Caribbean Property & Investment Review — August 2015

Publication Date: 3 August 2015  |  Coverage Period: 3 July – 2 August 2015

Morning Briefing

• HISTORIC MILESTONE: The United States and Cuba formally reopened their embassies in Washington DC and Havana on 20 July 2015, marking the full restoration of diplomatic relations between the two countries for the first time in 54 years and fundamentally altering the Caribbean tourism and investment landscape.
• Summer 2015 Caribbean tourism is breaking records across the archipelago, with Jamaica, Barbados, the Dominican Republic, and the Cayman Islands all reporting their strongest July occupancy rates since 2007 or earlier.
• ExxonMobil’s Guyana appraisal programme continued through July, with the company confirming that additional drilling results from the Stabroek Block are reinforcing the scale of the Liza field discovery announced in May.
• Trinidad & Tobago’s government confirmed in July that it would draw on the Heritage and Stabilisation Fund to partly offset lower energy revenues, the first such drawdown since the fund was established, signalling the depth of the fiscal challenge posed by low oil prices.
• Jamaica’s Bank of Jamaica cut its benchmark interest rate by 50 basis points in July, citing the ongoing success of the IMF programme and the sustained decline in inflation, opening the door to lower commercial mortgage rates.
• Bermuda’s commercial real estate market reported a modest recovery in Q2 2015, with international business tenants expanding their office footprints after several years of contraction, supported by growth in the reinsurance and insurance-linked securities sectors.

US–Cuba Embassies Reopen: The Caribbean’s New Strategic Reality

The reopening of US and Cuban embassies in Washington and Havana on 20 July 2015 — the culmination of the process set in motion by the historic December 2014 announcements — represents one of the most consequential geopolitical shifts in the Caribbean’s modern history. For 54 years, the severing of US–Cuban relations had cast a long shadow over the entire region: distorting tourism flows, limiting investment patterns, and creating an artificial boundary that shaped the Caribbean’s economic geography. The formal restoration of diplomatic relations does not eliminate all the barriers that persist — the US trade embargo remains in place, and its modification requires Congressional action — but it signals an unmistakable directional shift that investors must take seriously.

For Caribbean tourism markets, the US–Cuba normalisation poses a central strategic question: will Cuba’s gradual opening as a destination for American tourists drain visitors from established Caribbean markets, or will it attract a new cohort of travellers to the region who would not otherwise have ventured to the Caribbean? The balance of expert opinion leans toward the latter in the near term. Cuba’s tourism infrastructure — its hotels, transport links, sanitary facilities, and hospitality services — is simply not capable of absorbing large volumes of American visitors quickly. The Cuban government’s development plans for the sector are ambitious but constrained by capital availability and institutional capacity.

The medium-term picture is more complex. As Cuba’s tourism product improves — a process that will be accelerated by the entry of international hotel operators who are already positioning to partner with Cuban state enterprises — it will offer American visitors a genuinely distinctive experience: a relatively undeveloped island with extraordinary cultural authenticity, remarkable architecture, and world-class natural attractions. This product appeals primarily to the experiential traveller segment, which overlaps only partially with the beach-and-resort visitor who forms the core market for Jamaica, the Bahamas, or Barbados.

For property investors in established Caribbean destinations, the strategic calculus should be informed by segment analysis rather than generalised anxiety about Cuban competition. Properties and developments positioned firmly in the premium beach resort, luxury villa, and branded residence segments are insulated from Cuban competition by their quality differentiation and the profile of their target buyer. Properties competing on price — particularly lower-grade accommodation in markets with direct geographic proximity to Cuba, such as the southern Bahamas — may face more direct competition over the medium term.

Beyond tourism, the US–Cuba normalisation has broader investment implications for the Caribbean. The reintegration of Cuba into the hemispheric economy — however gradual — creates opportunities for regional logistics, financial services, and professional services firms that Caribbean jurisdictions are well-positioned to provide. Cayman’s financial services sector, Barbados’s international business centre, and Trinidad’s energy services industry all have potential roles in facilitating and servicing Cuba-related investment flows. The Caribbean as a whole should approach the Cuba opening not primarily as a competitive threat but as a source of economic dynamism that a well-positioned region can leverage.

Summer 2015: A Record Season for Caribbean Tourism and Short-Term Rentals

Caribbean tourism in the summer of 2015 is delivering results that are redefining benchmark expectations for the region. July occupancy rates across the major markets — Jamaica, Barbados, Dominican Republic, Cayman Islands, Turks & Caicos, and the Bahamas — have reached their highest levels since 2007, driven by a combination of factors that have aligned unusually favourably: low US consumer fuel costs that translate into affordable airline tickets; a strong US dollar that makes Caribbean destinations excellent value for American visitors; and the sustained positive narrative about Caribbean tourism generated by the Cuba normalisation story, which has drawn media and consumer attention to the entire region.

The beneficiaries of this tourism boom are not limited to hotel operators and tour operators. Short-term rental property owners are experiencing a summer of exceptional demand, with platform booking data showing occupancy rates that in many markets are exceeding those of traditional hotels. The structural shift toward platform-mediated accommodation — which was already well underway before the current boom — is being accelerated by the volume of travellers that existing hotel inventory cannot accommodate at peak periods. In markets like Montego Bay, Nassau, and Bridgetown, there are credible reports of short-term rental rates per night approaching or exceeding pre-2008 peak levels in the premium villa and apartment segments.

For property investors considering entry into the short-term rental market, the summer 2015 data is an important calibration point. However, investors should be careful not to extrapolate a peak summer performance into a year-round yield expectation without accounting for seasonal variation and the structural characteristics of individual markets. The most sustainable rental yield propositions are those underpinned by diversified demand — combining peak summer occupancy with shoulder-season and winter demand from different visitor cohorts — rather than those wholly dependent on the brief summer peak.

