Caribbean Property & Investment Review — Edition 126, February 2016

Publication Date: 3 February 2016  |  Coverage Period: 3 January – 2 February 2016

Morning Briefing

• WTI crude oil fell to approximately $26 per barrel in mid-January 2016 — its lowest level since 2003 — intensifying fiscal pressure on Trinidad & Tobago and raising fresh questions about the sustainability of energy-linked public expenditure across the Caribbean.
• Trinidad & Tobago’s Ministry of Finance confirmed that the Heritage and Stabilisation Fund, the sovereign wealth buffer built up during the oil boom years, was being drawn upon at an accelerated pace to cover current expenditure obligations.
• The Bank of Jamaica held its policy rate steady in January, signalling caution amid a complex global environment, while commercial banks edged mortgage rates marginally higher in response to the December 2015 Federal Reserve hike.
• Trinidad Carnival 2016 falls on 8–9 February — just days after this edition goes to press — and is expected to generate significant short-term economic activity, with hotel bookings across Port of Spain and surrounding communities reported near capacity.
• Jamaica’s tourism pipeline remains robust, with several luxury villa and boutique hotel projects in Negril and Portland receiving planning approvals in January, signalling developer confidence in medium-term visitor demand.
• The International Monetary Fund’s latest World Economic Outlook update lowered global growth projections, citing commodity price weakness and slowing emerging market growth as key headwinds — a backdrop that shapes Caribbean investment sentiment.

Oil at $26: A Crisis Unfolds in Trinidad & Tobago

The oil price slide that defined the second half of 2015 accelerated dramatically in the opening weeks of 2016, with WTI crude briefly touching $26 per barrel in mid-January — a level that few analysts had projected even six months earlier. For Trinidad and Tobago, the implications are not abstract: oil and natural gas account for roughly 40% of government revenue and nearly 80% of export earnings. When prices halve, the national budget does not merely face a line-item shortfall; the entire fiscal architecture of the state is stress-tested. The Rowley administration, in office only since September 2015, has moved quickly to signal its commitment to adjustment, but the scale of the revenue shock means that difficult decisions on public employment, capital expenditure, and social transfers cannot be deferred indefinitely.

For the Trinidad property market, the consequences are already beginning to materialise. Premium residential transactions in Port of Spain, particularly in the Westmoorings, Goodwood Park, and St Clair corridors, have slowed as corporate buyers — whose purchasing decisions are tightly linked to the energy sector’s health — adopt a wait-and-see posture. Expatriate rental demand from the international energy companies remains a partial buffer: ExxonMobil, BHP, and other major operators continue to house senior staff in executive-grade properties, and that segment of the market is insulated from the domestic income shock. But the broader residential market is cooling, and valuers are beginning to mark down achievable sale prices in outer suburban areas where energy-sector employment is less of a factor and first-home buyer demand is most sensitive to confidence.

The natural gas side of the T&T equation deserves separate attention. LNG prices, though linked to oil in many contracts, have held somewhat better than crude, and the Atlantic LNG plant at Point Fortin continues to operate at near-capacity. Petrochemical exports — ammonia and methanol — remain a meaningful revenue stream. The government’s medium-term strategy involves diversifying the economy beyond hydrocarbons, with tourism, financial services, and manufacturing all featuring in official development plans. Whether this diversification can proceed quickly enough to offset the near-term oil revenue shortfall is the central question facing T&T’s property and investment markets in 2016.

Caribbean Mortgage Markets: Digesting the Fed Move

The Federal Reserve’s December 2015 rate hike — the first in nearly a decade — is now filtering through Caribbean credit markets with a lag that varies by jurisdiction and lender type. In Jamaica, the Bank of Jamaica has maintained its own accommodative stance, but commercial banks have nonetheless begun to reprice some variable-rate mortgage products upward by 25–50 basis points, citing higher cost-of-funds in the USD wholesale market. For borrowers with existing Jamaican dollar fixed-rate mortgages, the immediate impact is nil; for those on variable USD-linked products, the adjustment is beginning to bite.

The National Housing Trust remains the most important single institution in Jamaica’s affordable mortgage market, and its concessional rates — currently available to contributing members at rates well below commercial bank levels — are providing critical support to first-time buyers in the lower-to-middle income bands. NHT’s loan book continues to grow, and the Trust has signalled its intention to expand access to contributory members who have traditionally been excluded by documentation requirements or income volatility. This is a significant policy direction that, if implemented effectively, could meaningfully broaden homeownership rates in the Kingston Metropolitan Area and secondary towns.

Across the Eastern Caribbean, where many lenders price mortgage products with a spread over the US prime rate, the transmission of the Fed move has been relatively direct. Several ECCU commercial banks have already adjusted their prime lending rates, and mortgage officers in Barbados, St Lucia, and St Kitts report modestly increased buyer hesitation at the margins. The high-end international buyer segment — purchasing in cash or via offshore financing arrangements — is largely insulated from these shifts, but the domestic first-time buyer market is more exposed and more sensitive to even marginal rate increases.

