Caribbean Property & Investment Review — January 2016

Publication Date: 3 January 2016  |  Coverage Period: 3 December 2015 – 2 January 2016

Morning Briefing

• WTI crude oil closed 2015 at approximately $37 per barrel, down more than 30% on the year, with analysts warning of a further slide toward $30 in January — a direct threat to Trinidad & Tobago’s revenue base and Caribbean energy-linked economies.
• The Paris Agreement on climate change was adopted on 12 December 2015, committing 196 parties to limit global warming to well below 2°C. For low-lying Caribbean states, this carries profound long-term implications for coastal property values and insurance liability.
• Jamaica’s tourism sector closed 2015 with record stopover arrivals, driven by strong US consumer confidence and airlift expansion from North American hubs. The momentum is expected to carry into early 2016.
• The US Federal Reserve raised its benchmark interest rate by 25 basis points in December 2015 — its first hike since 2006. Caribbean mortgage markets, many of which are USD-linked, are beginning to reprice accordingly.
• The Dominican Republic reported among the strongest GDP growth figures in Latin America and the Caribbean for 2015, underpinning robust demand in the high-end coastal property segment around Cap Cana, Punta Cana, and Las Terrenas.
• Barbados closed 2015 with improved tourism numbers but continued fiscal pressure, as the government maintained its IMF-supported adjustment programme and held the Barbados dollar peg to the USD.

2015 in Review: The Year Oil Changed Everything

When historians of the Caribbean economy look back at 2015, they will find a year defined above all by the collapse of oil. The Brent and WTI benchmarks ended the year at multi-year lows, and the commodity’s descent — accelerated by OPEC’s decision to maintain output rather than defend price — reconfigured the fiscal landscape of energy-dependent Caribbean states in ways that will take years to fully absorb. For Trinidad and Tobago, the region’s most oil-and-gas-dependent economy, the consequences were stark: government revenues fell sharply, the Heritage and Stabilisation Fund was drawn upon to buffer current expenditure, and the incoming Keith Rowley-led PNM administration — which took office in September 2015 after a decisive general election victory — inherited a structural deficit that demanded rapid and difficult adjustment.

Beyond the energy sector, however, 2015 offered encouraging signals across much of the Caribbean property and tourism landscape. Jamaica’s stopover arrivals surpassed 2.1 million, and forward bookings into 2016 appear strong. The Dominican Republic’s construction sector remained one of the most active in the hemisphere, with resort developments along the north and east coasts absorbing significant capital from US, European, and regional investors. Barbados, despite persistent fiscal tightening, managed to stabilise its visitor numbers, and several new hotel projects were brought to the planning stage. The broader message for Caribbean real estate investors entering 2016 is one of divergence: energy-linked economies face genuine pain, while tourism-driven markets continue to attract capital.

Paris Agreement: Long-Term Consequences for Caribbean Coastal Property

The adoption of the Paris Agreement on 12 December 2015 was greeted with particular relief and hope in the Caribbean, where the existential threat of sea-level rise and intensifying hurricane seasons has long loomed over coastal real estate markets. For the first time, the global community committed to a legally binding framework to limit warming and provided a dedicated mechanism — the Warsaw International Mechanism — to address loss and damage for vulnerable nations. Caribbean small island developing states had lobbied hard for the 1.5°C ambition, recognising that the difference between 1.5°C and 2°C of warming is, for many low-lying communities, the difference between manageable adaptation and catastrophic inundation.

For property investors and developers, the Paris Agreement introduces both risk and opportunity. On the risk side, the trajectory of global emissions will increasingly be priced into long-term mortgage and insurance products for coastal assets. Properties within the storm-surge zone or the hundred-year flood plain are already experiencing tighter underwriting in some Caribbean jurisdictions; as climate modelling improves, that tightening will intensify. On the opportunity side, the Agreement’s emphasis on adaptation and green finance opens the door to a new class of sustainable development projects — resilient resort construction, mangrove-buffered residential communities, and energy-efficient tourism infrastructure — that may attract concessional or blended-finance capital that conventional real estate cannot access.

Developers with shovel-ready projects in Jamaica, Barbados, St Lucia, and other tourism-dependent islands would be well advised to begin benchmarking their designs against international green building and climate-resilience standards now, ahead of what will likely be a more demanding regulatory and financing environment within this decade.

