Caribbean Property & Investment Review — Edition 142, October 2014

Publication Date: 3 October 2014  |  Coverage Period: 3 September – 2 October 2014

Morning Briefing

• Oil crashes toward $80 per barrel: WTI crude has continued its relentless decline through September, falling from approximately $88 at the coverage period open to around $80 by close — a level that T&T government economists had previously identified as the threshold for fiscal discomfort.
• T&T budget review underway: The Persad-Bissessar administration has ordered an urgent review of the 2014/2015 national budget assumptions, with Finance Ministry officials acknowledging that the fiscal outlook has changed materially from the beginning of the year.
• Caribbean winter tourism season opening: Forward booking data for the Caribbean winter season — November through April — shows encouraging year-on-year improvement, with Jamaica, Barbados and the Eastern Caribbean reporting strong advance reservations from North American and European markets.
• Jamaica NHT programme continues: The National Housing Trust reports on-track progress in its housing construction and mortgage lending programmes, maintaining delivery to NHT contributor beneficiaries despite the broader austerity environment.
• Dominican Republic luxury market active: High-end residential and resort real estate in Cap Cana and Punta Cana continues to transact at premium prices, reflecting the DR’s sustained position as the Caribbean’s most dynamic luxury property market.
• OPEC November meeting anticipated: The oil-producing cartel’s scheduled late-November meeting is being watched with unusual intensity by Caribbean energy economies; the outcome could prove decisive for T&T’s fiscal trajectory through 2015.

Oil at $80: T&T’s Fiscal Red Line Approaches

The oil price decline that began as a modest correction from June’s peak has accelerated into something more serious. WTI crude is now trading near $80 per barrel, having fallen approximately 25% from its 2014 high in the space of three months. This is no longer a normal cyclical correction — it is a structural repricing driven by the combination of surging US shale production, softening global demand growth particularly from China, and the gathering sense that OPEC may not move swiftly to defend prices.

For Trinidad & Tobago, the $80 threshold is meaningful. Government budget documents have historically been prepared on assumptions of oil prices in the $80–$90 per barrel range; at $80, the fiscal arithmetic becomes tight. Below $80, it becomes genuinely challenging. The Heritage and Stabilisation Fund — T&T’s sovereign wealth fund accumulated during the years of high energy revenues — provides some cushion, but is not a substitute for sustained adequate oil revenues if the decline proves prolonged.

Finance Ministry officials in Port of Spain are conducting urgent budget reviews. Capital expenditure programmes that were fully funded at $100 oil are being re-evaluated at $80. Social spending commitments — always politically sensitive in a pre-election period, with general elections due no later than 2015 — are being examined for possible deferrals. The construction sector, which has benefited from government infrastructure spending throughout the PP administration’s tenure, is beginning to hear whispers of potential slowdowns in project approvals and disbursements.

The residential property market in Port of Spain and its suburbs remains, for now, more stable than these fiscal pressures might suggest. Energy sector employment has not yet declined materially — oil companies tend to maintain staffing through commodity price cycles, at least initially, before making structural adjustments. The professionals and managers who drive mid-to-upper residential demand in areas like Westmoorings, Maraval and Diego Martin are still employed and still earning. But the mood is shifting from expansive confidence to watchful caution, and that psychological shift tends to precede transactional slowdowns by six to twelve months.

Caribbean Winter Season: Opening Strongly Despite Energy Uncertainty

One of the more reassuring stories from October’s vantage point is the strength of forward bookings for the Caribbean’s winter tourism season. The high season — running from roughly November through April — is the Caribbean’s most important commercial period, when North American and European visitors flee winter conditions for Caribbean sun, and when hotel revenues, villa rental rates and related property values reach their annual peaks.

Jamaica’s tourism authority reports advance reservations running meaningfully ahead of the comparable period last year. Montego Bay’s major all-inclusive resorts are reporting strong group bookings from the US and Canada. Negril, which attracts a younger, more independent traveller demographic, is also seeing solid individual booking momentum. The improved airlift that has been built up over the past two years — with JetBlue, American and Delta all maintaining or expanding Jamaican routes — is making it easier for North American visitors to choose Jamaica over competing destinations.

Barbados, despite its challenging economic environment, is reporting improved advance bookings particularly from the UK. Thomas Cook, TUI and independent British travellers continue to treat the island as a premium winter destination, and the west coast’s villa and boutique hotel market is benefiting from this British loyalty. The Freundel Stuart government, facing its own fiscal pressures, is nonetheless investing in tourism marketing as a priority, recognising the sector’s central role in any economic recovery.

The Eastern Caribbean — Antigua, St Lucia, St Kitts, Grenada — is also seeing positive forward booking signals. For these smaller destinations, the winter season’s performance is particularly critical since it represents a disproportionate share of their annual tourism revenue. Strong winter seasons in these islands translate directly into improved occupancy at CBI-qualifying hotels and stronger short-term rental yields for villa investors.

