Caribbean Property & Investment Review — Edition 151, January 2014

Publication Date: 3 January 2014  |  Coverage Period: 3 December 2013 – 2 January 2014

Morning Briefing

• 2013 closes as a year of significant divergence for Caribbean property — the Dominican Republic and Trinidad & Tobago delivered robust performance, Jamaica demonstrated reform credibility under challenging IMF conditions, and Barbados navigated continued economic difficulty while maintaining its premium market appeal.
• The 2013 Atlantic hurricane season concluded as one of the least active in recent memory — no significant Caribbean island strikes disrupted tourism or property markets through the season, a remarkable and welcome outcome that underpinned the strong Christmas holiday period.
• Jamaica’s IMF Extended Fund Facility has now completed eight months of implementation with programme compliance broadly maintained — the Christmas tourism season delivered solid occupancy across major resort areas, providing important foreign exchange to support the government’s fiscal position.
• Trinidad & Tobago’s Carnival 2014 (scheduled for March 3-4) is driving advance accommodation bookings and property rental demand that will build through January and February, contributing to early-year economic momentum in the hospitality and short-term rental sectors.
• The Dominican Republic’s record tourism year has been confirmed — 2013 arrivals data substantially exceeded prior-year levels across all visitor categories, validating the sustained hotel investment and reinforcing the country’s position as the Caribbean’s dominant tourism market.
• Caribbean CBI programmes enter 2014 with strong momentum — all four active jurisdictions (St Kitts & Nevis, Antigua & Barbuda, Dominica, and Grenada) are reporting growing application pipelines and expanding approved real estate development rosters.

2013 Year-End Review: The Caribbean Recovery Story

Twelve months is an appropriate moment to step back and assess the overall trajectory of Caribbean property and investment markets. The picture that emerges from 2013 is one of recovery and divergence — a region that entered the year still managing the legacy of the 2008-09 global financial crisis, but one that is clearly on a improving trajectory across most metrics, albeit at very different speeds in different territories.

The Dominican Republic stands as the unambiguous success story of the Caribbean in 2013. Record tourist arrivals, a construction boom across resort and residential segments, surging foreign direct investment, and President Danilo Medina’s pro-investment government have combined to create the most dynamic property and investment market in the region. The country’s ability to attract premium hotel brands, develop integrated resort communities like Cap Cana, and simultaneously service a growing domestic urban property market makes it uniquely positioned among Caribbean nations. It is the region’s closest approximation to an emerging market growth story, combining Caribbean lifestyle appeal with genuine economic scale.

Trinidad & Tobago delivered solid and consistent performance through 2013, underpinned by the remarkable economic stability that an energy-rich economy provides. With oil near US$100 per barrel for the duration of the year, government revenues were strong, employment in the energy and related sectors was full, and the construction boom that has been reshaping Port of Spain and its surrounding metropolitan area continued without interruption. The twin-island republic entered 2014 as the most economically stable and prosperous territory in the English-speaking Caribbean, with a property market that reflected that stability in sustained transaction volumes and price resilience.

Jamaica’s 2013 story is more complex but ultimately encouraging for long-term investors. The island spent the year implementing one of the most demanding fiscal reform programmes in its history, maintaining compliance with the IMF’s Extended Fund Facility while managing significant social pressure from a public sector that bore the brunt of wage restraint. That the reform survived its first year without a crisis — without a programme suspension, a devaluation emergency, or a social breakdown — is itself a significant achievement. The macroeconomic foundation for eventual property market recovery is being laid, even as the short-term market remains subdued by austerity conditions.

Jamaica: Eight Months of IMF Reform — The Balance Sheet

As Jamaica enters 2014 with eight months of IMF programme implementation behind it, it is useful to assess what the reform has achieved and what work remains. On the positive side: the primary fiscal surplus target has been met through successive quarterly reviews, structural benchmarks relating to public body reform and tax administration have been advanced, and the IMF has characterised Jamaica’s performance as broadly satisfactory. The external environment has cooperated reasonably well — no major hurricane, solid tourism performance — making the fiscal arithmetic more manageable than it might have been in a worse year.

On the challenges side: the social cost of adjustment is real and visible. Public sector workers — teachers, nurses, police, civil servants — have seen their nominal wages frozen while the cost of living has continued to rise. Energy costs for households and businesses remain punishing, a structural issue that the programme’s energy sector reform agenda has identified but not yet resolved. The broader private sector has been cautious about investment in an environment of compressed domestic demand and uncertain economic trajectory. And the property market, while showing resilience at the top end and in the tourism sector, has seen softer transaction volumes in the middle market where most Jamaicans participate.

The property market outlook for Jamaica in 2014 is shaped by these tensions. For international investors with USD capital and a medium-term perspective, Jamaica presents genuine value — the exchange rate has created affordability in USD terms, the tourism infrastructure is solid and improving, and the reform programme — if it continues on track — will deliver a materially better macroeconomic environment in the years ahead. For domestic buyers relying on JMD income and mortgage financing, the environment remains tight. NHT’s programmes continue to provide essential support at the affordable end, and the organisation’s sustained activity is a structural positive for market stability.

T&T Carnival 2014: The Economic Engine Warms Up

Trinidad & Tobago’s Carnival 2014, scheduled for March 3-4 (Ash Wednesday falls on March 5), is already generating economic momentum as the new year opens. Carnival is Trinidad’s most significant cultural and economic event — an annual festival that attracts tens of thousands of visitors from the Trinidadian diaspora in North America, the UK, and across the Caribbean, as well as international tourists drawn by the reputation of what many regard as the world’s greatest street party. The economic impact is material: hotel rooms are booked months in advance, short-term villa and apartment rentals command peak-season premiums, and the entire hospitality and entertainment ecosystem operates at maximum intensity for the weeks surrounding the festival.

