Caribbean Property & Investment Review — Edition 123, May 2016

Publication Date: 3 May 2016  |  Coverage Period: 3 April – 2 May 2016

Morning Briefing

• The Panama Papers have dominated the global financial and political conversation through April, with country-specific investigations published by ICIJ media partners in more than 80 nations. Caribbean jurisdictions — particularly the British Virgin Islands with its 113,000+ company exposure in the dataset — face sustained international regulatory pressure for greater corporate transparency.
• The UK government convened an Anti-Corruption Summit in London on 12 May (just after this coverage period closes) and has been pressing British Overseas Territories including the BVI, Cayman Islands, and Turks & Caicos to adopt public beneficial ownership registers. The BOT governments have so far resisted, arguing their existing central registers accessible to law enforcement are sufficient.
• Jamaica’s new Holness administration has moved quickly on several economic fronts in its first weeks, confirming the IMF programme continuity and announcing early-stage plans for accelerating the Caymanas Special Economic Zone development.
• WTI crude oil continued its recovery from January’s $26 low, trading in the $40–45 range through April — providing some fiscal relief for Trinidad & Tobago while remaining well below the $75+ levels at which T&T’s national budget was originally formulated.
• The Caribbean Tourism Organisation reported that total regional visitor arrivals for the first quarter of 2016 were tracking approximately 6% ahead of Q1 2015, with Jamaica, the Dominican Republic, and the Eastern Caribbean all posting positive growth.
• Barbados’s government announced a series of economic reform measures in April, seeking to accelerate growth and address the island’s persistent fiscal deficit while maintaining the fixed USD peg of the Barbados dollar.

Panama Papers: One Month On, Caribbean Under the Microscope

Thirty days after the International Consortium of Investigative Journalists began publishing the Panama Papers, the global financial landscape has shifted in ways that will reverberate through Caribbean offshore financial centres for years. The leaked Mossack Fonseca documents revealed in granular detail the mechanisms by which wealthy individuals, corporations, and political figures from across the world have used BVI and Cayman-incorporated holding structures to hold assets, move money, and in some cases avoid or evade tax. The dataset’s sheer scale — 11.5 million documents, more than four times the size of the WikiLeaks diplomatic cables — has made it impossible for any jurisdiction to simply wait out the media cycle.

For the British Virgin Islands, the exposure has been uniquely intense. With more than 113,000 BVI-incorporated entities appearing in the Mossack Fonseca records, the territory’s reputation as a jurisdiction that combines legal robustness with practical opacity is under profound challenge. The BVI Financial Services Commission has responded by reaffirming the territory’s commitment to its central register of beneficial ownership — introduced in 2017, but in accelerated discussion since the OECD’s Base Erosion and Profit Shifting project began ramping up pressure in 2015. The BOT governments’ current position is that their law enforcement-accessible registers satisfy international standards without requiring public disclosure. This position will be increasingly difficult to sustain as the political pressure from the UK, EU, and G20 intensifies.

For Caribbean property investors, the Panama Papers raise practical questions about the long-term viability of structures that have been widely used to hold real estate in high-value jurisdictions. A Cayman-incorporated Special Purpose Vehicle holding a Barbados beachfront villa, or a BVI company owning a Kingston commercial building, offers legitimate benefits — succession planning, liability segregation, ease of future sale via share transfer — that have nothing to do with tax evasion. But in the current political environment, the burden of demonstrating that legitimacy is shifting rapidly from the state (to prove wrongdoing) to the owner (to demonstrate compliance). Investors in these structures should be actively reviewing their beneficial ownership declarations, their tax filing obligations in their home jurisdictions, and their readiness for the automatic exchange of information under the Common Reporting Standard, which came into effect for many jurisdictions on 1 January 2016.

CBI Programmes: Transparency Under Pressure

Caribbean Citizenship by Investment programmes have built a significant component of their appeal on the discretion they afford applicants — governments do not publicly disclose who has been granted citizenship, and the offshore holding structures through which many qualifying real estate investments are made add an additional layer of privacy. The Panama Papers have directly challenged both elements of that value proposition. OECD member states are increasingly treating CBI citizenship as a potential vector for tax non-compliance, and several EU jurisdictions have begun flagging Caribbean CBI passport holders for enhanced due diligence in banking and business transactions.

The governments of St Kitts & Nevis, Antigua & Barbuda, Dominica, Grenada, and St Lucia — all operating CBI programmes — have responded by emphasising the due diligence standards applied to their applicant screening processes. St Kitts & Nevis, which revamped its programme’s due diligence framework following concerns raised by the US Treasury in 2014, has been particularly active in articulating its compliance credentials. The argument that a well-run CBI programme with rigorous screening is qualitatively different from the opacity facilitated by Mossack Fonseca has merit — but it needs to be made loudly and credibly in the post-Panama Papers environment if these programmes are to maintain their international acceptance.

