Caribbean Property & Investment Review — Edition 170 | June 2012

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

Morning Briefing

• Danilo Medina of the Dominican Liberation Party wins the Dominican Republic’s presidential election on 20 May, succeeding Leonel Fernández and inheriting an economy with strong tourism momentum and a broadly positive investment climate.
• The Atlantic hurricane season officially opens on 1 June, with meteorologists monitoring early tropical activity in the Atlantic basin and Caribbean property owners and operators completing their annual preparedness routines.
• The Eurozone crisis enters a new phase of acute stress as Spanish bank recapitalisation needs are revealed and Greece’s political situation remains unstable following inconclusive elections, rattling global financial markets.
• Jamaica’s IMF programme negotiations continue to advance, with Finance Minister Peter Phillips indicating that the technical work is substantially complete and an agreement is expected to be formalised in the coming weeks.
• The Bahamas, following its general election in May, welcomes a new PLP government under Prime Minister Perry Christie, providing a measure of political clarity for the island’s investment market.
• Caribbean summer hotel bookings from North American source markets are tracking positively, with several major resort destinations reporting advance reservations above prior-year levels for June and July.

Dominican Republic: Medina Takes the Helm

Danilo Medina’s victory in the Dominican Republic’s presidential election on 20 May 2012 represents a continuation of Dominican Liberation Party governance, as Medina served as a senior figure in the political movement that has governed the country for most of the past decade under Leonel Fernández. The investment community has received the result with general equanimity, noting that Medina has signalled policy continuity in the areas most important to the tourism and property sectors: openness to foreign investment, commitment to infrastructure development, and maintenance of the macroeconomic framework that has underpinned the country’s strong growth record.

Medina’s inaugural statements have emphasised inclusive growth, social investment, and a continuation of the economic openness that has made the DR one of the Caribbean’s most attractive destinations for international capital. For property developers and hotel investors already active in the market, the new president’s early signals are broadly reassuring. Several projects that had been awaiting post-election clarity before proceeding to market launch are expected to resume their commercial programmes in the coming weeks.

The DR’s tourism sector enters the summer with strong momentum. May’s arrivals data, which will be published in the coming weeks, is expected to show continued positive year-on-year growth, extending the country’s streak as the Caribbean’s largest single destination by visitor volume. The Punta Cana market in particular is benefiting from growing airlift from both North American and European source markets, and hotel occupancy rates are strong even into what is traditionally a shoulder season for the Caribbean.

Hurricane Season Opens: Caribbean Readiness

The Atlantic hurricane season officially commenced on 1 June 2012, marking the beginning of the six-month period during which the Caribbean, Gulf of Mexico, and Atlantic coastlines are most exposed to tropical cyclone activity. The 2012 season is being watched with particular attention following the impacts of recent years, including Hurricane Irene’s track through the northern Caribbean in August 2011 and the devastating 2010 season for Haiti and parts of Central America.

Property owners across the Caribbean have been completing their annual preparedness routines — inspecting shutters and storm protection systems, reviewing insurance coverage, and ensuring that emergency supplies and communications plans are in order. The region’s hotel and resort operators have their own well-established protocols for hurricane preparation and response, developed over years of experience managing tropical weather events. For property investors, the hurricane season is one of the most important factors in the due diligence calculus, and understanding the specific risk profile of a given location — its historical storm exposure, its building construction standards, and the quality of its insurance arrangements — is essential to sound investment decision-making.

The Caribbean insurance market has continued to develop its capacity to provide coverage for property owners and hospitality operators at reasonable cost, though premiums in the most exposed locations remain significant. Reinsurance capacity — the underpinning of the entire Caribbean property insurance market — remains adequate, though global reinsurers are increasingly factoring climate trend considerations into their pricing models. For investors, working with experienced local insurance brokers who understand the specific risk characteristics of Caribbean properties is a key component of responsible property ownership.

Eurozone: Renewed Stress, Caribbean Implications

The Eurozone crisis has entered a new and potentially more dangerous phase. In Spain, the revelation of the full scale of the banking system’s capital needs has alarmed markets, with Spanish government bond yields rising to levels that raise serious questions about debt sustainability. In Greece, two rounds of elections have produced inconclusive results and political instability, raising the possibility — however unlikely — that the country could exit the common currency, an event whose knock-on effects are impossible to predict with confidence.

