Caribbean Property & Investment Review — July 2013

Publication Date: 3 July 2013  |  Coverage Period: 3 June – 2 July 2013

Morning Briefing

• Jamaica’s IMF Extended Fund Facility, formally approved on 1 May 2013, is now two months into implementation — public sector wages are frozen, fiscal consolidation is underway, and PM Portia Simpson Miller’s PNP administration is pressing ahead with structural reform despite significant social pressure.
• Trinidad & Tobago continues to post strong economic performance underpinned by oil prices near US$100 per barrel and robust LNG export revenues, with the construction sector accelerating and commercial real estate in Port of Spain seeing sustained demand.
• The Dominican Republic is the standout Caribbean performer of 2013 — President Danilo Medina’s government is presiding over a construction boom, surging foreign direct investment, and tourist arrivals that are outpacing regional peers by a wide margin.
• Caribbean-wide summer tourism is running ahead of 2012 levels across most territories, delivering critical foreign exchange earnings to island economies still rebuilding post-2008 recession balance sheets.
• The Atlantic hurricane season opened on 1 June and early NOAA forecasts suggested a near-normal season; no tropical system had yet threatened the island chains through the coverage period, offering property owners and hospitality operators a degree of relief.
• US Federal Reserve Chair Ben Bernanke’s comments in late May regarding a potential tapering of quantitative easing triggered a brief spike in global bond yields — a reminder that Caribbean mortgage markets and foreign investment flows remain sensitive to shifts in US monetary policy, even as the Fed funds rate sits near zero.

Jamaica: Reform Under the IMF Microscope

The formal approval of Jamaica’s four-year Extended Fund Facility with the International Monetary Fund on 1 May 2013 marked the most consequential economic moment for the island in a generation. The programme, valued at approximately SDR 615 million, commits Jamaica to a demanding path of fiscal consolidation — reducing the primary budget surplus target year on year while implementing structural reforms to the public sector, the pension system, and the energy sector. Prime Minister Portia Simpson Miller’s People’s National Party administration, elected in December 2011, inherited a public debt burden exceeding 140 percent of GDP and has embraced the IMF framework as the only credible route to long-term stability.

The implications for Jamaica’s property market are complex and nuanced. On the one hand, the broader macroeconomic reform programme is positive for investor confidence over the medium term — a Jamaica that successfully completes its IMF programme would emerge with dramatically improved debt dynamics and a more competitive business environment. On the other hand, the short-term austerity bites hard. Public sector wages are frozen in nominal terms, reducing the purchasing power of a significant share of Jamaica’s formal workforce. The National Housing Trust, which relies heavily on contributions from the employed payroll, is managing its mortgage and affordable housing activities within tighter financial constraints. Transaction volumes in the residential market for the June period are somewhat softer than equivalent 2012 levels, reflecting cautious consumer sentiment.

Energy costs remain a structural headache for Jamaica. The island’s heavy dependence on imported petroleum for power generation keeps electricity tariffs among the highest in the Caribbean, burdening both households and commercial property operators. The government has flagged energy sector reform as a programme priority, and early discussions with LNG suppliers and renewable energy developers are underway — but meaningful tariff relief remains a medium-term prospect rather than an immediate one. For property developers calculating project feasibility, energy cost assumptions remain a critical variable. Tourism, meanwhile, is providing welcome ballast: visitor arrivals to Jamaica through the spring were tracking positively, and hotel occupancy in Montego Bay and Ocho Rios was running ahead of forecast, injecting foreign exchange into the economy and supporting related hospitality real estate.

Trinidad & Tobago: Energy Wealth Drives Property Demand

Trinidad & Tobago enters the second half of 2013 from a position of considerable economic strength. With oil prices holding near US$100 per barrel on international markets and Point Fortin’s Atlantic LNG facility delivering consistent export revenues, the twin-island republic’s government finances are in robust shape. PM Kamla Persad-Bissessar’s People’s Partnership administration has been accelerating infrastructure spending — road construction, housing development, and public building programmes — which has had a pronounced stimulative effect on the construction and real estate sectors.

In the residential market, demand across the Port of Spain corridor and the rapidly developing east-west districts remains strong. Mortgage lending by commercial banks has been growing, supported by relatively low domestic interest rates that, while not as dramatically suppressed as the near-zero US Fed funds rate, have remained accommodative by historical standards. The upper-middle market — properties in the TT$2–5 million range — is particularly active, driven by a professional and managerial class that has benefited from energy-sector employment and government contract activity. New residential developments in areas such as Diego Martin, Maraval, and the southern suburbs of San Fernando are reporting healthy pre-sale uptake.

Commercial real estate in Port of Spain is also benefiting from the energy-driven economy. Oil and gas company office requirements, together with the expansion of professional services firms catering to the energy sector, are sustaining demand for Grade A office space. Industrial property around the Point Lisas petrochemical estate continues to attract tenants associated with the downstream energy industries. Tobago’s market, always more tourism-dependent and smaller in scale, is benefiting from increasing airlift and sustained demand from European and North American visitors drawn to the island’s natural beauty and more relaxed pace of development.

Dominican Republic: The Caribbean’s Standout Growth Story

If one Caribbean territory commands the attention of regional property investors in mid-2013, it is the Dominican Republic. President Danilo Medina, who took office in August 2012, has overseen a remarkable acceleration of the country’s already impressive growth trajectory. Construction activity in Santo Domingo, Punta Cana, La Romana, and the emerging north coast corridor around Puerto Plata and Cabarete is running at a pace that has drawn comparisons to the most dynamic emerging market property stories globally. International hotel brands are committing capital to new resort developments at a rate not seen in the Dominican Republic for over a decade.

