Caribbean Property & Investment Review — December 2013

Publication Date: 3 December 2013  |  Coverage Period: 3 November – 2 December 2013

Morning Briefing

• The Caribbean holiday season is arriving in full force — the Christmas and New Year fortnight represents the most commercially significant period of the year for most island tourism economies and the most intensive property inquiry and transaction activity, as wealthy visitors transition from guests to prospective buyers.
• Jamaica’s IMF Extended Fund Facility is approaching its seven-month mark with programme compliance maintained — a mid-year review assessment from the Fund is broadly positive, reinforcing external investor confidence in the island’s reform trajectory and supporting medium-term property market sentiment.
• Trinidad & Tobago’s economy continues to perform strongly — oil near US$100 per barrel, robust LNG revenues, and a well-employed domestic workforce combine to make T&T one of the most economically resilient markets in the Caribbean heading into 2014.
• The Dominican Republic is on course for what is expected to be a record tourism year in 2013, with total stayover arrivals across all visitor categories tracking significantly ahead of 2012 — a performance that validates the sustained hotel and resort investment that is reshaping the country’s tourism landscape.
• Caribbean regional investment outlook for 2014 is broadly positive: improving US economic conditions, near-zero US interest rates (supportive of both buyer financing and development economics), and continued CBI investment flows are all constructive signals for the year ahead.
• Sargassum seaweed management continues to be a practical operational focus for coastal hotel operators through the holiday season — the challenge is becoming a standard item in resort management planning rather than an emergency response issue.

Caribbean Holiday Season: The Year’s Most Critical Weeks

For the Caribbean property and investment market, the December to early January period is without parallel in its commercial intensity. The convergence of maximum hotel occupancy, peak villa rental rates, and the concentration of the region’s most affluent international visitors creates an environment in which significant property decisions are routinely made — properties viewed during Christmas visits frequently result in offers in January and completions in the spring. Real estate agents, developers, and property managers across the Caribbean are well-attuned to this seasonal dynamic, and the weeks surrounding Christmas represent a disproportionately important pipeline-building period for the year ahead.

The 2013-14 holiday season is entering with broadly positive momentum. The US economy has been improving steadily through 2013 — unemployment has been falling, equity markets have risen substantially, and consumer confidence has been recovering. For the core North American audience that represents the primary demand source for much of the English-speaking Caribbean property market, the improved economic environment translates into greater willingness to consider discretionary second-home and investment property purchases. The UK market, important particularly for Barbados, the BVI, and the Leeward Islands, has also been recovering, though the pace has been slower and less even than the US recovery.

In the luxury villa rental market — which provides both income for property owners and a discovery mechanism for prospective buyers who are evaluating locations before committing to purchase — December rates are at their annual peaks. The most sought-after villas in Anguilla, Mustique, Barbados’s Platinum Coast, and Jamaica’s Round Hill and Tryall estates are fully booked months in advance for the Christmas and New Year period, with weekly rates that can reach into the tens of thousands of US dollars for the finest properties. These transactions, while operating in a rarefied slice of the market, set a benchmark for Caribbean lifestyle property values that filters down into broader market sentiment.

Jamaica: Seven Months of IMF Reform

Jamaica’s IMF Extended Fund Facility is now seven months old, and the programme is tracking broadly on course. The government of PM Portia Simpson Miller has maintained fiscal discipline through a politically demanding period — the public sector wage freeze, the public body reform programme, and the rationalisation of government expenditure have all been sources of social tension, but the administration has held its course. The IMF’s assessment of Jamaica’s performance through the mid-year review has been positive, noting compliance with quantitative performance criteria and progress on structural benchmarks.

For Jamaica’s property market, the significance of sustained programme compliance extends beyond the technical economic metrics. It represents a credibility signal to the international investment community — an indication that Jamaica has the institutional capacity and political will to execute a demanding fiscal reform without abandoning the programme under social pressure. This credibility is foundational to the medium-term property market recovery that serious investors are beginning to price in. The Jamaican dollar’s relative stability (gradual rather than precipitous depreciation) and the maintenance of a functioning, liquid banking system through the adjustment period are both positive signs for property market confidence.

Tourism continues to provide important economic ballast. The winter season is opening well, with hotel bookings in the main resort areas — Montego Bay, Negril, Ocho Rios, and Port Antonio — tracking positively. The hotel sector’s performance is particularly important for Jamaica’s property market because it maintains the physical and reputational infrastructure of the tourism product that makes Jamaica an attractive location for international property investment. Hotel groups that have committed to Jamaica are maintaining their plans — Sandals Resorts, RIU Hotels, and others continue to invest in their Jamaica portfolios — and this institutional commitment is a strong signal for prospective independent property investors.

Dominican Republic: A Record Year Concludes

As 2013 draws to a close, the Dominican Republic is on course to record its best-ever year for international tourist arrivals. The combination of continued airlift expansion, the opening of significant new hotel capacity, aggressive marketing by the Ministry of Tourism, and a global reputation that has been steadily building over the past decade is delivering visitor numbers that are making the country the undisputed number-one Caribbean destination by volume — a position it has held for some years but is now extending further from its regional competitors.

