Caribbean Property & Investment Review — Edition 147, May 2014

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

Morning Briefing

• Oil markets supportive: WTI crude remains near $100 per barrel, underpinning Trinidad & Tobago’s government revenues and sustaining strong consumer and commercial property demand across Port of Spain.
• CBI programmes flourishing: Citizenship by investment applications surge across St Kitts & Nevis, Grenada, Antigua & Barbuda and Dominica as international investors — led by Chinese and Middle Eastern nationals — seek Caribbean passports and qualifying real estate investments.
• Jamaica IMF milestone: One year since Jamaica signed its Extended Fund Facility with the IMF, the Portia Simpson Miller government reports quarterly targets broadly met and signals cautious optimism about the fiscal consolidation path ahead.
• Dominican Republic construction boom: President Danilo Medina’s administration reports record construction permits issued in the first quarter of 2014, with Punta Cana and Santo Domingo driving luxury and mid-market development pipelines.
• US interest rates at historic lows: The Federal Reserve’s near-zero rate environment continues to support Caribbean mortgage affordability and stimulate cross-border investment flows into regional real estate.
• Caribbean Tourism Organisation optimistic: Regional visitor arrival data for Q1 2014 shows year-on-year gains across most destinations, setting a positive tone for the peak summer season ahead.

CBI Programmes Drive Caribbean Real Estate Investment

The spring of 2014 finds Caribbean citizenship by investment programmes at perhaps their most commercially vibrant moment since the concept was pioneered by St Kitts & Nevis in 1984. Four programmes now compete actively for international high-net-worth attention — St Kitts, Grenada, Antigua & Barbuda and Dominica — and the collective marketing effort is drawing unprecedented interest from investors in China, the Gulf states, Russia and Eastern Europe.

St Kitts & Nevis, the pioneer, is in a period of reform. The government has been recalibrating its real estate investment option, tightening qualifying property thresholds and strengthening due diligence requirements in response to international pressure. Yet demand has, paradoxically, increased: the sense of a programme maturing into greater respectability appears to be attracting more sophisticated investors. Approved developments on Frigate Bay and along the South East Peninsula continue to report brisk pre-sales activity, with units priced from $400,000 qualifying for citizenship applications.

Grenada’s programme, launched in 2013, is gaining momentum through 2014. The island’s added attraction — Grenada passport holders can apply for US E-2 investor visas, a privilege unavailable to most Caribbean CBI holders — is proving a powerful differentiator. Real estate developers on the island are building specifically to capture the CBI market, with branded resort condominiums at Silver Sands and near Grand Anse Beach representing the qualifying investment tier. Antigua & Barbuda, similarly launched in 2013, is positioning English Harbour and Jolly Harbour developments as its flagship CBI real estate options. Dominica continues to offer the most affordable CBI entry point in the region, attracting investors who prioritise the passport over real estate yield.

The property market implications are significant. CBI-linked demand is adding a new investor class to Caribbean real estate — buyers whose primary motivation is the passport rather than rental yield or capital appreciation, but who nonetheless inject substantial capital into qualifying developments. Hotel developers and villa resort operators have been quick to structure their projects around CBI requirements. Across the four active programmes, estimates suggest CBI-driven real estate transactions reached several hundred million US dollars in 2013, with 2014 on pace to exceed that figure.

Jamaica: One Year of IMF Reform Yields Cautious Stabilisation

May 2014 marks the first anniversary of Jamaica’s Extended Fund Facility with the International Monetary Fund, and the assessment — while not triumphant — is one of qualified progress. The government of Prime Minister Portia Simpson Miller has implemented a series of fiscally painful measures: public sector wage restraint, tax broadening, and structural reform of state enterprises. The fiscal deficit has been narrowed, and the IMF’s quarterly review benchmarks have been broadly met, allowing successive tranches of the facility to be drawn down.

For the property market, the IMF programme has created a paradoxical environment. On one hand, economic austerity has suppressed consumer confidence and real disposable incomes, dampening demand for mortgage-financed residential property. On the other hand, the fiscal credibility that the programme confers has helped stabilise the Jamaican dollar and reduce the risk premium demanded by international investors, making commercial real estate more attractive to foreign capital. The National Housing Trust continues its mandate to deliver affordable housing solutions for lower and middle income Jamaicans, with the NHT’s mortgage portfolio expanding even as private sector lending remains constrained.

Tourism, Jamaica’s largest foreign exchange earner, is showing encouraging signs. Montego Bay continues to attract resort expansion investment, and new hotel brands are expressing interest in the north coast corridor. The combination of IMF-enforced fiscal discipline and a relatively stable security environment in the primary tourist zones is beginning to rebuild international investor confidence in Jamaica as a destination for long-term hospitality capital. That said, macroeconomic challenges — high public debt, sluggish growth, and infrastructure gaps — remain significant headwinds that the property market cannot fully escape.

Trinidad & Tobago: Energy Revenues Sustain Property Demand

With WTI crude trading near $100 per barrel and natural gas prices also supportive, Trinidad & Tobago enters May 2014 with government finances in reasonable shape and the broader economy generating sufficient activity to sustain real estate demand. The Kamla Persad-Bissessar administration has been managing the energy windfall with a combination of social spending and capital investment, and Port of Spain’s commercial property market reflects the resulting activity levels.

