Caribbean Property & Investment Review — Edition 167, September 2012

Publication Date: 3 September 2012  |  Coverage Period: 3 August – 2 September 2012

Morning Briefing

• Caribbean visitor arrivals for the summer season tracking ahead of 2011 figures, with several destinations reporting record August hotel occupancy rates above 78 per cent.
• Dominican Republic luxury resort pipeline continues to expand, with new projects announced in Punta Cana and Cap Cana drawing significant North American and European investor interest.
• Trinidad & Tobago’s energy revenues remain robust with crude oil holding near US$95 per barrel, sustaining government construction and infrastructure spending across Port of Spain and the regions.
• Jamaica’s fiscal position remains under pressure as the government works within its IMF Standby Arrangement obligations, with energy import costs continuing to weigh on the current account.
• Citizenship by Investment programmes in St Kitts & Nevis and Dominica reporting sustained demand from Asian and Middle Eastern applicants seeking Caribbean residency.
• Hurricane season monitoring: the Atlantic basin has been active through August, though no major systems have threatened the main Caribbean island arc during the coverage period.

Caribbean Tourism Property: A Summer of Resilient Recovery

The summer of 2012 is shaping up as one of the strongest tourism seasons the Caribbean has experienced since the global financial crisis disrupted visitor flows in 2009 and 2010. Across the region, hoteliers and villa rental operators reported that August occupancy rates in key markets — Jamaica’s north coast, Barbados’s Platinum Mile, Antigua’s English Harbour, and the Dominican Republic’s eastern resort corridor — surpassed comparable periods in 2011, reflecting gradual but sustained recovery in North American consumer confidence and spending capacity.

For property investors, the improving tourism metrics carry direct implications. High-season occupancy drives the income yields that underpin villa valuations across the Caribbean. When August rates in premium Jamaican villa markets push above 80 per cent occupancy, the annualised rental returns that investors use to justify acquisition prices become defensible again — and in some cases the mathematics are beginning to look compelling. The same logic applies in Barbados’s west coast, where premium villa rentals commanding between US$10,000 and US$40,000 per week during high season are once again attracting the kind of consistent bookings that sustain long-term capital values.

Barbados does, however, present a more complex picture than pure tourism metrics might suggest. While the tourism sector itself is performing adequately, the broader Barbadian economy is encountering fiscal headwinds under Prime Minister Freundel Stuart’s Democratic Labour Party government. Tax revenues have been disappointingly flat, the public sector wage bill is proving resistant to compression, and the island’s historically conservative fiscal management is being tested in ways that are causing some international investors to recalibrate their risk assessments. The upshot for property is that the luxury villa segment remains supported by external demand, but the domestic real estate market — serving Bajans moving along the property ladder — is distinctly subdued.

Dominican Republic: The Region’s Growth Engine Accelerates

Among the Caribbean’s major property markets, the Dominican Republic continues to operate on a different level of dynamism from its island neighbours. Since President Danilo Medina took office following his May 2012 electoral victory, the new administration has been signalling an intent to maintain and deepen the investment-friendly environment that characterised the preceding Fernández years, with particular emphasis on tourism infrastructure, special economic zones, and the hospitality sector.

The numbers from Punta Cana and Las Terrenas illustrate the momentum clearly. Developer pipelines in both resort corridors include a significant volume of condominium and villa product aimed at North American and European second-home buyers, as well as a growing cohort of buyers from Latin America — particularly Colombia, Venezuela, and Argentina — seeking to diversify wealth into Caribbean real estate. Prices in Cap Cana’s premium villa segment have continued their gradual appreciation, while the broader Punta Cana market is absorbing new supply without the pricing corrections that some observers had anticipated.

Infrastructure investment is a critical enabler of the Dominican Republic’s property market strength. Punta Cana International Airport, which now handles more passengers than Santo Domingo’s Las Américas Airport, provides the airlift capacity that transforms resort real estate from speculative holding to income-generating investment. The ongoing expansion of road networks linking the eastern resort zone to the capital further consolidates the DR’s position as the Caribbean’s most accessible major market for international buyers.

Trinidad & Tobago: Energy Revenues and the Construction Boom

Trinidad & Tobago’s economy continues to be the Caribbean’s most immediately robust performer, underpinned by the energy sector that has generated the fiscal surpluses enabling Prime Minister Kamla Persad-Bissessar’s People’s Partnership government to sustain elevated levels of public capital expenditure. With crude oil trading in the US$90–100 per barrel range through the summer months, the government’s revenue position has remained comfortable, allowing continued spending on road infrastructure, public housing programmes, and urban development projects that are reshaping the Port of Spain metropolitan corridor.

For commercial and residential property investors, the T&T market’s distinctive characteristic is that its drivers are fundamentally internal rather than tourist-dependent. The housing demand comes from a growing professional class employed in energy sector services, financial services, and the public sector — a demographic with real spending power and aspirations that align with the kind of middle-to-upper-market residential product that developers have been bringing to market in communities such as Westmoorings, Maraval, and the Diego Martin corridor.