Dominican Republic Luxury Market: Sustained Premium Demand

Even as oil price anxieties begin to colour the broader Caribbean investment mood, the Dominican Republic’s luxury property market continues to operate in its own favourable universe. Cap Cana — the 30,000-acre master-planned resort community east of Punta Cana — continues to attract high-net-worth buyers from the United States, Latin America and Europe. Villa prices in the Juanillo and Punta Espada areas are achieving levels that compare favourably with established luxury Caribbean markets in the Bahamas or Barbados, with the significant advantage of lower overall cost bases in the Dominican Republic.

The DR’s luxury market success rests on a combination of factors: superb beach assets, world-class golf infrastructure, improving marina facilities, and an efficient international airport that makes the destination easily accessible from major US cities. President Medina’s government has maintained a supportive posture toward tourism and real estate investment, offering competitive incentive frameworks and streamlined approval processes for qualifying projects. The combination of natural assets, investment infrastructure and political support is sustaining the DR’s premium appeal even as other Caribbean markets face headwinds.

Jamaica NHT: Sustaining the Housing Pipeline

In Jamaica, the National Housing Trust’s quarterly update confirms continued delivery against its housing programme targets. New unit completions, mortgage disbursements and the opening of applications for forthcoming project phases are keeping NHT activity in the public eye and maintaining the housing finance institution’s role as the primary driver of affordable homeownership transactions in the Jamaican market.

The NHT is also navigating the challenge of construction cost inflation — building materials costs have risen in Jamaica as they have across the Caribbean, partly reflecting global commodity price movements and partly the logistics costs of island construction. The Trust is working with developers and contractors to maintain cost discipline on its projects while sustaining the quality standards that beneficiary families expect from NHT-delivered homes. These pressures are manageable but require careful programme management as the Trust looks ahead to its 2015 delivery pipeline.

Caribbean Leaders This Month

Dominican Republic — Luxury Market Leader: Cap Cana and Punta Cana luxury villas continue to transact at premium prices; the DR’s combination of natural assets and investor-friendly policy makes it the Caribbean’s premier luxury property market.

Jamaica — Winter Season Momentum: Strong advance bookings for the winter high season validate Jamaica’s improving tourism infrastructure investment; NHT housing delivery maintains the affordable market’s momentum.

Barbados — British Market Loyal: UK advance bookings for winter season reassure Barbados’s west coast villa and boutique hotel market; Platinum Coast values continue to resist downward pressure.

Trinidad & Tobago — Fiscal Alarm Rising: Oil at $80 has triggered urgent budget reviews; the T&T property market is entering the most uncertain period since the PP government took office, with buyer caution visibly increasing.

Antigua — Winter Season Ready: Forward bookings for English Harbour’s marina season and north coast resort properties are positive; Antigua positions itself for what could be a strong winter performance.

Grenada — CBI Completions Approaching: First-phase CBI-qualifying resort units approaching completion; buyers’ passport applications advancing through the programme pipeline in parallel with construction.

St Lucia — Boutique Hotel Strength: St Lucia’s position as the Caribbean’s premier honeymoon and romantic escape destination continues to support strong demand for its premium boutique hotel product; winter forward bookings are encouraging.

Cayman Islands — Commercial Strength: Grand Cayman’s commercial real estate market remains active, supported by the financial services sector’s sustained employment; Seven Mile Beach residential market also steady.

Overall Caribbean Market Performer — October 2014: Dominican Republic. The DR’s luxury market performance and continued construction activity make it the regional leader despite the darkening oil price backdrop affecting energy-dependent neighbours.

Looking Ahead

November’s OPEC meeting is the most important near-term event for T&T’s property market and, to a lesser extent, for Caribbean economic confidence generally. If OPEC opts to defend prices through production cuts, the oil market could stabilise or partially recover, relieving some of the pressure on T&T’s fiscal position. If, as many analysts now expect, Saudi Arabia leads the cartel toward a market-share defence strategy by maintaining or even increasing production, prices could fall further — potentially toward $70 or below. That scenario would represent a genuine crisis for T&T’s public finances and a serious headwind for the island’s property market.

Caribbean tourism’s winter season performance will be closely tracked through October and November. Early booking data is encouraging, but actual performance — measured in arrival numbers, hotel occupancy and visitor spend — will provide the real test. A strong winter season would meaningfully validate the tourism property investment case across the region and provide some counterweight to the energy sector uncertainty emanating from T&T.

Jamaica’s economic reform programme will continue through the IMF’s next scheduled quarterly review. The programme has now been running for eighteen months, and its effects on macroeconomic stability — while gradual — are becoming more legible in fiscal and current account data. International investor interest in Jamaica’s hospitality and commercial real estate is a function partly of these improving fundamentals, and continued programme compliance will be essential to maintaining that interest through 2015.

The Caribbean Property & Investment Review is published monthly and covers real estate markets, investment trends and economic developments across the Caribbean region. Edition 142, October 2014.