For the Caribbean, the renewed European stress creates both immediate and medium-term challenges. In the immediate term, European consumer confidence — already weakened by two years of austerity and financial market anxiety — is likely to be further suppressed by the latest round of crisis headlines. Caribbean destinations with high European visitor concentrations are already finding that the summer booking season from European source markets is softer than hoped. Barbados, St Lucia, and Antigua are among the destinations most directly affected by this dynamic.

On the property investment side, European buyers of Caribbean real estate — who had been slowly returning to the market in the first half of 2012 — are likely to extend their wait-and-see positions in response to the renewed crisis. However, the North American market continues to provide a meaningful counterweight, and several agents in the Bahamas, Turks and Caicos, and the DR report that US buyer enquiry levels have been maintaining their positive trend despite the global financial market volatility.

Caribbean Leaders This Month

Danilo Medina, President-elect of the Dominican Republic: Medina’s election victory positions him to lead the DR through what he hopes will be a continuation of the country’s economic success story. His early policy signals have been pro-investment and pro-growth, and the Caribbean investment community is watching his Cabinet appointments and early policy announcements with interest.

Leonel Fernández, former President of the Dominican Republic: Fernández leaves office with a strong economic legacy, having presided over the DR’s transformation into the Caribbean’s premier tourism destination. His departing contribution to Caribbean development is substantial and will shape the country’s trajectory for years to come.

Portia Simpson Miller, Prime Minister of Jamaica: Simpson Miller’s government is approaching the conclusion of its IMF programme negotiations, a milestone that will define the economic framework within which Jamaica’s property and investment markets will operate for the next several years.

Perry Christie, Prime Minister of the Bahamas: Christie and the PLP have returned to government following May’s general election, providing political clarity for the Bahamian investment market. The new government’s approach to major tourism infrastructure projects — including the ongoing Baha Mar development — will be closely watched.

Kamla Persad-Bissessar, Prime Minister of Trinidad and Tobago: Persad-Bissessar’s government is monitoring the global commodity price environment carefully as Eurozone stress creates volatility in energy markets. T&T’s fiscal position remains strong, but the prudent management of energy revenues in a volatile global environment requires careful attention.

Freundel Stuart, Prime Minister of Barbados: Stuart faces the difficult summer ahead with a tourism sector under European visitor pressure and a fiscal adjustment programme requiring continued discipline. The Prime Minister’s steady, low-key management style is being tested by the combination of external and domestic pressures.

Denzil Douglas, Prime Minister of St Kitts and Nevis: Douglas is overseeing the continued strong performance of the CBI programme, which is providing a degree of insulation from the European tourism slowdown that is affecting other destination markets in the region.

Looking Ahead

Danilo Medina’s inauguration as President of the Dominican Republic will be the defining political event for Caribbean investment in the weeks ahead. The investment community will be watching his inaugural address and early Cabinet appointments for signals about the continuity and evolution of the country’s investment-friendly economic policies. A smooth transition in Santo Domingo will be welcomed by the property and tourism sectors.

The early weeks of the hurricane season will see meteorological attention focused on the Atlantic basin. Any significant tropical development in June or early July would attract intense media coverage and could affect near-term booking patterns at Caribbean resort destinations. The industry is prepared for this possibility and has developed robust communication protocols to manage public perception during tropical weather events.

The Caribbean’s summer investment market will be closely tracked over the coming months. North American buyers, who tend to be more active in the summer period than their European counterparts, will be the primary driver of any transaction activity through June and July. The CBI sector will remain active year-round, providing a steady underpinning to the investment property markets in St Kitts and Dominica in particular. The next edition will carry an assessment of how the summer season is developing and will provide an early read on the Medina administration’s economic policy direction.

The Caribbean Property & Investment Review is published monthly for property professionals, investors, and stakeholders across the Caribbean basin. Edition 170 covers the period 3 May to 2 June 2012.