Residential property in the greater Port of Spain area — particularly in suburban communities such as Maraval, Westmoorings and Diego Martin — continues to attract strong demand from professionals employed in the energy services sector. Prices have appreciated steadily over the past three years, and new residential developments are being absorbed without significant oversupply concerns. The commercial leasing market, underpinned by energy company office requirements and the ancillary professional services they generate, similarly shows positive absorption rates.

Tobago, meanwhile, is continuing its gradual repositioning as a premium tourism and residential destination. Several boutique hotel and villa projects are at various stages of development or pre-development planning. The island’s relative exclusivity compared to more heavily commercialised Caribbean destinations is proving attractive to a discerning buyer profile seeking long-term value in a quieter setting. Air access improvements — incremental but meaningful — are supporting this repositioning.

Dominican Republic: The Region’s Construction Powerhouse

No Caribbean economy is generating more construction activity in the spring of 2014 than the Dominican Republic. Under President Danilo Medina, elected in 2012 and presiding over an economy that has consistently outperformed its Caribbean peers in growth rates, the property sector is expanding across multiple segments simultaneously. Luxury resort development in Punta Cana and Cap Cana continues at pace, driven by strong demand from North American and European buyers. The capital Santo Domingo is seeing commercial office development, retail expansion and residential condominium projects that reflect a growing middle and upper-middle class domestic market.

Tourism is the engine. The Dominican Republic welcomed approximately 4.7 million visitors in 2013, and 2014 is on track to exceed that. The Punta Cana International Airport — privately operated and continuously expanding — handles a growing number of direct international routes. Hotel developers including major international brands are actively building new all-inclusive and boutique properties. The real estate market has developed a sophisticated infrastructure of developers, brokers, legal services and financial products that makes transacting in the Dominican Republic increasingly accessible for international buyers.

Caribbean Leaders This Month

Dominican Republic — Property Market Performer: Punta Cana resort condominiums are achieving prices per square foot that rival established Caribbean markets, reflecting the depth and quality of buyer demand flowing into this destination.

St Kitts & Nevis — CBI Pioneer: The programme’s reform process, while creating short-term uncertainty, is repositioning St Kitts as the gold standard of Caribbean citizenship by investment and supporting qualifying real estate values.

Grenada — Rising CBI Star: The E-2 treaty advantage is generating genuine differentiation in the international investor market, driving pre-sales at qualifying resort developments ahead of expectations.

Trinidad & Tobago — Energy Stability: With oil near $100, the fiscal environment supports consumer confidence and real estate activity; Port of Spain commercial property absorption rates remain healthy.

Jamaica — Reform Credibility: The IMF programme’s successful quarterly reviews are building international credibility, with foreign investor enquiries into Montego Bay hospitality assets showing a notable uptick.

Barbados — Premium Resilience: The west coast luxury villa and condominium market continues to attract high-net-worth buyers from the UK and Europe, with Platinum Coast values holding despite the broader economic slowdown.

Antigua & Barbuda — CBI Momentum: The 2013-launched citizenship programme is gaining traction, with English Harbour marina-adjacent properties showing strong interest from qualifying investors.

Dominica — Affordable Entry: The most price-accessible CBI programme continues to attract strong application volumes, maintaining development activity even as the island’s tourism infrastructure remains in earlier stages of development.

Overall Caribbean Market Performer — May 2014: Dominican Republic. The combination of record tourism arrivals, a construction boom across multiple market segments, and strong macroeconomic tailwinds from President Medina’s economic policies makes the DR the most dynamic property market across the region this spring.

Looking Ahead

The Caribbean property market enters the summer tourism season in broadly positive shape. CBI programme demand from Asia and the Middle East shows no signs of abating, and the ongoing low US interest rate environment continues to make Caribbean real estate an attractive destination for international capital seeking yield and lifestyle value. The main watch points for the coming months will be the trajectory of global oil prices — critical for Trinidad & Tobago’s fiscal position — and the pace at which Jamaica’s IMF-supervised reform programme translates into tangible improvements in business confidence.

The Dominican Republic’s sustained construction activity raises questions about potential oversupply in certain segments of the Punta Cana market, though current absorption rates suggest the pipeline remains manageable. For the smaller Eastern Caribbean CBI destinations, the key challenge will be maintaining programme integrity and due diligence standards as application volumes increase — the reputational risk of a poorly managed programme could have lasting consequences for qualifying real estate values.

Jamaica’s approaching summer tourism season offers a near-term test of whether the IMF reform narrative is translating into on-the-ground economic improvement. Strong tourist arrivals data would provide meaningful support to the hospitality investment case and, by extension, to the broader narrative of Jamaica as a destination where patient investors are being rewarded for their commitment to the market’s long-term potential.

The Caribbean Property & Investment Review is published monthly and covers real estate markets, investment trends and economic developments across the Caribbean region. Edition 147, May 2014.