Caribbean Property & Investment Review — Edition 135 | May 2015

Publication Date: 3 May 2015  |  Coverage Period: 3 April – 2 May 2015

Morning Briefing

• Caribbean tourism arrivals for the January–March 2015 quarter are tracking approximately 6 percent ahead of the same period in 2014, with North American visitor numbers particularly strong across Jamaica, Barbados, and the Dominican Republic.
• ExxonMobil’s Stabroek Block drilling programme offshore Guyana continues to generate intense industry interest, with the Liza-1 well results expected to provide a definitive assessment of the block’s oil potential in the coming weeks.
• Jamaica’s inflation rate fell to a 44-year low in March 2015, reaching 3.7 percent, providing the Bank of Jamaica with room to consider further easing and strengthening the affordability outlook for mortgage borrowers.
• Trinidad & Tobago’s Heritage and Stabilisation Fund — the country’s sovereign wealth vehicle funded by energy revenues — reported assets of approximately US$5.7 billion as of end-March 2015, providing a buffer against sustained low oil prices.
• Barbados’s tourism sector recorded its best April performance in seven years, with hotel occupancy averaging 74 percent across the island and revenue per available room rising by 9 percent year-on-year.
• The Cayman Islands real estate market reported a 22 percent increase in transaction values for Q1 2015 compared to Q1 2014, driven by strong demand in the Seven Mile Beach corridor and continued interest from North American and European high-net-worth buyers.

Guyana’s Stabroek Block: The Region Holds Its Breath

The Caribbean energy investment community is watching Guyana’s offshore Stabroek Block with a level of anticipation that has few precedents in the region’s recent history. ExxonMobil, in partnership with Hess Corporation and China National Offshore Oil Corporation, has been drilling the Liza-1 exploration well in waters approximately 120 miles offshore the Guyanese coast. The well targets a stratigraphic trap within the Cretaceous-age Liza prospect, and early drilling data has been sufficiently encouraging to maintain intense industry interest.

The significance of a major oil discovery in Guyana cannot be overstated for the wider Caribbean. Guyana is one of the poorest countries in the Western Hemisphere, with a per capita GDP that lags far behind its Caribbean neighbours. A commercially significant oil find would transform the country’s economic trajectory, creating the conditions for rapid fiscal expansion, infrastructure investment, and the emergence of a professional class with disposable income to deploy in property markets. Georgetown, the capital, would almost certainly become one of the most dynamic property markets in the region within a decade of commercial production commencing.

For investors with a long time horizon and a tolerance for frontier market risk, Guyana’s real estate market represents an early-stage opportunity of considerable potential. Land values in Georgetown remain a fraction of those in comparable Caribbean capital cities, and commercial property — particularly Grade-A office space capable of housing international energy company operations — is in chronically short supply. The market is not without its challenges: infrastructure gaps, governance concerns, and the uncertainties inherent in frontier markets must all be weighed carefully. But for those who track the exploration cycle closely and act on data-driven conviction, the Stabroek Block story is one to follow with serious intent.

Jamaica: Inflation at Historic Low Signals Mortgage Market Opportunity

Jamaica’s March 2015 inflation reading of 3.7 percent — a 44-year low — is a landmark moment in the country’s economic reform narrative and carries direct implications for the property market. Low inflation is not merely a macroeconomic abstraction: it represents a genuine improvement in the purchasing power of Jamaican households, a reduction in the cost of capital for mortgage lenders, and an opening for the Bank of Jamaica to maintain or further ease its benchmark rate. Each of these dynamics is positively correlated with housing affordability and transaction volumes.

Commercial banks have begun to respond to the improved macro environment, with the leading institutions posting modest reductions in their mortgage rates over the first quarter. While commercial rates remain above those available through NHT, the direction of travel is positive, and the gap between NHT concessional rates and commercial rates is narrowing. This narrowing matters for the upper-middle segment of the market — buyers whose incomes are too high to qualify for NHT’s most concessional tiers but who have historically been poorly served by commercial lending conditions.

The new housing development pipeline in Jamaica is responding to these improved conditions. Several projects in the Kingston Metropolitan Area and Montego Bay are moving from planning to active construction, targeting the mid-market segment. Developers report that pre-sales have been stronger in Q1 2015 than in the equivalent period of 2014, a leading indicator that the demand side of the market is genuinely activating. If the macro trajectory holds through Q2, the second half of 2015 could see a meaningful acceleration in new supply coming to market.

Caribbean Tourism 2015: Record Season in the Making

The data emerging from Caribbean Tourism Organisation members for the first quarter of 2015 is unambiguously positive. Arrivals are up across the board, with North American visitor numbers leading the growth surge. The drivers are well understood: lower jet fuel costs have enabled airlines to pass savings on to travellers through more competitive fares; the strengthening US dollar makes Caribbean destinations more affordable for American visitors; and improved consumer confidence in the United States is translating into greater discretionary travel spending.

