Caribbean Property & Investment Review — Edition 148, April 2014

Publication Date: 3 April 2014  |  Coverage Period: 3 March – 2 April 2014

Morning Briefing

• Trinidad Carnival 2014 (March 3-4) has passed into memory and the post-festival economic assessment is underway — preliminary data on hotel revenues, short-term rental income, visitor numbers, and consumer spending confirm another landmark Carnival with a substantial and measurable impact on the T&T hospitality and property sectors.
• Caribbean spring transaction season is delivering on the optimistic inquiry pipeline that was built through the winter high season — agents in Barbados, the Cayman Islands, St Lucia, and Jamaica are reporting improved conversion rates from inquiry to offer and from offer to completed transaction compared to the equivalent spring period of 2013.
• Jamaica’s National Housing Trust first-time buyer programmes are seeing renewed activity as spring brings both aspiring homeowners to the market and the Trust’s seasonal outreach events that connect prospective buyers with mortgage advisers and available properties.
• Dominican Republic construction activity continues at a high pace through Q1 2014 — Punta Cana resort developments, Santo Domingo residential projects, and the emerging north coast corridor are all active, and the country’s tourism arrivals for January-February are running ahead of the equivalent 2013 period.
• Caribbean CBI programmes record a strong Q1 2014, with all four active jurisdictions — St Kitts & Nevis, Antigua & Barbuda, Dominica, and Grenada — reporting application volumes and real estate investment flows that are ahead of the equivalent period of 2013.
• The NOAA and Caribbean meteorological services are beginning to publish early outlooks for the 2014 Atlantic hurricane season, opening on 1 June — coastal property owners and operators are reminded that the quiet 2013 season is not a template for 2014, and insurance and risk management preparations should be underway.

Carnival 2014 Aftermath: What the Numbers Tell Us

With Trinidad & Tobago’s Carnival 2014 now a month in the past — the main parade days of 3 and 4 March having given way to the Ash Wednesday quiet that annually follows the festival — the economic data from the event is emerging and it is, by any measure, impressive. Preliminary reports from the hotel sector indicate that Port of Spain and its surrounding area recorded near-100 percent occupancy through the Carnival period, with average daily rates that were substantially above the rest-of-year baseline. Several properties reported that Carnival-week revenues equalled or exceeded any equivalent period in their operating history, a reflection of both the sustained quality of the 2014 festival and the robust health of the Trinidadian consumer base that drives local spending.

The short-term rental market performed equally strongly. The coverage period — 3 March to 2 April — encompasses both the final days of pre-Carnival activity and the full Carnival weekend, as well as the immediate post-festival period. Property owners who made their homes available through the Carnival fortnight are reporting income receipts that, in the most favoured locations around the Savannah, comfortably exceeded the monthly standard rent. The emerging evidence from the Carnival 2014 rental market reinforces what property investors and advisers who know Port of Spain well have long argued: that well-located residential property in the capital generates a Carnival income premium that materially improves the investment arithmetic of ownership.

The diaspora dimension of Carnival deserves particular attention. Trinidadians living abroad — in the United Kingdom, Canada, the United States, and across the Caribbean — return to the island in large numbers for Carnival, and a proportion of those returnees are prospective property buyers. The Carnival experience — reconnecting with family, experiencing the island at its most vibrant, and often visiting neighbourhoods they have not seen since childhood — rekindles attachment to Trinidad and prompts reconsideration of long-held plans to eventually acquire or return to property on the island. The weeks immediately following Carnival typically see a small but meaningful uptick in inquiries from overseas Trinidadians who have been moved by the Carnival experience to progress conversations about purchasing property in T&T. This post-Carnival diaspora inquiry effect is a recurring and documentable feature of the Port of Spain residential market.

Jamaica: NHT First-Time Buyers — Spring Season

The National Housing Trust’s first-time buyer support programmes are among the most important institutional mechanisms in Jamaica’s residential property market, and the spring period — with improving weather, school holiday property viewings, and the Trust’s seasonal marketing and outreach activities — is traditionally when first-time buyer activity is most concentrated. The coverage period has seen NHT branch offices across the island busy with consultation appointments as aspiring homeowners seek to understand their eligibility and loan entitlement under the Trust’s various schemes.

For Jamaica’s first-time buyers, the NHT’s competitive mortgage rates — available on a sliding scale based on contributor income, with lower-income contributors qualifying for the most heavily subsidised rates — represent a vital affordability tool in a market where commercial mortgage terms are challenging for ordinary earners. The IMF reform programme’s public sector wage freeze has complicated the affordability picture for a significant segment of the first-time buyer population, but the NHT’s rate subsidy provides meaningful mitigation. The Trust’s own construction programme — delivering new affordable housing units across multiple parishes — also provides a supply of properties priced within the NHT mortgage entitlement of qualifying contributors, though waiting lists for these units in desirable locations can be considerable.

