical and the business interruption risks associated with hurricane season. For investors considering Caribbean property acquisitions, understanding the insurance landscape has become an increasingly important element of due diligence.

Caribbean Spring Investment: Solid Foundations

Beyond the DR and Jamaica, the Caribbean property investment market is showing generally positive signs across multiple destination markets heading into the traditionally quieter summer period. The Turks and Caicos Islands continues to attract some of the most significant per-unit transaction values in the region, with Grace Bay properties maintaining price levels that reflect the area’s exceptional product quality and its established position in the global luxury travel market. Several new ultra-premium villa developments in TCI are at advanced stages of planning, with developer launches expected before the end of 2012.

Antigua is benefiting from the aftermath of its successful Sailing Week in late April, which drew an impressive fleet and generated significant media coverage internationally. The island’s profile as a yachting destination is increasingly translating into property investment interest, with marina-adjacent real estate attracting a growing cohort of buyers who seek the combination of boating lifestyle access and Caribbean sunshine. Several marina development proposals on the island are attracting investor interest.

The CBI property market in St Kitts and Dominica continues at its strong pace, with approval processes for new qualifying developments keeping pace with the growing applicant demand. Developers targeting the CBI market are finding St Kitts in particular to be an environment where completed, well-managed projects are achieving strong sales velocities, as approved hotel and villa products remain in consistent demand from the applicant pool.

Caribbean Leaders This Month

Leonel Fernández, President of the Dominican Republic: In the final days of his presidency, Fernández is focused on ensuring a smooth democratic transition. His legacy in tourism and infrastructure development is substantial, and the investment community across the region acknowledges his role in establishing the Dominican Republic as the Caribbean’s premier tourism destination.

Portia Simpson Miller, Prime Minister of Jamaica: Simpson Miller’s government is making quiet but steady progress on the IMF front, and the Prime Minister’s measured public communications have avoided the sharp rhetoric that sometimes complicates investor relations. The investment community is cautiously appreciative of the government’s pragmatic economic stance.

Kamla Persad-Bissessar, Prime Minister of Trinidad and Tobago: Persad-Bissessar’s administration is navigating a period of global economic uncertainty with the confidence that comes from T&T’s substantial energy revenues. The Prime Minister is channelling these resources into infrastructure projects and social programmes that are reshaping the twin-island republic’s development profile.

Freundel Stuart, Prime Minister of Barbados: Stuart is maintaining Barbados’s fiscal adjustment programme despite the challenging tourism environment. The island’s commitment to financial discipline, even in difficult times, is a core element of its investment proposition and one that the government is determined to preserve.

Perry Christie, Leader of the Opposition, Bahamas: With the Bahamian election imminent, Christie is making his final campaign arguments to voters. The PLP’s platform has emphasised economic management and social development, and polling data suggests a competitive race that could go either way.

Denzil Douglas, Prime Minister of St Kitts and Nevis: Douglas’s government is managing the CBI programme’s continued growth with careful attention to the due diligence and governance standards that are central to the programme’s international credibility. Record application volumes are generating record revenues that are being applied to debt reduction and development investment.

Roosevelt Skerrit, Prime Minister of Dominica: Skerrit continues to build Dominica’s dual identity as an eco-tourism destination and CBI programme provider. The island’s natural assets — its volcanic landscape, rainforest, and marine environment — are increasingly recognised as among the Caribbean’s most distinctive, and are driving a growing independent traveller market.

Looking Ahead

The Dominican Republic’s presidential election on 20 May will be the defining regional political event of the coming weeks. The investment community is not expecting dramatic policy shifts regardless of the outcome, but will be watching closely for early signals from the incoming administration about its stance on foreign investment, tourism development, and economic management. A smooth and credible electoral process will itself be a positive signal to international investors.

The opening of the Atlantic hurricane season on 1 June is the other major date on the Caribbean calendar in the near term. Property owners, insurers, and hospitality operators will be monitoring the seasonal forecasts and the early-season tropical weather patterns with their customary mixture of professional vigilance and pragmatic acceptance of the risks inherent in island living.

Caribbean property investment activity typically moderates through the summer months as the tourism season transitions and European buyers in particular take their domestic holidays. However, the CBI market remains active year-round, and several major project launches are expected in the June-August period. The next edition of the Caribbean Property and Investment Review will provide a full post-election assessment of the Dominican Republic and a summer investment market outlook across the region.

The Caribbean Property & Investment Review is published monthly for property professionals, investors, and stakeholders across the Caribbean basin. Edition 171 covers the period 3 April to 2 May 2012.

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