The property market implications of this tourism performance are substantial. The sustained high occupancy levels in existing hotel stock are validating further investment in new hotel capacity, creating a virtuous cycle of development that is generating construction employment, stimulating materials and services demand, and attracting international hotel brand commitments. The branded residence sector — where residential properties are sold in association with a hotel brand and management programme — is growing rapidly, offering international investors a point of entry into the Dominican Republic’s booming tourism market at an accessible price point with professional management infrastructure.

President Danilo Medina’s government has been a consistent advocate for foreign direct investment, maintaining and refining the fiscal incentive framework under Law 158-01 and the broader investment promotion architecture. The Dominican Republic’s political stability, legal system (based on the Napoleonic code, familiar to many European and Latin American investors), and geographic accessibility from major US East Coast cities have combined with its economic dynamism to make it the most compelling investment story in the Caribbean as 2013 concludes. The challenge for 2014 will be maintaining this momentum while managing infrastructure and utility capacity that is being stretched by the pace of development.

2014 Caribbean Investment Outlook: Broadly Positive

As investors and developers survey the Caribbean landscape heading into 2014, the macro environment is broadly supportive. US interest rates remain near zero — the Federal Reserve has indicated that the federal funds rate will stay at the zero lower bound for an extended period, even as it begins to moderate its quantitative easing programme. Near-zero US rates support Caribbean property values through multiple channels: they reduce the cost of financing for North American buyers purchasing Caribbean property, they reduce the return available on safe US fixed income assets (making yield-generating Caribbean property more attractive by comparison), and they support the low-rate environment that underlies Caribbean mortgage market conditions.

The global economic recovery, while uneven, is gaining traction. The Eurozone crisis that dominated financial markets through 2011-12 has moderated, with peripheral European sovereign spreads having tightened substantially and the risk of Euro-area disintegration having faded. This has allowed European investor confidence to recover, which is supportive of Caribbean property demand from the UK and continental European buyer base that is particularly important for the French and Dutch territories, Barbados, and the Eastern Caribbean luxury markets.

Caribbean Leaders This Month

Dominican Republic — Record Tourism Year: The DR is concluding what is set to be a record year for international arrivals, validating the massive wave of hotel and resort investment and positioning the country as the Caribbean’s most dynamic tourism and property market heading into 2014.

Trinidad & Tobago — Economic Strength: T&T’s energy-backed economy remains the most robust in the English-speaking Caribbean, with oil prices, employment, and construction activity all providing strong foundations for property market performance through the end of 2013 and into 2014.

Jamaica — Reform Credibility: Seven months of IMF programme compliance has established a credibility platform for Jamaica’s medium-term recovery narrative — a narrative that is beginning to influence the thinking of long-term property investors who are looking past the current austerity to the improved macroeconomic environment that successful programme completion would deliver.

Barbados — Holiday Rental Performance: Barbados’s luxury villa and boutique hotel sector is performing well through the holiday season, with occupancy rates and rental yields in the premium tier holding up better than the broader economic context might suggest, a reflection of the enduring appeal of the island’s world-class lifestyle product.

St Kitts & Nevis — CBI Investment: The Federation’s citizenship programme continues to deliver consistent real estate investment flows, and the holiday season — when high-net-worth individuals are visiting the Caribbean in large numbers — is a peak period for CBI inquiry and sales activity in approved developments.

Anguilla — Luxury Peak: Anguilla’s ultra-premium villa market is operating at its seasonal peak, with the island’s most exclusive properties fully occupied and the distinctive experience of one of the Caribbean’s quietest and most sophisticated destinations attracting exactly the visitor profile most likely to become future property owners.

Grenada — CBI Building Momentum: Grenada’s relaunched citizenship programme is gaining traction, with several approved real estate projects now actively marketing to prospective CBI investors and the programme’s unique E-2 treaty advantage generating sustained interest from North American-focused applicants.

Overall Performer — Dominican Republic: As 2013 concludes, the Dominican Republic stands as the Caribbean’s unambiguous property and investment market leader — the only Caribbean territory that can claim simultaneous record tourism, booming construction, strong FDI, and an improving luxury market profile.

Looking Ahead

January 2014 will bring the transition from peak holiday season to the post-Christmas investment planning period — a time when visitors who have been evaluating Caribbean property during the holiday period begin to formalise their interest and agents begin converting inquiry pipelines into active negotiation. The pace of conversion from inquiry to offer in the first quarter of 2014 will be an early indicator of how the broader Caribbean property market is positioned for the year.

Jamaica’s IMF programme will continue through 2014 with quarterly reviews providing regular checkpoints on progress. The government will need to manage the dual challenge of maintaining programme compliance and beginning to demonstrate to the Jamaican public that reform is delivering tangible benefits. The Energy Sector reform agenda — which could, if successfully executed, meaningfully reduce electricity costs for households and businesses — will be a critical deliverable that would have direct positive effects on property operating costs and commercial viability across the island.

Trinidad & Tobago’s Carnival season, falling in early March 2014, will bring a seasonal surge of economic activity — hosting an estimated 40,000 visiting Carnival enthusiasts from the diaspora and international tourist base, generating hotel, villa rental, and short-term accommodation demand that is material for the hospitality property sector. Planning for the season is already underway, and the Carnival economy provides an important and distinctive economic stimulus that reinforces T&T’s property market fundamentals at the start of the calendar year.

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 November to 2 December 2013. All market observations reflect conditions during the coverage period.

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