The Fed Move and Caribbean Mortgage Markets

The Federal Reserve’s 25-basis-point rate increase on 16 December 2015 was the most anticipated monetary policy event of the year, and its ripple effects are now working their way through Caribbean financial systems. In Jamaica, where commercial banks have historically priced mortgage products with reference to the Jamaican dollar prime rate — itself influenced by global USD conditions and Bank of Jamaica policy — the December Fed move adds a marginal upward bias to borrowing costs at a time when affordability is already a concern for first-time buyers in the Kingston and St Andrew markets. The National Housing Trust, which provides subsidised mortgage finance to formal sector workers, is expected to maintain its concessional rates through 2016, providing some buffer for lower-income buyers.

In the Eastern Caribbean Currency Union, where member states share the EC dollar pegged at 2.70 to the USD, the transmission mechanism from US rates to domestic lending rates is more direct. Commercial banks in Barbados, St Lucia, and Antigua have already moved to increase their prime lending rates modestly, and further adjustments cannot be ruled out if the Fed pursues additional tightening in 2016 — as markets were, at year-end 2015, broadly expecting. For buyers of high-end property in these markets — many of whom are financing in USD or GBP — the rate environment remains historically accommodative, but the direction of travel has changed.

Caribbean Leaders This Month

Dominican Republic tourism coast — The DR closed 2015 as the Caribbean’s undisputed top-performing property market by volume, with international arrivals exceeding 5.5 million and resort villa sales at Cap Cana and Casa de Campo both registering year-on-year increases. Developer confidence remains high heading into 2016.

Jamaica north coast resort corridor — Montego Bay and Ocho Rios hotel occupancies ran well above 70% for the peak December period, and several branded residence projects along the Rose Hall corridor were reported to be in advanced pre-sales negotiations with North American buyers.

Cayman Islands luxury segment — Grand Cayman’s Seven Mile Beach corridor continued to attract ultra-high-net-worth buyers, with several beachfront condominiums changing hands above the $3 million mark in December. The jurisdiction’s political stability and absence of direct property taxation remain key differentiators.

Barbados west coast — Despite fiscal pressures at the government level, the Barbados west coast platinum corridor reported stable inquiry levels from UK buyers, helped by the sustained (if modest) recovery in British consumer confidence. Completions of the Hyatt Ziva project at Porters generated positive market commentary.

Trinidad residential market — Port of Spain’s premium residential sector showed clear signs of caution as oil revenue uncertainty filtered into household confidence. Rental demand remained stable from the corporate sector, but discretionary purchases were delayed by buyers awaiting greater fiscal clarity from the new PNM government.

St Lucia Soufrière area — Boutique eco-resort development near the Pitons continued to attract interest from international lifestyle buyers, with several villas in the Jade Mountain and Anse Chastanet environs generating strong inquiry volumes from US and Canadian markets.

Guyana Georgetown — With ExxonMobil and its partners drilling ahead at the Stabroek Block, Guyana’s commercial capital was registering increased expatriate housing demand, particularly for executive-grade rental properties in Bel Air Park and Queenstown. Rental rates for prime expatriate-grade homes rose an estimated 12–15% year-on-year.

Overall regional performer: The Dominican Republic once again takes the top position heading into the new year, combining tourism momentum, a stable investment climate, a government committed to infrastructure development, and property price points that remain accessible to a broader international buyer pool than most comparable Caribbean destinations.

Looking Ahead: What 2016 May Bring

The opening months of 2016 will be shaped by two overriding forces: the trajectory of oil prices, which may test further lows before any recovery materialises, and the pace of US monetary policy normalisation, which will set the cost-of-capital environment for Caribbean property financing. For energy-linked economies — most critically Trinidad and Tobago — the first quarter is likely to bring further fiscal announcements, potentially including additional expenditure cuts and revenue measures, as the Rowley administration seeks to restore medium-term budgetary sustainability.

For tourism-driven markets, the outlook is more encouraging. The strong finish to 2015 in Jamaica, the DR, and the Eastern Caribbean positions these markets well for the high season running through April. Hotel room rates are holding, airlift continues to expand from North American departure points, and the lower energy prices that are damaging T&T’s revenues are simultaneously benefiting US consumers — putting more discretionary income in the pockets of the Caribbean’s most important source market.

The longer-term question — how seriously the Paris Agreement’s climate commitments will reshape Caribbean coastal property risk — will not be answered in 2016, but the conversation is beginning. Investors who start stress-testing their portfolios against climate scenarios now will be better positioned as this issue moves from the margins of market discourse toward its centre.

The Caribbean Property & Investment Review is published monthly. Edition 127 covers the period 3 December 2015 to 2 January 2016. All market data cited reflects information available at the time of publication. This publication does not constitute investment advice.

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