Caribbean Property & Investment Review — Edition 130 | October 2015

Publication Date: 3 October 2015  |  Coverage Period: 3 September – 2 October 2015

Morning Briefing

• ELECTION RESULT: Trinidad & Tobago’s People’s National Movement won the 7 September 2015 general election, with Dr Keith Rowley becoming Prime Minister; the PNM secured a decisive parliamentary majority, ending the People’s Partnership government after five years in office.
• HURRICANE CATASTROPHE: Hurricane Joaquin struck the southern Bahamas as a catastrophic Category 4 storm in the final days of this coverage period, bringing sustained winds above 130 mph to the islands of Acklins, Crooked Island, Long Island, and Rum Cay, causing catastrophic structural damage and triggering emergency humanitarian response.
• Global oil prices continued their downward trajectory through September, with WTI falling below US$45 per barrel, deepening the fiscal pressure on Trinidad & Tobago’s incoming Rowley government and intensifying the urgency of the economic reform agenda.
• Jamaica’s tourism sector maintained its record pace through September, with the Caribbean Tourism Organisation confirming that the island’s year-to-date arrivals growth of 8.1 percent leads all major Caribbean destinations for 2015.
• Guyana’s coalition government, following elections earlier in the year, has reaffirmed its commitment to transparent management of oil revenues and signalled willingness to engage constructively with ExxonMobil on the Liza field development timeline.
• The Federal Reserve held interest rates unchanged at its September meeting, but the statement retained language indicating that a rate hike remains likely before the end of 2015, maintaining uncertainty for USD-denominated property markets across the Caribbean.

Trinidad & Tobago: Keith Rowley, the PNM, and the Property Market Challenge

The People’s National Movement’s decisive victory in Trinidad & Tobago’s 7 September general election has ended five years of People’s Partnership government and installed Dr Keith Rowley as Prime Minister with a clear parliamentary mandate. The scale of the PNM’s victory — which surprised many observers who had anticipated a closer contest — provides the new government with significant political capital, a commodity it will need in abundance given the scale of the economic challenges it inherits.

The incoming Rowley government faces a fiscal position that is significantly more challenging than the pre-election rhetoric of either party fully acknowledged. Energy revenues — which account for approximately 40 percent of government income — are tracking materially below budget projections, as WTI crude remains near US$45 per barrel against the budget’s assumption of higher prices. The Heritage and Stabilisation Fund, while still substantial at approximately US$5.7 billion, has already seen its first drawdown to meet the shortfall. The new Minister of Finance will be required to present a revised budget that addresses the structural gap with credible measures before the end of the year.

For T&T’s property market, the Rowley government’s priorities are being assessed with particular attention to three areas. First, the new government’s stance on public sector employment and wages — a significant driver of consumer spending and housing demand — will have direct implications for the residential market. Early signals suggest that the PNM intends to pursue efficiency measures rather than blunt headcount reductions, which would be the more property-market-damaging approach. Second, the Rowley administration’s economic diversification agenda — including tourism development, financial services expansion, and maritime sector promotion — offers the prospect of demand drivers that are less correlated with oil prices. Third, the new government’s approach to foreign direct investment facilitation will determine whether T&T can attract the capital required to fund both economic diversification and the infrastructure investments that property development depends upon.

The commercial property market in Port of Spain has responded to the election outcome with cautious optimism. The decisive PNM victory, by ending the political uncertainty that had been suppressing investment decisions, has already produced a modest uptick in enquiries for premium office space and in developer interest in stalled projects. The next 90 days will be critical: if the Rowley government’s fiscal and economic programme is credible and well-communicated, the commercial property market should begin to move again. If the programme disappoints, the holding pattern of the pre-election period will persist.

HURRICANE JOAQUIN: Catastrophe in the Bahamas

In the final days of this coverage period, the Caribbean was struck by one of the most powerful hurricanes to hit the Bahamas in decades. Hurricane Joaquin — which developed rapidly in the central Atlantic and intensified to Category 4 strength with sustained winds above 130 miles per hour — made a devastating impact on the southern Bahamas beginning on 1 October 2015. The islands of Acklins, Crooked Island, Long Island, Rum Cay, and San Salvador bore the brunt of the storm, experiencing catastrophic structural damage, severe flooding, and widespread destruction of property, infrastructure, and livelihoods.

Early reports emerging from the affected islands in the hours before this edition’s publication are deeply alarming. Ground-level accounts describe near-total destruction of housing stock in the most exposed communities, with many structures — particularly those not built to modern hurricane codes — suffering catastrophic failure. The storm’s slow movement, which kept the most powerful winds and rain over the islands for an extended period, amplified the damage beyond what a faster-moving storm of equivalent intensity would have caused. The Bahamian government has declared a state of emergency and is coordinating rescue and relief operations with US Coast Guard and regional support.

The property market implications of Hurricane Joaquin’s strike on the Bahamas are severe and multi-layered. In the immediate term, the humanitarian emergency takes priority over all commercial considerations: the affected islands face weeks of restricted access, disrupted utilities, and the displacement of their resident populations. The tourism economy of the southern Bahamas — which includes several specialist eco-tourism and sportfishing operations — has been effectively suspended, with unknown duration. The insurance and reinsurance industry is mobilising loss assessment teams, and early estimates of insured losses are expected to run into hundreds of millions of dollars across the affected areas.