For the property market, Carnival season generates several important dynamics. The intense demand for short-term rental accommodation in the weeks before and during Carnival demonstrates to property owners the income potential of their assets during peak demand periods, reinforcing the investment case for well-located Port of Spain and surrounding area residential property. Visitors who experience Trinidad for the first time during Carnival — and are exposed to the island’s energy, creativity, and cosmopolitan character — sometimes translate that experience into medium-term property interest. And the broader economic stimulus of Carnival — spending on costumes, food, drink, hospitality, and entertainment — provides a meaningful GDP injection that reinforces T&T’s already-healthy economic fundamentals.

2014 Caribbean Investment Outlook

As the Caribbean enters 2014, the broad macroeconomic environment remains supportive of property investment. US interest rates are at the zero lower bound and the Federal Reserve has signalled that they will remain there for an extended period, despite the beginning of quantitative easing tapering. European economic conditions are improving, with the Eurozone recovery gradually gathering pace following the resolution of the most acute phase of the sovereign debt crisis. These developments support both the North American and European buyer bases that are critical to the Caribbean’s second-home and investment property markets.

CBI programme competition is set to intensify in 2014 as all four active Caribbean jurisdictions continue to invest in marketing and programme development. The competition is ultimately positive for property investors and developers in participating territories — it drives improvements in programme governance, expands the roster of approved real estate investments, and keeps the Caribbean firmly on the agenda of international high-net-worth individuals and their advisers. Territories that maintain the highest standards of due diligence and governance will be best positioned to attract the most quality applicants.

The primary risks to the 2014 Caribbean property outlook are familiar ones: US economic volatility (including the potential impact of QE tapering on global risk appetite and US mortgage rates), the hurricane season (the 2013 quiet season will not necessarily repeat), and the political economy risks in individual jurisdictions — Jamaica’s IMF programme compliance, Barbados’s fiscal sustainability, and the broader challenge of maintaining reform momentum in small economies with constrained policy space. On balance, however, the outlook for 2014 is the most positive it has been since the 2008 financial crisis, and the Caribbean property market is positioned to benefit from the improving global environment.

Caribbean Leaders This Month

Dominican Republic — Record Year Confirmed: The confirmation of a record 2013 tourism year caps an exceptional twelve months for the DR’s property and investment market, providing the strongest possible validation for continued hotel and resort capital commitment in 2014.

Trinidad & Tobago — Carnival Momentum: With Carnival 2014 just two months away, T&T’s hospitality property market is already generating peak demand for short-term accommodation, demonstrating the exceptional income potential of well-located Port of Spain property during the festival season.

Jamaica — Tourism Anchors Recovery: Christmas tourism in Jamaica delivered solid occupancy and foreign exchange revenue — the most visible and tangible evidence that the island’s core asset — its natural beauty, warmth, and cultural vitality — continues to attract visitors who ultimately become the buyers and investors in Jamaica’s property market.

St Kitts & Nevis — CBI Year-End Strength: The Christmas and January period is historically strong for CBI programme inquiry, as high-net-worth visitors to the Caribbean evaluate citizenship options alongside property purchases. The Federation is well-positioned to benefit from this seasonal pattern.

Barbados — Holiday Season Performance: Barbados’s luxury segment performed solidly through the Christmas peak, with west coast properties reporting strong rental occupancy and some meaningful buyer inquiry that agents hope will convert to completed transactions in Q1 2014.

Antigua — CBI Year Two: Antigua’s CBI programme enters its second full year with growing momentum — an expanding approved development roster, increasing international marketing presence, and a growing track record of processed applications are all positive indicators for 2014.

Grenada — E-2 Advantage: Grenada’s citizenship programme continues to attract North American applicants and developers drawn to the unique E-2 treaty advantage, with several new approved real estate projects expected to enter the market in the first half of 2014.

Overall Performer — Dominican Republic: For the full year 2013, the Dominican Republic is the Caribbean’s undisputed property and investment market leader. Its combination of scale, dynamism, and improving quality across tourism and residential segments makes it the region’s most compelling investment destination as 2014 begins.

Looking Ahead

February represents the heart of the Caribbean’s winter high season — hotel occupancy remains elevated, luxury villa rentals are at peak rates, and the international buyer audience is at its largest. Agents and developers across the region will be focused on converting the inquiry pipeline generated over Christmas into active offer and negotiation processes through January and February. The Q1 2014 transaction market will provide the first clear signal of how the Caribbean property cycle is positioned for the full year.

Jamaica’s IMF programme enters 2014 with its credibility intact but with significant challenges ahead. The energy sector reform agenda — which could deliver meaningful electricity cost reductions for households and businesses — needs to advance from planning to implementation. The public body reform programme needs to demonstrate measurable progress. And the fiscal targets for the second year of the programme are at least as demanding as those of the first year. The government will need to maintain its reform momentum while managing the growing political pressure from a public that has been bearing austerity conditions for nearly a year.

Trinidad’s Carnival season building through February will sustain economic momentum in the twin-island republic through the first quarter. The event’s impact on short-term rental markets, hospitality employment, and consumer spending will be clearly visible in economic data for Q1, providing a distinctive seasonal pattern that distinguishes T&T’s economic calendar from its Caribbean peers and reinforces the investment case for hospitality and residential property in and around Port of Spain.

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 December 2013 to 2 January 2014. All market observations reflect conditions during the coverage period.