Jamaica: Rate Cut Opens the Mortgage Door

The Bank of Jamaica’s decision in July 2015 to cut its benchmark interest rate by 50 basis points was a significant signal to the property market. The BOJ’s action reflects the central bank’s confidence that inflation — which reached a 44-year low in March and has remained subdued — is durably contained, and that the macroeconomic conditions established by the IMF programme’s success justify a shift toward a marginally more accommodative monetary stance. For mortgage borrowers and developers, the direction of travel is what matters: a central bank cutting rates is a more supportive environment for housing finance than one holding them steady or raising them.

Commercial banks are expected to follow the BOJ’s lead over the coming months, with the leading mortgage lenders likely to reduce their fixed and variable mortgage rates by 25 to 50 basis points. This may seem a modest movement, but in a market where affordability is acutely sensitive to rate levels — given the high debt-service burden that Jamaica’s income levels imply relative to property prices — even small rate reductions meaningfully expand the pool of qualifying borrowers. The NHT’s concessional rate programme remains the primary vehicle for lower-income and lower-middle-income buyers, but the commercial rate improvement opens the market to a wider segment of professional-class buyers.

Guyana: Appraisal Drilling Reinforces Liza Scale

ExxonMobil’s ongoing appraisal drilling programme on the Stabroek Block is progressively confirming the scale of the Liza field first announced in May. Industry sources indicate that the appraisal results are reinforcing rather than diminishing the initial resource estimates, and that the field’s reservoir quality — its porosity, permeability, and fluid characteristics — is proving to be of high commercial grade. For the Guyanese property market, each positive appraisal result adds incremental momentum to the investment interest that the discovery has already generated.

Georgetown’s commercial property market is showing clear signs of the pre-development boom that typically precedes a major oil project. Several international real estate advisory firms have opened offices or established local partnerships in the city since May, and a number of regional developers are actively acquiring land for premium residential development. The gap between current commercial rental rates and the rates that international energy companies will require their accommodation to achieve before signing leases is significant, and closing that gap will require a substantial injection of new development capital.

Caribbean Leaders This Month

Caribbean Region — US–Cuba Diplomatic Milestone: The reopening of US and Cuban embassies on 20 July was the defining geopolitical event of the Caribbean’s 2015, with implications for tourism market structure, investment flows, and regional economic integration that will unfold over years and decades.

Jamaica — Central Bank Rate Cut: The BOJ’s 50-basis-point rate reduction in July was a pivotal moment for the mortgage market, signalling sustained confidence in the macroeconomic reform programme and creating conditions for commercial mortgage rate reductions that will broaden housing market access.

Guyana — Liza Appraisal Progress: Continued positive appraisal drilling results on the Stabroek Block reinforced the scale of the Liza discovery, sustaining investor interest in Georgetown’s commercial and residential property markets and supporting the early-mover positioning strategies of regional developers.

Dominican Republic — Summer Tourism Peak: Record July tourism performance placed the DR at the top of the Caribbean arrivals table for the summer, with resort-residential occupancy rates at Cap Cana and Punta Cana reaching their highest levels in the island’s tourism history.

Cayman Islands — Luxury Market Consistency: Seven Mile Beach maintained its premium pricing through the summer boom, with the market demonstrating the resilience and depth of demand that characterises the Caribbean’s most mature ultra-high-net-worth property destination.

Barbados — Seven-Year Tourism High: A record July hotel occupancy rate — the island’s highest since 2008 — provided the first concrete evidence that Barbados’s tourism recovery is moving from gradual stabilisation to genuine cyclical uplift, with direct positive implications for the premium villa and beachfront property market.

Bermuda — Commercial Property Recovery: The modest Q2 recovery in Bermuda’s commercial real estate market — driven by expanding international business tenants in the insurance and reinsurance sector — marked the end of a multi-year contraction and the beginning of what analysts hope will be a sustained recovery cycle.

Overall Performer — Jamaica: Jamaica’s combination of the Bank of Jamaica rate cut, record H1 tourism arrivals, and a property market responding positively to improved macro conditions made it the most comprehensively positive investment story in the Caribbean in July 2015. The island’s reform momentum, if sustained, positions it as one of the region’s premier property investment destinations heading into 2016.

Looking Ahead

August and September represent the statistical peak of the Atlantic hurricane season, and Caribbean property investors should maintain their preparedness focus through this critical period. The El Niño pattern that has moderated season activity so far in 2015 remains in place, but the Caribbean Sea’s own temperature profile means that any storm systems that do develop and track through the basin will encounter conditions conducive to rapid intensification. The property market’s ability to absorb a significant storm event without lasting damage to investor confidence depends heavily on the adequacy of individual property insurance cover.

The evolution of US–Cuba relations following the embassy reopening will be watched closely for signals about the pace of further liberalisation. Congressional debate on the US trade embargo — which would require legislative action to modify — is likely to begin in earnest in the autumn session. The political dynamics in Washington are complex, but the direction of administration policy is clear: a progressive normalisation of economic and commercial relations with Cuba is the stated objective. Caribbean investors should use the coming months to develop contingency frameworks for different Cuba integration scenarios.

In Guyana, ExxonMobil’s appraisal programme is expected to yield further results through the second half of 2015, with each data point adding to the precision of the resource estimate and the confidence with which the company can commit to a development timeline. Property investors positioning in Georgetown should be calibrating their development timelines to the realistic expectations for first production — which is unlikely to commence before 2020 at the earliest, given the scale of subsea infrastructure required — while recognising that the pre-production period itself generates substantial economic activity and property market demand.

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 July to 2 August 2015. All market data reflects conditions prevailing during the stated coverage period.

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