For the broader Bahamian property market, including New Providence and Grand Bahama — which were not in Joaquin’s direct track — the storm’s impact will be felt through its effect on investor and tourist confidence. Every major hurricane that strikes the Bahamas renews the debate about the archipelago’s vulnerability and the adequacy of building standards, land use planning, and emergency preparedness. The New Providence market, which includes Nassau and the premium resort developments of Paradise Island, has the infrastructure and liquidity to absorb the reputational shock; the southern Family Islands, where Joaquin struck, are more fragile and will require sustained public and private investment to rebuild.

The Caribbean property insurance market will be closely monitored in the aftermath of Joaquin. Reinsurers who have been providing affordable capacity to the Bahamian market will reassess their risk models for the southern islands, and premium increases are likely to follow as the claims picture becomes clearer. Investors across the Caribbean are advised to use the Joaquin event as a prompt to review their own insurance arrangements, assess the adequacy of coverage limits, and verify that their policies’ exclusions and conditions are fully understood before the next storm season.

Oil Prices and the Caribbean Energy Bloc

WTI crude oil’s slide below US$45 per barrel in September 2015 represents a further deterioration of the price environment that has been pressuring Caribbean energy producers since mid-2014. Trinidad & Tobago, which produces both oil and liquefied natural gas and is the region’s primary energy exporter, is the most directly affected. But the lower price environment also affects Guyana’s development timeline — ExxonMobil’s internal investment threshold for Liza field sanctioning will be influenced by its long-term price assumptions — and has knock-on effects for Barbados’s small domestic oil production and the energy import bill of non-producing Caribbean nations.

For T&T’s incoming Rowley government, the September price trajectory is a stark backdrop against which to begin its economic programme. The Heritage and Stabilisation Fund provides a buffer, but it is finite, and the pace of drawdown at current price levels is unsustainable. The government will need to articulate a credible medium-term fiscal framework that reduces dependence on oil revenues through a combination of expenditure rationalisation and diversification of the non-energy tax base. The property market — which is ultimately a function of economic confidence and household income — will respond positively to a credible framework, regardless of the short-term pain that fiscal adjustment implies.

Caribbean Leaders This Month

Bahamas — Hurricane Response: The Bahamian government’s emergency response to Hurricane Joaquin — coordinating rescue operations, mobilising international aid, and managing the immediate humanitarian crisis across multiple islands simultaneously — demonstrated the institutional capacity that Caribbean governments have developed through years of storm preparedness investment.

Trinidad & Tobago — Democratic Transition: The peaceful and decisive democratic transition from People’s Partnership to PNM government on 7 September demonstrated T&T’s mature democratic institutions and provided the political clarity that investors had been awaiting. Dr Rowley’s government has a mandate and a responsibility to use it decisively.

Jamaica — Tourism Leader: Jamaica’s year-to-date arrivals growth of 8.1 percent — the highest of any major Caribbean destination in 2015 — confirmed the island’s status as the region’s tourism growth leader, with direct positive implications for property rental yields and developer confidence.

Guyana — Policy Continuity: The Guyanese government’s reaffirmation of its commitment to transparent oil revenue management and constructive engagement with ExxonMobil provided reassurance to property investors positioning in Georgetown, reducing the political risk premium that had been applied to early-stage investments.

Dominican Republic — Record Arrivals: The DR’s tourism sector maintained its record 2015 performance through September, with arrivals tracking 9 percent ahead of 2014 on a year-to-date basis and resort-residential pre-sales continuing at a sustained pace.

Cayman Islands — Financial Centre Stability: Cayman’s financial services sector demonstrated resilience through September’s global market volatility, with hedge fund and structured finance activity supporting continued demand for premium office space and executive residential accommodation.

Barbados — Budget Preparation: Barbados’s government began preparations for its 2015–16 budget with a commitment to maintaining fiscal discipline while identifying new revenue streams that could reduce the economy’s vulnerability to tourism seasonality and global financial market conditions.

Overall Performer — Jamaica: Despite the hurricane drama elsewhere in the region and the political transition in T&T, Jamaica’s sustained tourism growth leadership and improving macro fundamentals made it the most consistently positive Caribbean property investment story of the month. The island’s momentum is structural, not cyclical.

Looking Ahead

The Bahamas faces a complex and prolonged reconstruction challenge in the wake of Hurricane Joaquin. The immediate priorities of search, rescue, and humanitarian relief will give way to an extended period of damage assessment, insurance settlement, and physical rebuilding that will reshape the southern Family Islands’ property landscape for years. The reconstruction period also presents an opportunity — if managed well — to rebuild to higher standards, integrate modern climate resilience into the replacement housing stock, and address the infrastructure vulnerabilities that Joaquin has exposed.

Trinidad & Tobago’s Rowley government will present its fiscal programme in the coming weeks, and the market will be scrutinising the detail of expenditure priorities, revenue measures, and economic diversification commitments closely. A credible and well-communicated programme will unlock the commercial and investment decisions that have been deferred through the election period and restore the momentum that T&T’s property market needs to resume its development trajectory.

The Federal Reserve’s November and December meetings remain live events for Caribbean property markets. A December rate hike — which market pricing currently assigns significant probability to — would represent the first US monetary policy tightening since 2006 and would affect the financing cost of US dollar-denominated property transactions across the Caribbean. Investors should ensure that their financing structures are stress-tested against a scenario in which US base rates begin a gradual normalisation cycle over the next 12–24 months.

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 September to 2 October 2015. All market data reflects conditions prevailing during the stated coverage period.