Caribbean Property & Investment Review — Edition 155, September 2013

Publication Date: 3 September 2013  |  Coverage Period: 3 August – 2 September 2013

Morning Briefing

• The 2013 Atlantic hurricane season is tracking well below NOAA’s initial near-normal forecast — no major Caribbean hurricane strikes have occurred through the statistical peak of the season in late August, offering substantial relief to the tourism and coastal property sectors.
• Sargassum seaweed inundations are emerging as a significant and growing concern for Caribbean coastal property, with unprecedented quantities of floating brown algae washing ashore on beaches from Barbados and the Lesser Antilles to Jamaica, threatening tourism appeal and beachfront property values.
• Jamaica’s IMF programme passes through a challenging mid-quarter period — fiscal targets are being maintained but public sector morale is under pressure, and the government is managing growing calls from trade unions for wage relief that the programme conditions cannot accommodate.
• Trinidad & Tobago’s property market remains buoyant, supported by near-US$100 oil prices and a construction sector that continues to operate at high capacity across residential and commercial segments.
• Caribbean tourism is transitioning from the peak summer season to the quieter autumn period — but forward bookings for the winter high season are reported as solid, particularly in Barbados, St Lucia, and the luxury villa markets of the BVI and Anguilla.
• Tropical Storm Ingrid, which made landfall on Mexico’s Gulf Coast in mid-September, caused significant damage but tracked away from the island Caribbean — a reminder that the season is not yet over and risk management vigilance remains essential.

The Sargassum Crisis: A New Risk for Coastal Property

For Caribbean coastal property owners, the summer of 2013 has introduced an environmental challenge that was largely unfamiliar to the region just a few years ago: the mass inundation of beaches and near-shore waters by sargassum, a floating brown seaweed that has been arriving on Caribbean shores in quantities without historical precedent. While sargassum has always been present in the Atlantic — the Sargasso Sea takes its name from the organism — the volume and geographic reach of recent strandings appear to be substantially greater than anything documented before the 2010s, and the phenomenon is causing serious concern among tourism operators and coastal property stakeholders.

The practical consequences for beachfront and near-beach property are significant. When sargassum accumulates on beaches, it decomposes rapidly in tropical heat, releasing hydrogen sulphide gas that produces a powerful rotten-egg odour. The visual and olfactory impact on beaches — which represent a primary amenity for tourism and a core driver of beachfront property values — can be severe. Hotel operators who have invested in maintaining pristine beach environments are facing escalating costs for seaweed removal, and in particularly affected areas the volume of incoming sargassum is outpacing even aggressive manual and mechanical removal efforts. Barbados’s south and east coasts, several Leeward Islands beaches, and parts of Jamaica’s north coast have all experienced significant inundations during the coverage period.

For property investors and developers, sargassum is beginning to emerge as a factor in site assessment and valuation. Beachfront sites in areas with persistent sargassum exposure may face valuation discounts relative to more protected locations. Architects and developers are increasingly examining whether beach club designs, sea walls, or other physical interventions can provide meaningful protection against sargassum accumulation. The phenomenon also raises questions about climate and oceanographic trends — if sargassum volumes continue to increase, the long-term implications for Caribbean tourism appeal and coastal property markets are far from trivial. Property insurance underwriters are beginning to examine the risk, though quantification remains in its early stages.

Jamaica: Reform Progress Amid Social Strain

Jamaica’s IMF Extended Fund Facility is now four months old, and the reform programme is maintaining its trajectory — but the social and economic costs of adjustment are becoming more visible. The public sector wage freeze has compressed incomes for a large segment of Jamaica’s employed population at a time when imported inflation (driven in part by the Jamaican dollar’s gradual depreciation) is eroding purchasing power. The government is walking a difficult tightrope: maintaining fiscal discipline that the IMF programme demands while managing public expectations and avoiding the kind of social instability that could derail the reform effort entirely.

In the property market, the impact is most acutely felt at the affordable and lower-middle segments. The National Housing Trust — which derives its resources from payroll contributions and operates as the principal mechanism for affordable homeownership in Jamaica — is managing constrained resources as its contributor base faces stagnant nominal wages. Mortgage approvals are continuing, but the pace of new affordable housing construction has slowed. For many Jamaican families who aspire to homeownership, the path to qualification and financing has become more challenging in the reform environment.

The upper end of the market and the tourism-adjacent property sector tell a somewhat different story. International buyers with US dollar incomes are benefiting from the Jamaican dollar’s depreciation relative to the greenback — USD-denominated properties in Montego Bay, Ocho Rios, and the emerging Falmouth corridor represent better value in USD terms than they did eighteen months ago. This dynamic is attracting interest from North American and European investors who see Jamaica’s natural assets and improving macroeconomic trajectory as a medium-term value proposition. Hotel development in the tourism corridor is also continuing, with several established hotel groups maintaining their Jamaica investment commitments despite the macro adjustment environment.

Trinidad & Tobago: The Property Market Through the Storm Season

Trinidad & Tobago’s property market has continued to perform strongly through the quieter summer months. The twin-island republic benefits from a geographic position that places it largely outside the primary Caribbean hurricane track — sitting as it does at the southern tip of the island chain, well below the latitudes where most Atlantic tropical systems develop and make landfall. This natural insurance against hurricane risk is a genuine differentiator for T&T property, particularly for risk-averse investors who value the combination of a Caribbean lifestyle with reduced catastrophic weather exposure.