Jamaica’s IMF programme is approaching the end of its first full year, and the upcoming comprehensive review will assess Year One compliance across both quantitative fiscal targets and structural reform benchmarks. The energy sector reform agenda — which has seen the government engage with prospective LNG suppliers and advance the Jamaica Public Service Company’s operational restructuring — is one of the structural priorities that the IMF will be looking at in detail. For the property market, a positive Year One review outcome would reinforce the medium-term recovery narrative that is beginning to attract international investor interest, particularly in the US dollar-denominated hotel and luxury residential segments where exchange rate-adjusted values have become genuinely competitive.

Dominican Republic: Q1 2014 Construction Momentum

The Dominican Republic’s property and construction market entered 2014 with exceptional momentum from its record 2013 tourism performance, and the first quarter of 2014 is confirming that the underlying growth drivers remain firmly in place. Tourism arrivals for January and February 2014 are running ahead of the equivalent 2013 period — itself a record year — across multiple visitor categories. Hotel occupancy in Punta Cana is performing strongly, with the new hotel capacity that opened through 2013 absorbing quickly as the overall visitor pool continues to grow.

Construction activity in the Punta Cana corridor and across the greater Cap Cana master-planned development continues at pace. Several hotel and resort projects that were under construction through 2013 are advancing towards opening dates in 2014, and the pipeline of projects in planning and early construction phases indicates that the investment cycle has a substantial remaining runway. The branded residence segment — where buyers purchase apartments or villas associated with a hotel management programme — is growing in significance, with several developments actively marketing to international buyers through specialist brokers and at international property investment exhibitions.

Santo Domingo’s residential market is also maintaining its positive trajectory. The capital’s urban apartment market — driven by a growing professional class that values modern, serviced living in the city’s upscale districts — continues to absorb new supply at healthy rates. Several mid-to-large residential developments in Piantini, Los Cacicazgos, and Bella Vista are completing and launching sales through Q1, and take-up rates are supportive of developer confidence for further projects. The Dominican Republic’s combination of economic scale, a large and growing domestic market, and sustained international investment interest makes it the most multidimensional Caribbean property story — a status that is being reinforced with each passing quarter.

CBI Q1 2014: All Four Programmes Record Growth

The first quarter of 2014 has been a strong one for Caribbean citizenship by investment programmes across all four active jurisdictions. The structural tailwinds driving CBI demand — the growing global high-net-worth population in emerging market economies, the increasing premium placed on international mobility by wealthy individuals in politically and economically uncertain home markets, and the Caribbean’s combination of lifestyle appeal and programme quality — are all firmly in place, and the 2014 market is building on the momentum established through 2013.

St Kitts & Nevis continues to process the highest volume of CBI applications in the Caribbean, a function of its long-established programme infrastructure, global brand recognition, and the deep network of authorised marketing agents that it has built over nearly three decades. The Federation’s approved real estate developments — spanning resort hotels, branded residences, and private villa communities across both St Kitts and Nevis — are maintaining healthy sales, with buyers drawn from a geographically diverse applicant base that includes significant Middle Eastern, Chinese, and Eastern European investor populations.

Antigua & Barbuda’s programme is demonstrating genuine momentum in its second year of operation. Several new approved real estate developments have entered active marketing phases, and the programme’s administration has developed the processing infrastructure and agent relationships that are the operational foundation of a credible CBI offering. Grenada’s programme is continuing to attract applicants motivated by the E-2 treaty advantage — with several new approved development projects expected to begin marketing through Q2 2014, the programme’s real estate investment option is becoming increasingly competitive. Dominica’s contribution-route programme maintains consistent volumes from applicants who prioritise cost efficiency over real estate investment.

Caribbean Spring Transaction Market Assessment

The Caribbean spring transaction season — the period when the winter inquiry pipeline converts into completed property transactions — is delivering a broadly positive performance across the region in 2014. The key markets where spring activity is most concentrated are reporting improved conversion rates compared to 2013: Barbados’s west coast is seeing a handful of significant transactions complete, breaking something of a 2013 impasse; the Cayman Islands residential market is running ahead of prior-year volumes; Jamaica’s tourism corridor is seeing hotel-adjacent residential and land transactions that reflect both tourism sector confidence and international buyer value perception; and the Eastern Caribbean luxury villa markets are recording spring closures consistent with a solid winter inquiry period.