Tobago, meanwhile, offers a different proposition: a smaller, more tourism-dependent economy where villa and boutique hotel investment is the primary property play. Development activity at Tobago’s northern coastline — particularly in the Speyside and Charlotteville areas — reflects growing interest in eco-sensitive luxury product from European visitors seeking authentic Caribbean experiences beyond the mass-market resort model. Returns from well-positioned Tobago villas have been creditable, though the market’s smaller scale means liquidity is limited compared with the mainland.

Jamaica: Fiscal Pressure and Property Market Resilience

Jamaica’s property market narrative for summer 2012 is one of two parallel stories running in tandem. On the macro level, the government under Prime Minister Portia Simpson Miller — who led the People’s National Party back to power in the December 2011 general election — is grappling with one of the Caribbean’s most challenging fiscal positions. The island’s debt-to-GDP ratio remains elevated, energy import costs continue to suppress competitiveness, and negotiations with the International Monetary Fund under the existing Standby Arrangement framework are ongoing as the government explores a more comprehensive programme of fiscal restructuring.

Yet at the property market level, particularly in the tourism-linked segments of Montego Bay, Negril, and Ocho Rios, the dynamics are considerably more positive. Tourism arrivals have tracked solidly through the summer, with the north coast resorts reporting good occupancy in both the all-inclusive and villa rental segments. The National Housing Trust continues to play its structural role as the primary facilitator of mortgage finance for Jamaican workers, though interest rate levels and qualifying criteria mean that a significant proportion of the working population remains outside the formal homeownership market.

Foreign direct investment interest in Jamaican hotel and resort assets has been more cautious through 2012 than developers and the Jamaica Tourist Board might have hoped. The combination of high energy costs — electricity tariffs in Jamaica are among the highest in the Caribbean, creating an immediate burden for any hospitality operation — and the uncertain macro environment has made some potential investors pause before committing capital. The government’s ongoing efforts to secure a sustainable energy mix, including early-stage solar and wind projects, are therefore not merely environmental policy but a direct economic competitiveness initiative with property market implications.

Caribbean Leaders This Month

Dominican Republic leads the regional growth narrative convincingly, with construction activity, tourism arrivals, and foreign investment inflows all operating ahead of 2011 levels. President Medina’s early policy signals have been received positively by the investment community.

Trinidad & Tobago continues to benefit from its energy dividend, with private construction activity in the residential mid-market segment particularly strong through the summer months as the Port of Spain metropolitan area absorbs demographic and economic growth.

St Kitts & Nevis remains the Caribbean’s pre-eminent Citizenship by Investment destination, with the programme generating significant real estate investment in approved hotel development projects that are reshaping the island’s hospitality landscape.

Barbados holds its position in the luxury villa segment through the strength of its tourism brand among British and European visitors, even as the domestic economy faces pressure from fiscal consolidation measures and sluggish tax revenue growth.

Jamaica demonstrates characteristic resilience in its tourism-linked property segments, with north coast villa markets performing adequately despite the broader macro pressures that continue to weigh on domestic consumer confidence and purchasing power.

Dominica is quietly building its CBI programme profile, with the nature-focused island’s Citizenship by Investment offering beginning to attract attention from investors interested in a more discreet, authentically Caribbean investment proposition compared with higher-profile competitors.

Antigua & Barbuda is generating anticipation in the Eastern Caribbean investment community as the government finalises the framework for its own Citizenship by Investment programme, expected to launch in the coming months and offering the prospect of English Harbour and Jolly Harbour real estate qualifying as approved investment vehicles.

Guyana attracts growing commercial real estate interest around Georgetown as the broader South American energy sector growth story continues to filter through into professional services and hospitality demand in the capital.

Overall regional performer for August 2012: the Dominican Republic takes this month’s recognition for the combination of tourism strength, construction momentum, and a positive investment climate under new presidential leadership.

Looking Ahead

As the Caribbean transitions from summer high season into the traditionally quieter autumn months, the hurricane season — which runs through November — will remain a key variable shaping investor sentiment and visitor confidence. The Atlantic basin has been active during August 2012, and while no major storms have struck the main island arc during the current coverage period, the season still has two months to run. Property investors with Caribbean holdings should be reviewing their insurance coverage and disaster preparedness protocols as standard seasonal practice.

The Citizenship by Investment landscape is evolving rapidly, with Antigua & Barbuda’s anticipated programme launch expected to add meaningful competition to the Eastern Caribbean CBI market. St Kitts & Nevis and Dominica will need to ensure their programme structures and approved real estate projects remain competitive both on price and on the quality of the underlying investment product. For investors considering CBI as a route to Caribbean property acquisition, the next several months may present an opportune moment to assess the expanding range of options.

Jamaica’s ongoing fiscal discussions will bear close watching into the final quarter of 2012. The government’s ability to demonstrate sustainable fiscal management — and potentially to negotiate a more comprehensive arrangement with the IMF — will be a significant determinant of foreign investor confidence in the island’s property and hospitality sector over the medium term. Progress on energy cost reduction, which feeds directly into the operating economics of every hotel and villa rental operation on the island, will be equally important to monitor.

Caribbean Property & Investment Review is published monthly and provides analysis of real estate and investment trends across the Caribbean region. This edition covers the period 3 August to 2 September 2012. All market commentary reflects conditions and information available within the coverage period.