In the residential sector, the market across the Port of Spain metropolitan area and the east-west corridor continues to absorb new supply without meaningful price softening. The professional and managerial workforce associated with the energy sector — employed by BP, BG Group, Repsol, and the state energy company bpTT and others — maintains sustained demand for quality accommodation both in the purchase and rental markets. The rental market in particular is robust, with expatriate energy-sector employees generating consistent demand for well-appointed unfurnished and furnished homes in Westmoorings, Goodwood Park, and similar upscale suburbs.

The commercial sector continues to benefit from energy-driven demand. Several new commercial office developments in the Port of Spain central business district and the Invaders Bay reclaimed land area are advancing through planning and pre-construction stages. The government’s One Government Campus initiative — intended to consolidate public sector offices and rationalise the government’s extensive and fragmented property holdings — is generating interest from private sector developers who see opportunities in the disposition and redevelopment of government-held property that would be vacated in any consolidation exercise.

Hurricane Season 2013: A Quiet Year Brings Lessons

The 2013 Atlantic hurricane season’s below-normal activity — while welcome — should not breed complacency among Caribbean property stakeholders. The season has been suppressed by a combination of elevated wind shear in the Atlantic basin, cooler-than-normal sea surface temperatures in parts of the development zone, and persistent dry air intrusions from the Saharan dust layer. These conditions are not structurally permanent — they reflect the natural variability of Atlantic weather patterns rather than any enduring reduction in Caribbean hurricane risk.

Caribbean property insurance remains a critical and sometimes underappreciated component of sound property investment in the region. Premium rates for Caribbean residential and commercial property, while elevated compared to continental markets, reflect real and quantifiable catastrophic risk that historical loss data substantiate. The quiet 2013 season provides an opportunity for property owners who may have allowed coverage to lapse or deferred comprehensive insurance reviews to address those gaps before the next active season arrives. Insurers and risk managers active in the Caribbean market note that building standards — particularly relating to roof construction and tie-down specifications — remain a critical variable in determining both insurance premiums and actual storm loss outcomes.

Caribbean Leaders This Month

Trinidad & Tobago — Market Resilience: The twin-island republic’s property market continues to demonstrate consistent performance, underpinned by energy-sector employment and the republic’s advantageous position outside the primary hurricane track — a combination that few Caribbean markets can match.

Dominican Republic — Continued Growth: The DR’s construction and tourism sectors maintain their momentum through the summer, with Punta Cana and Santo Domingo both sustaining high levels of development activity and sales absorption.

Jamaica — International Buyer Value: The Jamaican dollar’s depreciation against the US dollar is creating genuine value for internationally-funded buyers, positioning select Jamaica properties as attractively-priced assets for investors with US dollar capital.

Barbados — Winter Season Bookings: Barbados’s luxury villa and boutique hotel sector is reporting solid advance bookings for the winter high season — a positive signal for the island’s premium property market going into the final quarter of 2013.

St Kitts & Nevis — CBI Programme: The Federation maintains its status as the leading Caribbean CBI jurisdiction, with consistent real estate investment flows from a global applicant base that continues to grow year on year.

Anguilla — Luxury Rental Market: Anguilla’s ultra-luxury villa rental market — serving the high end of the North American winter vacation market — is reporting strong advance reservations for the winter season, supporting values in one of the Caribbean’s most exclusive property markets.

Cayman Islands — Financial Sector Property: The Cayman Islands’ combination of financial sector employment and established international business infrastructure continues to underpin a residential and commercial property market that is performing solidly despite the global regulatory focus on offshore financial centres.

Overall Performer — Trinidad & Tobago: This month’s standout goes to T&T, whose combination of energy-sector economic strength, hurricane-advantaged geography, and a construction sector operating at capacity makes it the most comprehensively robust Caribbean property market through the September coverage period.

Looking Ahead

The sargassum phenomenon warrants sustained monitoring. If the current pattern of mass strandings continues into the winter tourism season — which runs from approximately December through April and represents the most economically significant period for many Caribbean tourism-dependent markets — the implications for hotel operators and coastal property stakeholders will be material. Territories and operators that invest proactively in removal infrastructure and beach management protocols will be better positioned than those that do not.

October marks the beginning of the Caribbean’s winter tourism season opening, with air arrivals from North America and Europe building through the autumn months. Marketing campaigns by Caribbean tourism authorities are targeting a recovering US consumer who, with unemployment falling and equity markets rising, has increasing discretionary income available for Caribbean travel and second-home investment. The conversion of tourism interest into property inquiry and transaction will be a key dynamic to watch through Q4 2013.

Jamaica’s IMF programme will face its next quarterly review assessment in the coming weeks. The government’s ability to maintain programme compliance while managing social tensions — and to demonstrate progress on structural reform milestones including energy sector rationalisation and public body reform — will determine whether the reform narrative continues to strengthen investor confidence or begins to show signs of strain. A successful review outcome will be a positive signal for the Jamaican property market’s medium-term trajectory.

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 August to 2 September 2013. All market observations reflect conditions during the coverage period.