The improvement in spring market performance — modest but real compared to 2013 — reflects several converging positive factors. The US economic recovery is now sufficiently well-established that North American buyer confidence has genuinely improved: employment is rising, equity markets have recovered substantially from their 2009 lows, and the near-zero interest rate environment has suppressed the opportunity cost of committing capital to a Caribbean property purchase. The UK recovery, while lagging the US, has also been making progress, and British buyer sentiment — critical for Barbados, the BVI, and several Leeward Islands markets — is measurably more positive than it was twelve months ago.

The durability of the spring improvement will be tested through April and May as the season winds down ahead of the summer — a quieter period for Caribbean property markets before the winter season build-up resumes in the autumn. Agents who have been through multiple Caribbean cycles note that the spring of 2014 has the feel of a genuine turning point — a market transitioning from post-crisis stabilisation to early recovery — but emphasise that Caribbean property cycles move slowly and that a single positive spring does not constitute a bull market. Sustained improvement over several seasons, rather than a single-period bounce, is the more robust indicator of a structural recovery in progress.

Caribbean Leaders This Month

Trinidad & Tobago — Carnival Vindicated: Post-Carnival economic data confirms another landmark festival for the T&T hospitality and property sectors — hotel revenues, short-term rental income, and consumer spending all delivered strong results, vindicating the investment case for well-located Port of Spain residential property.

Dominican Republic — Q1 Momentum: The DR’s construction and tourism sectors are delivering Q1 2014 results that extend the country’s record 2013 performance, maintaining its position as the Caribbean’s most dynamic and multidimensional property investment market.

Jamaica — NHT Support: The National Housing Trust’s spring first-time buyer activity provides a vital demand floor in a market where private-sector buyer confidence remains constrained by the IMF reform environment, demonstrating the institution’s critical stabilising role in Jamaica’s residential property sector.

Barbados — Spring Completions: Several west coast transactions completing in the spring represent a meaningful signal that the Barbados luxury market is transitioning from stabilisation to early recovery — the most positive market development on the island for several years.

St Kitts & Nevis — CBI Leadership: The Federation’s programme continues to lead the Caribbean in CBI application volumes and real estate investment generated, maintaining a competitive advantage built on three decades of programme operation and an unmatched global agent network.

Grenada — E-2 Progress: New approved real estate projects entering the market in Q2 2014 will strengthen Grenada’s CBI real estate investment option and make the programme’s distinctive E-2 advantage more directly accessible to property-focused applicants.

Cayman Islands — Market Leader: Consistent residential market outperformance relative to 2013 levels makes the Cayman Islands one of the most reliably positive Caribbean property market stories through the coverage period, underpinned by a financial services economy that generates sustained housing demand from internationally-mobile professionals.

Overall Performer — Dominican Republic: For Q1 2014, the Dominican Republic extends its run as the Caribbean’s most compelling property and investment market — a territory that combines the scale of a major Caribbean nation with the dynamism of an emerging market growth story, and that continues to attract capital at a rate unmatched by its regional peers.

Looking Ahead

The Atlantic hurricane season opens on 1 June 2014, and early outlooks from NOAA and regional meteorological services will begin to frame the risk landscape for Caribbean property through the summer and autumn. After the remarkably quiet 2013 season, there is a risk of complacency among property owners and operators who may have allowed insurance coverage or maintenance programmes to slip. The 2014 season will be characterised by its own dynamics, and prudent risk management — current insurance, sound building maintenance, and awareness of tropical weather development — remains as important as ever.

Jamaica’s IMF Year One review will be a defining moment for the island’s medium-term economic narrative. A positive review outcome would reinforce the credibility platform that ten months of broadly compliant programme performance has established, and would support the growing interest from international investors who see Jamaica’s improving macroeconomic trajectory as the foundation for a property market recovery that is still in its early stages. A clean Year One review would also provide the government with political capital to make the difficult decisions that Year Two of the programme will require.

The Caribbean property market is entering the quieter summer period from a position of cautious optimism that is more firmly grounded than at any point since 2008. The spring transaction season has delivered measurable improvement. The CBI sector is growing. Tourism arrivals across most territories are trending positively. And the macro environment — near-zero US rates, improving global growth, recovering consumer confidence in key source markets — remains broadly supportive. The test of this optimism will come in the 2014-15 winter season, which will need to deliver sustained transaction conversion to validate the recovery narrative. For now, the direction of travel is encouraging.

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 March to 2 April 2014. All market observations reflect conditions during the coverage period.