Caribbean Property & Investment Review — Edition 122, June 2016

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

Morning Briefing

• The United Kingdom votes on its membership of the European Union on 23 June 2016 — twenty days from today. As this edition goes to press, the outcome is unknown, but polling shows the contest as too close to call. The Caribbean’s British Overseas Territories — BVI, Cayman Islands, Turks & Caicos, Anguilla, and Montserrat — are watching with acute attention, given that their constitutional relationship with London would be affected by any significant change in UK international posture.
• The Atlantic hurricane season officially opened on 1 June 2016. Forecasters at Colorado State University and NOAA are projecting a near-normal to slightly below-normal season, with 12–15 named storms expected. Caribbean property owners and insurers are beginning their annual seasonal preparedness reviews.
• ExxonMobil and its partners at the Stabroek Block in Guyana are understood to be in advanced stages of commercial and financing discussions that could lead to a Final Investment Decision on the Liza Phase 1 development within weeks. A positive FID would mark a historic milestone for Guyana’s economy and property market.
• Jamaica’s Holness administration presented its first full budget on 19 May 2016, confirming the IMF programme trajectory and signalling continued commitment to the fiscal consolidation path. Tourism receipts projections for 2016 were revised upward.
• The Dominican Republic’s tourism sector closed May with arrival numbers approximately 9% above the prior year, sustaining momentum in the resort residential property market across the north and east coasts.
• Caribbean short-term rental platform activity is accelerating ahead of the North American summer travel season, with Jamaica, Barbados, and the DR all showing strong platform-booking volumes for the July–August window.

Brexit: The Caribbean Stakes in the UK’s EU Decision

On 23 June — twenty days after this edition goes to press — the United Kingdom will hold a referendum that could reshape its relationship with the European Union and, by extension, the constitutional and economic status of the Caribbean’s British Overseas Territories. The stakes for the Caribbean are considerably more complex than is often recognised in the British media, which has focused almost entirely on the domestic UK dimensions of the Brexit debate. For the BVI, Cayman Islands, Turks & Caicos Islands, Anguilla, and Montserrat, a vote to Leave carries constitutional questions that their governments have been raising quietly but urgently with the UK Foreign and Commonwealth Office.

The most immediate practical concern is trade. Caribbean BOTs and sovereign states currently benefit from the CARIFORUM-EU Economic Partnership Agreement, which grants preferential market access for Caribbean exports to all EU member states including the UK. In a post-Brexit scenario, the UK would need to negotiate a separate bilateral trade arrangement with the Caribbean — a process that could take years and during which Caribbean exporters might face tariff uncertainty. For agricultural exporters in Belize, Jamaica, and the Dominican Republic, this is a live commercial concern. For property investors, the more relevant question is whether a Brexit-driven sterling weakness would dampen or divert the flow of British buyers into Caribbean property markets.

UK buyers represent a significant component of the international purchaser base in Barbados, St Lucia, Antigua & Barbuda, and the Turks & Caicos Islands. British buyers are typically purchasing in USD-denominated Caribbean markets, meaning that a weaker sterling would directly reduce their effective purchasing power. A sterling that falls 10–15% against the dollar — well within the range of analyst projections in a Leave scenario — would effectively price many UK buyers out of the premium tier of the Barbados west coast or the TCI Grace Bay luxury market. The Remain scenario, by contrast, would likely see a bounce in sterling and a modest uplift in UK buyer confidence. Caribbean property professionals working with UK clients should be scenario-planning both outcomes now.

Beyond buyer flows, the BOT constitutional question warrants specific attention. The BVI, Cayman Islands, TCI, and other BOTs are not EU members in their own right — they are associated with the EU through the UK’s membership, with Overseas Countries and Territories status that gives their residents certain rights of movement and their products certain market access. What OCT status means in a post-Brexit world is genuinely unclear, and the BOT governments are pressing London for clarity before the referendum takes place. The absence of that clarity is itself a source of market uncertainty that Caribbean property investors with BOT exposure should factor into their risk assessments.

Guyana Liza FID: The Decision That Could Transform a Nation

Within weeks of this edition’s publication, ExxonMobil and its partners — Hess Corporation and CNOOC subsidiary Nexen — are expected to announce a Final Investment Decision on the Liza Phase 1 oil development in Guyana’s offshore Stabroek Block. The Liza discovery, made in May 2015, has been estimated to hold approximately 450–500 million barrels of recoverable oil, making it one of the most significant deepwater oil finds of the past decade anywhere in the world. Phase 1 development, targeting first oil production in 2020, would see a Floating Production, Storage and Offloading vessel deployed with an initial production capacity of approximately 120,000 barrels per day.

For Guyana’s property and investment market, the FID would represent an inflection point of the first order. Georgetown’s office, hotel, and executive residential sectors have already been responding to pre-FID activity: ExxonMobil has expanded its local presence, international professional services firms have opened or enlarged Guyana offices, and the government has been investing in port and logistics infrastructure in anticipation of the construction phase demand. The FID would transform this pre-FID buzz into a sustained multi-year demand surge driven by construction workforce accommodation, equipment and materials staging, and the permanent establishment of a professional class employed in the nascent oil sector.