For property investors, tourism data is a lead indicator of hospitality sector returns and short-term rental market performance. The correlation between visitor arrivals and villa rental yields is well-established across the Caribbean, and the current trajectory — if sustained through the peak summer season — suggests that 2015 could be a benchmark year for rental income across the archipelago. Airbnb and other short-term rental platforms are amplifying this trend by enabling individual property owners to participate directly in the tourism economy without requiring the scale or infrastructure of a traditional hotel operation.

The Cayman Islands’ Q1 property transaction data — up 22 percent in value terms year-on-year — is a vivid illustration of how tourism strength feeds into property market dynamism. Cayman’s high-end tourism product, its financial services industry, and its stable US dollar-pegged currency create a uniquely attractive proposition for premium property buyers who value both lifestyle quality and economic predictability. The Seven Mile Beach corridor remains the region’s most liquid luxury real estate market, and the current cycle of appreciation shows no sign of exhaustion.

Barbados: Tourism Recovery and Property Market Stabilisation

Barbados’s best April tourism performance in seven years is a significant data point for an island that has endured several challenging years of fiscal adjustment and economic stagnation. The 74 percent hotel occupancy rate and the 9 percent improvement in revenue per available room suggest that the island’s tourism product — its beaches, its culinary scene, its established luxury resort infrastructure — retains deep appeal with its target markets, particularly the British and North American visitor segments.

For the property market, the tourism recovery matters because Barbados’s premium residential sector is structurally linked to the island’s attractiveness as a lifestyle destination. The majority of premium villa and beachfront property transactions involve international buyers who first encounter the island as tourists. When tourism is strong and the guest experience is positive, the pool of potential property buyers grows. The current occupancy and RevPAR data suggests that the pipeline of prospective buyers is replenishing after the lean years of 2012–2014.

Caribbean Leaders This Month

Cayman Islands — Property Transaction Values: A 22 percent year-on-year increase in Q1 transaction values confirmed Cayman as the Caribbean’s most dynamic luxury market, with Seven Mile Beach attracting consistent ultra-high-net-worth demand from North America and Europe.

Jamaica — Inflation Record: A 44-year inflation low of 3.7 percent in March 2015 was the most significant macroeconomic achievement of the month, directly strengthening the affordability outlook for Jamaica’s housing market and creating conditions for commercial mortgage rate reductions.

Barbados — Tourism Recovery: April’s best hotel performance in seven years signalled that Barbados’s tourism product is regaining its competitive edge, with direct positive implications for the premium residential property pipeline.

Guyana — Exploration Anticipation: The Liza-1 well drilling programme held the Caribbean energy investment community in suspense through April, with the potential for a world-class oil discovery generating investor curiosity about Georgetown’s nascent property market.

Dominican Republic — Continued Construction Momentum: The DR maintained its pace of resort-residential development through April, with new project launches along the Punta Cana corridor keeping the island at the forefront of Caribbean investment activity.

Trinidad & Tobago — Sovereign Fund Buffer: The Heritage and Stabilisation Fund’s US$5.7 billion in assets provided evidence that T&T retains meaningful fiscal resilience despite energy revenue pressures, supporting the case for continued long-term investment confidence in the island.

St Lucia — Boutique Hotel Pipeline: St Lucia’s boutique and lifestyle hotel development pipeline expanded in April, with several projects in the Soufriere and Rodney Bay areas advancing through permitting, reflecting growing investor confidence in the island’s premium tourism proposition.

Overall Performer — Cayman Islands: The Cayman Islands’ combination of Q1 transaction growth, sustained ultra-high-net-worth demand, a stable currency, and a world-class lifestyle proposition made it the standout property market story of April 2015. Few destinations in the Caribbean can match the depth and liquidity of Cayman’s premium residential market.

Looking Ahead

The coming weeks are likely to bring resolution on the question that has dominated Caribbean energy industry conversations throughout the spring: ExxonMobil’s assessment of the Liza-1 well results on the Guyana Stabroek Block. The industry anticipates that a formal announcement — whether confirmatory of a significant discovery or otherwise — is imminent. The implications for the wider Caribbean investment landscape will be substantial in either scenario, though a major discovery would be transformative in a way that is difficult to fully quantify from today’s vantage point.

Jamaica’s tourism season is entering its peak summer phase, with Montego Bay and Negril expected to record strong occupancy through June and July. This seasonal strength will support short-term rental market revenues and, for property investors tracking the island’s performance, will provide useful data on the maturation of the Jamaican market as a year-round tourism destination. The roll-out of new airline routes from North America announced for the 2015 summer season will add further impetus.

For investors across the Caribbean, the most important macro variable to watch in May and June is the Federal Reserve’s signalling on the timing of interest rate normalisation. Any clear indication that the first rate hike is approaching will affect US dollar mortgage costs, compress the yield premium available on Caribbean real estate relative to US fixed income, and potentially moderate the enthusiasm of North American buyers in premium markets. The current consensus points to a rate hike in the second half of 2015 — investors would be prudent to factor this into their return expectations.

The Caribbean Property & Investment Review is published monthly and provides analysis of real estate, economic, and investment developments across the Caribbean region. This edition covers the period 3 April to 2 May 2015. All market data reflects conditions prevailing during the stated coverage period.