For real estate developers whose projects depend on CBI-qualifying unit sales for a significant portion of their financing, the near-term implications warrant careful monitoring. Application pipelines from Middle Eastern and Chinese buyers — who have historically been the most active CBI applicants — remained robust through April. But the enhanced scrutiny that CBI passport holders are now encountering in some banking jurisdictions could act as a headwind to new applications if it begins to materially limit the practical utility of the acquired citizenship.

Jamaica: Holness Administration’s Early Property Agenda

In its first eight weeks in office, the Holness administration has moved to establish its economic credentials, confirming the continuity of the IMF Extended Fund Facility and announcing a series of measures intended to improve the business environment for investors. For the property sector, the most significant early signals have been around the Caymanas Special Economic Zone — Jamaica’s largest single industrial development initiative — and around NHT reform. The SEZ framework, which offers significant tax concessions to qualifying businesses in manufacturing, logistics, and knowledge-based services, is intended to generate demand for commercial property in the Kingston and St Catherine corridor.

NHT reform remains the most politically sensitive property-related agenda item. The Trust’s enormous mortgage book — the largest in Jamaica — serves hundreds of thousands of contributing workers, and any changes to its lending criteria, interest rates, or contribution structures carry significant electoral implications. The new government has committed to expanding access without compromising the Trust’s financial sustainability — a balance that requires careful actuarial management. Progress on this front will be one of the most closely watched property-market metrics through the remainder of 2016.

Caribbean Leaders This Month

Dominican Republic tourism and real estate — The DR’s tourism sector delivered a record first quarter by arrivals volume, and the resort residential market on the east coast absorbed new supply without meaningful price softening. Cap Cana and Puntacana Resort & Club continued to post strong unit sales metrics.

Cayman Islands regulatory response — Grand Cayman’s financial services community navigated the first weeks of the Panama Papers story with relative composure, emphasising the Cayman Islands’ separate regulatory identity from Panama and its established compliance frameworks. The luxury residential market showed no signs of transaction volume decline through April.

Jamaica Holness SEZ agenda — The new government’s early focus on the Caymanas SEZ generated positive commercial property market sentiment in the Kingston–Spanish Town corridor, with industrial land enquiries reported to be above prior-year levels.

Guyana Georgetown oil economy — Continued ExxonMobil activity at the Stabroek Block sustained executive accommodation demand in Georgetown, and the Guyana government announced plans for new Class A office space to accommodate the growing international energy and professional services community.

Barbados reform momentum — Prime Minister Stuart’s government announced structural reform measures targeting the tourism and financial services sectors in April, aimed at stabilising Barbados’s fiscal position and maintaining international confidence in the Barbados dollar peg.

St Lucia eco-resort pipeline — Several boutique eco-resort development proposals in the Soufrière and Laborie areas advanced toward planning approval in April, reflecting sustained international buyer interest in sustainable tourism property in one of the Eastern Caribbean’s most visually spectacular destinations.

Trinidad & Tobago fiscal adjustment — With WTI stabilising in the $40–45 range, T&T’s fiscal position showed tentative improvement relative to the crisis conditions of January. The commercial property market in Port of Spain remained subdued but began to register isolated signs of renewed interest in well-located office and retail assets.

Overall regional performer: The Dominican Republic claims this month’s top position, combining record tourism arrivals, robust resort residential demand, and a government that continues to invest in tourism infrastructure at a pace that few Caribbean neighbours can match.

Looking Ahead: May and the Panama Papers Regulatory Wave

The UK Anti-Corruption Summit scheduled for 12 May will be a key test of how much political pressure Caribbean BOTs are facing on beneficial ownership transparency. If the summit produces a formal commitment from the UK government to legislate public beneficial ownership registries for the Crown Dependencies and Overseas Territories — a step further than any BOT government has been willing to take voluntarily — the consequences for the BVI and Cayman business models would be material and rapid. Caribbean property and investment practitioners should monitor the summit’s outcomes closely.

For Jamaica, the coming weeks will bring the first substantive economic policy statements from the Holness administration, as the new Finance Minister prepares to present early budget adjustments and engage formally with the IMF. The credibility of these early fiscal signals will set the tone for international investor confidence in Jamaica’s property market through the remainder of the year. Positive outcomes from the IMF assessment would be a significant catalyst for transaction volumes in the tourism corridor and in the commercial sector.

The Caribbean summer season is approaching, and with it a degree of seasonal moderation in tourism property transaction activity as international buyers focus on European holiday destinations. But the underlying investment case — particularly for Jamaica, the DR, and Barbados — remains intact. Developers with well-located shovel-ready projects and credible brand partnerships are unlikely to find the market unreceptive even in the traditionally quieter second quarter.

The Caribbean Property & Investment Review is published monthly. Edition 123 covers the period 3 April to 2 May 2016. All market data cited reflects information available at the time of publication. This publication does not constitute investment advice.