For Caribbean property investors watching the Guyana story, the lesson of analogous oil economy development cycles elsewhere — from Trinidad in the 1970s to Angola in the 2000s — is that the early years of a new oil economy create exceptional returns for well-located commercial and executive residential property. But they also create supply-side bottlenecks, construction cost inflation, and eventual oversupply risk if the investment horizon extends beyond the construction phase. Georgetown investors who act now, ahead of the FID confirmation, have the most attractive entry points; those who wait for definitive evidence of the oil economy’s scale may find that valuations have already adjusted.

Hurricane Season Opens: What Caribbean Property Owners Need to Know

The 2016 Atlantic hurricane season, which officially opened on 1 June, is forecast to be near-normal to slightly below normal by most reputable forecasting agencies. The absence of an El Niño pattern — which historically suppresses Atlantic hurricane activity — means conditions are more conducive to storm development than in the past two seasons. Nevertheless, the current forecast consensus suggests a relatively manageable season, with 12–15 named storms, 5–7 hurricanes, and 2–3 major hurricanes (Category 3 or above) projected.

For Caribbean property owners and investors, the opening of hurricane season is the annual reminder to review wind and flood insurance coverage, check that policy limits reflect current replacement values — construction costs have risen materially in many Caribbean markets over the past several years — and confirm that business interruption or rental income protection is in place for income-generating properties. The Caribbean property insurance market has been tightening gradually since the 2010 Haiti earthquake and the 2017 hurricane seasons; premium levels for coastal assets in high-exposure zones have risen, and underwriters are applying more sophisticated risk assessment frameworks that incorporate climate modelling alongside historical loss data.

Caribbean Leaders This Month

Guyana pre-FID investment activity — Georgetown’s executive rental and commercial property markets were the region’s most dynamic in May, as the anticipated Liza Phase 1 FID generated accelerating inbound enquiries from international energy sector operators, professional services firms, and hospitality investors. Land values in Bel Air Park and Queenstown are rising rapidly.

Jamaica summer pipeline — Forward bookings for Jamaica’s north coast resorts through the July–August window are running above prior year, and the Jamaica Tourist Board reports that Airbnb-type accommodation bookings on the island are at record levels — a reflection of the growing penetration of platform travel among younger North American visitors.

Dominican Republic resort residential — Cap Cana continued to close villa pre-sales in May, with a high proportion of buyers from the US north-east and Canada. Infrastructure expansion — a new hospital, expanded marina facilities — is reinforcing the master community’s appeal as a full-time residence option as well as a holiday investment.

Barbados short-term rental summer — Platform-based summer bookings for the Barbados south coast and the platinum west coast are ahead of prior year, providing a revenue uplift for villa and apartment owners who have invested in the short-term rental channel as a yield-enhancement strategy.

Cayman Islands BOT Brexit watch — The Cayman Islands government issued a formal statement in May noting the implications of the Brexit vote for the BOT’s EU-related OCT status and financial services passporting arrangements, signalling that the jurisdiction is actively engaging with London on post-Brexit contingency planning.

Trinidad & Tobago recovery signals — With WTI trading near $48 at month-end, T&T’s fiscal situation showed further modest improvement, and the government indicated that the mid-year budget review would confirm adherence to the fiscal adjustment path. Port of Spain office enquiries showed tentative pickup.

St Kitts & Nevis branded residences — Construction at the Park Hyatt St Kitts project at Christophe Harbour reached structural completion of the hotel component, with CBI-qualifying branded residences now available for snagging and handover. The first completions in a high-profile branded residence project are always a key market catalyst.

Overall regional performer: Guyana earns this month’s top position by virtue of the transformative scale of the investment activity that a positive Liza FID will catalyse. No other Caribbean market offers the same combination of timing advantage, demand visibility, and potential return on early-mover property investment.

Looking Ahead: Brexit Day and the Guyana FID

The weeks immediately after this edition goes to press will be among the most consequential in recent Caribbean economic history. The UK’s EU referendum on 23 June will either resolve the Brexit uncertainty in favour of Remain — triggering a relief rally in sterling and a return to business-as-usual for Caribbean-facing UK buyer flows — or produce a Leave vote that would usher in a period of constitutional and market uncertainty unlike anything the Caribbean has navigated since the post-Cold War restructuring of the 1990s. Our next edition will carry a full assessment of whatever outcome transpires.

The Guyana FID, if confirmed in June as widely anticipated, will be equally consequential for the Caribbean property investment landscape. A positive ExxonMobil announcement would validate the investment theses of those who have already positioned in Georgetown’s executive residential and commercial markets, and trigger a new wave of capital seeking exposure to Guyana’s emerging oil economy. The FID is not guaranteed — oil price volatility could cause further delay — but the commercial momentum described by industry sources suggests it is imminent.

The Caribbean summer season proper begins this month, and tourism businesses across the region will be transitioning from the high-season European and North American visitor flow to the summer family and festival travel market. The short-term rental platform economy will be critical to maintaining revenue performance through the summer months, as hotel average daily rates typically soften from peak-season highs. Property investors with summer-rental programmes should ensure their platform listings are optimised for the July–August demand window.

The Caribbean Property & Investment Review is published monthly. Edition 122 covers the period 3 May to 2 June 2016. The Brexit referendum (23 June) and Guyana Liza FID had not occurred at time of publication. All market data reflects information available at the time of publication. This publication does not constitute investment advice.