Carnival 2016: The Economics of the Greatest Show on Earth

As this edition goes to press, Trinidad Carnival 2016 — falling on 8 and 9 February — is days away, and the economic pulse of Port of Spain is already elevated. The annual festival generates an estimated TT$1 billion in direct economic activity during the carnival period, spanning accommodation, catering, costume production, transportation, and entertainment. For short-term rental operators across Port of Spain, St James, Woodbrook, and Newtown, carnival represents the single most lucrative fortnight of the year, with rooms and apartments commanding premiums of 400–600% above their off-season weekly equivalent.

The growth of Airbnb and similar short-term rental platforms has added a new dimension to carnival property economics. Property owners who might previously have managed carnival lettings informally through personal networks now have access to a global distribution platform, and the resulting increase in market transparency has driven both higher occupancy rates and more sophisticated pricing. This trend mirrors what is occurring across the Caribbean — from Jamaica’s south coast to Barbados’s St Lawrence Gap — but Trinidad’s carnival provides a uniquely concentrated demand event that makes the economics of short-term rental investment particularly compelling for urban property owners in Port of Spain.

Caribbean Leaders This Month

Port of Spain short-term rental market — Carnival-week bookings in Trinidad’s capital pushed occupancy rates for serviced apartments and private rental properties to near-100%, with several operators reporting record revenues for the carnival fortnight. The platform-enabled rental economy is proving resilient even as the wider T&T property market softens.

Jamaica tourism property pipeline — Planning approvals for boutique hotel and villa projects along the Portland and Negril coastlines accelerated in January, with developers citing continued North American demand and improving airlift connectivity as the primary drivers of investment confidence.

Guyana expatriate rental sector — With ExxonMobil’s exploration programme at the Stabroek Block advancing on schedule, demand for executive-grade rental accommodation in Georgetown’s premium neighbourhoods remained elevated, providing a bright spot in an otherwise subdued regional oil-sector picture.

Dominican Republic coastal developments — The DR’s north coast and east coast resort corridors continued to attract pre-sales enquiries from North American and European buyers, with several new-build villa projects launching marketing campaigns in January ahead of the northern hemisphere winter-escape season.

Cayman Islands financial sector property — Grand Cayman’s office and commercial property market benefited from continued growth in the jurisdiction’s fund administration and alternative investment management sectors, with Class A office vacancy rates near historic lows.

Barbados hotel sector — Despite the broader fiscal austerity narrative, Barbados’s west coast hotel occupancies in January — peak season — held steady relative to the prior year, and several established properties reported a modest uptick in advance bookings for the Easter period.

St Kitts citizenship by investment — St Kitts & Nevis’s Citizenship by Investment Programme continued to generate real estate development activity in the Christophe Harbour and Kittitian Hill designated real estate projects, with qualifying unit sales maintaining pace despite the global CBI market becoming more competitive.

Overall regional performer: Port of Spain’s short-term rental market earns the distinction this month, delivering exceptional returns to property owners during the carnival fortnight even as the broader T&T market navigates energy-sector headwinds. The carnival economy demonstrates the resilience that event-driven demand can inject into otherwise cyclically challenged markets.

Looking Ahead: February and Beyond

The immediate horizon is dominated by uncertainty over the oil price floor. If WTI stabilises above $25 per barrel and begins a modest recovery through February and March, some of the acute pressure on Trinidad & Tobago’s fiscal position may ease, and with it, the chill that has descended over the premium residential property market in Port of Spain. But if prices probe new lows, the adjustment required of T&T’s economy will be more severe, and the property market implications correspondingly deeper. Investors and developers with exposure to energy-sector demand should be stress-testing their assumptions at current price levels rather than expecting a near-term reversal.

For Jamaica, the approaching general election — expected to be called for early March — is introducing a degree of political uncertainty that typically causes some institutional investors to defer major property decisions until the post-election policy environment becomes clearer. Both the governing PNP under Portia Simpson Miller and the opposition JLP under Andrew Holness have committed to continuing the IMF programme, which limits the scope for radical economic policy shifts. Nevertheless, election periods historically dampen transaction volumes in Jamaica’s commercial and investment property segments, and the first quarter of 2016 may reflect that seasonal caution.

Looking further out, the Caribbean tourism high season runs through April, and the current trajectory of arrivals data suggests that most destination markets will post year-on-year gains. That is the most important near-term driver of hospitality-linked property values across the region, and it remains firmly positive.

The Caribbean Property & Investment Review is published monthly. Edition 126 covers the period 3 January to 2 February 2016. All market data cited reflects information available at the time of publication. This publication does not constitute investment advice.