Foreign direct investment into the DR has been notably robust, driven in part by the country’s competitive fiscal incentives under Law 158-01 for tourism development zones, as well as the broader perception that the Dominican Republic offers a gateway to a large, young, and growing domestic consumer market in addition to its world-class tourism product. The Punta Cana corridor remains the focal point of luxury resort and villa development, with several large integrated resort projects under construction. Meanwhile, the capital Santo Domingo is experiencing a simultaneous commercial and residential construction wave as the urban professional class expands and demand for modern apartment living intensifies in districts such as Piantini, Naco, and Bella Vista.

Caribbean Citizenship by Investment: A Growing Property Driver

The Caribbean’s citizenship by investment landscape has expanded significantly over the past twelve months, and the property implications are increasingly material. St Kitts & Nevis, operating the world’s oldest CBI programme since 1984, continues to attract significant inflows through its real estate investment option, which requires a minimum qualifying investment in approved resort or residential developments. The programme has been refined and promoted aggressively by the Nevis Island Administration and the federal government, and approved development projects continue to report healthy sales to CBI-motivated buyers primarily from the Middle East, China, and Eastern Europe.

Antigua & Barbuda, which launched its own CBI programme in August 2012, is now approaching its first anniversary with cautious optimism. The National Development Fund option and the real estate investment route (minimum US$400,000 in an approved project) have attracted initial interest, and the government has been working to expand the roster of approved real estate developments. Dominica’s long-standing programme remains active, and Grenada — which relaunched its programme in 2013 — is beginning to market itself internationally as an attractive alternative, particularly given its existing treaty relationships. The collective effect of these programmes is to create a layer of investment demand for Caribbean residential and resort property that is relatively insensitive to local economic conditions, providing a useful floor and source of development financing across the region.

Caribbean Leaders This Month

Dominican Republic — Tourism & Construction: The DR leads the Caribbean in construction activity and tourist arrival growth. Santo Domingo and Punta Cana are both seeing major projects break ground, and hotel occupancy rates are running at levels that justify continued capital commitment from international operators.

Trinidad & Tobago — Residential Demand: The Port of Spain metropolitan area and the east-west corridor are recording the strongest residential transaction volumes in the English-speaking Caribbean, underpinned by energy-sector employment and government infrastructure spending.

St Kitts & Nevis — CBI Property Investment: The Federation maintains its position as the most mature and trusted CBI jurisdiction in the Caribbean, with approved real estate developments continuing to attract international buyers seeking a high-quality second citizenship alongside a genuine resort investment.

Jamaica — Tourism Resilience: Despite the fiscal pressures of the IMF programme, Jamaica’s tourism sector is demonstrating resilience, with Montego Bay and Ocho Rios hotel operators reporting solid occupancy and forward bookings that are supportive of hospitality real estate values.

Barbados — Luxury Market Stabilisation: After several years of price adjustment following the 2008 global financial crisis, Barbados’s prestigious west coast luxury villa market is showing early signs of stabilisation, with a handful of significant transactions quietly completing in the Platinum Coast corridor during the coverage period.

Antigua & Barbuda — CBI Programme Growth: Approaching its first full year of operation, Antigua’s CBI programme is generating increasing interest from prospective investors, and the government is actively expanding the number of approved real estate projects to offer a broader menu of qualifying investments.

Grenada — Programme Relaunch: Grenada’s relaunched citizenship programme is beginning to attract developer and investor attention, with the island’s natural beauty and existing US E-2 treaty visa relationship (a unique advantage) giving it a distinctive pitch to the North American market.

Overall Performer — Dominican Republic: By virtually every metric — FDI inflows, construction starts, tourist arrivals, and investor sentiment — the Dominican Republic is the Caribbean’s standout property and investment market in mid-2013. The combination of strong government policy, competitive incentives, and a genuinely world-class tourism product is attracting capital at a pace that sets it apart from regional peers.

Looking Ahead

The Atlantic hurricane season will remain the primary weather-related risk monitor through to November. Early indications of a near-normal season are encouraging for the tourism and coastal property sectors, but the Caribbean’s vulnerability to tropical systems means that any significant storm development warrants close attention. Property owners, developers, and investors across the region are reminded that adequate insurance coverage and robust building standards are not optional considerations in this geography.

Jamaica’s IMF programme will face its first quarterly review in the coming months. Successful completion of programme conditions — meeting fiscal targets, advancing structural reforms — will be a critical confidence signal for the market. Any deviation or programme difficulty would likely weigh on investor sentiment and the Jamaican dollar, with knock-on effects for import-cost-sensitive construction activity. Conversely, a clean review would reinforce the narrative of credible reform and support medium-term property market stability.

The US Federal Reserve’s guidance on the pace of quantitative easing tapering will bear watching throughout the second half of 2013. Caribbean property markets — particularly the luxury and second-home segments that attract North American buyers — are sensitive to shifts in US mortgage rates and broader risk appetite. While the Fed funds rate is expected to remain near zero for an extended period, the direction of travel in bond markets will influence financing conditions for the region’s larger development projects. The current environment of low global rates remains broadly supportive, but prudent developers and buyers should not plan on those conditions persisting indefinitely.

The Caribbean Property & Investment Review is published monthly and provides regional analysis for property investors, developers, and industry professionals. This edition surveys the period 3 June to 2 July 2013. All market observations reflect conditions during the coverage period.

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