Caribbean Property & Investment Review — July 2016

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

Morning Briefing

• The United Kingdom voted Leave in its EU referendum on 23 June 2016, by 51.9% to 48.1%. Sterling fell to its lowest level against the dollar in more than three decades in the immediate aftermath, trading near $1.32 — a direct impact on UK buyers’ purchasing power in Caribbean property markets priced in USD.
• ExxonMobil announced the Final Investment Decision on the Liza Phase 1 oil development in Guyana’s Stabroek Block on 29 June 2016, committing to first oil production by 2020. The $4.4 billion project is the most significant energy investment decision in the Caribbean region in a generation.
• The constitutional status of Caribbean British Overseas Territories — BVI, Cayman Islands, TCI, Anguilla, and Montserrat — in relation to the European Union has become a live legal and political question following the Leave vote. BOT governments are pressing London urgently for clarity.
• Prime Minister David Cameron announced his resignation following the Leave vote; Theresa May emerged as the leading candidate to replace him as Conservative Party leader and Prime Minister. UK political uncertainty adds to the complex market environment.
• WTI crude oil closed June at approximately $48 per barrel, recovering from mid-month weakness following the Brexit shock, and providing continued fiscal support for Trinidad & Tobago’s adjustment programme.
• Caribbean tourism summer volumes are tracking well, with Jamaica, Barbados, and the DR all reporting strong June booking completions for the July–August peak family travel window.

Brexit: What the Leave Vote Means for Caribbean Property

The United Kingdom’s vote to leave the European Union on 23 June 2016 was one of the most consequential political events of the decade, and its implications for Caribbean property markets — while not as immediately dramatic as those for the UK itself — are real, multi-layered, and will unfold over a period of years. The immediate market reaction was a sharp fall in sterling: the pound dropped from approximately $1.48 on the eve of the referendum to near $1.32 in the days following the result, a decline of more than 10% in the space of 72 hours. For British buyers of Caribbean property priced in US dollars, this is a direct and material reduction in purchasing power.

The UK buyer presence in Caribbean property markets is most concentrated in Barbados, where British nationals have historically been the dominant international buyer group on the west coast platinum corridor; in Turks & Caicos, where the Grace Bay and Providenciales luxury market draws heavily from London-based wealth; in St Lucia; and in Antigua. In all of these markets, property is priced in USD or in currencies pegged to the USD. A British buyer who budgeted £1 million for a Caribbean property purchase before the referendum now finds that the same budget delivers approximately $1.32 million rather than the $1.48 million available before the vote — a reduction of $160,000 in absolute purchasing power, enough to push many buyers into a lower price category or to the sidelines entirely.

Beyond the exchange rate mechanics, Brexit generates a second layer of uncertainty that is harder to quantify but potentially equally significant: the impact on UK wealth and confidence. The UK is entering a prolonged period of constitutional negotiation with the EU, and the uncertainty about the UK’s future trade arrangements, financial services access, and economic trajectory could affect high-net-worth British consumers’ appetite for discretionary investment, including Caribbean property. The early market intelligence from brokers active in Barbados and TCI suggests that UK buyers who were actively in purchase discussions before the referendum are adopting a wait-and-see posture, at least in the immediate aftermath.

The constitutional dimension of Brexit for the Caribbean BOTs is equally pressing. The BVI, Cayman Islands, TCI, Anguilla, and Montserrat are constitutionally associated with the EU through their relationship with the UK, with Overseas Countries and Territories status that confers certain rights and obligations. Following a Leave vote, it is entirely unclear what happens to OCT status: do the BOTs leave the EU alongside the UK, or do they seek to maintain some form of EU association independently? The legal position is genuinely unresolved, and BOT governments are pressing London for an answer as a matter of urgency. The BVI and Cayman Islands, as major financial centres with EU-connected client bases, have the most complex exposure.

Guyana Liza FID: A Historic Decision for Caribbean Investment

On 29 June 2016 — just six days after the Brexit shock — ExxonMobil announced the Final Investment Decision on the Liza Phase 1 oil development in Guyana’s offshore Stabroek Block. The $4.4 billion FID, taken jointly with partners Hess Corporation (30% interest) and CNOOC subsidiary Nexen (25% interest), commits to the deployment of a Floating Production, Storage and Offloading vessel targeting first oil production by 2020 at an initial rate of approximately 120,000 barrels per day. It is the most significant energy investment decision in the Caribbean region since the initial development of Trinidad’s LNG export capacity in the late 1990s.

For Guyana’s property and investment market, the FID is a catalyst of transformative scale. Georgetown’s executive residential sector has already been responding to pre-FID demand from the energy sector community, with prime rental rates in Bel Air Park, Queenstown, and Kingston (Georgetown) having risen materially over the past eighteen months. The FID now replaces that tentative pre-announcement demand with a concrete, multi-year construction phase that will bring thousands of international workers to Guyana in support of the offshore development: seismic vessel crews, FPSO construction supervisors, port and logistics specialists, and the professional services ecosystem that accompanies any major capital project.

The FID also validates the forward-looking assessment that this publication has carried for the past several editions: Guyana is an emerging oil economy at the earliest stage of its development cycle, and the window for early-mover property investment in Georgetown’s executive residential and commercial sectors is now closing. The announcement will draw capital that was waiting on the sidelines into active deployment. Developers who can deliver quality executive residential accommodation — four- and five-bedroom homes with the security, infrastructure reliability, and international standard finishes expected by ExxonMobil and Hess employees — will find a ready market. Equally, the hotel and serviced apartment sector will see sustained demand from the rotating workforce that offshore projects generate.

CARIFORUM-EU EPA: Caribbean Trade After Brexit

Beyond the property market implications of sterling weakness, Brexit carries a trade policy dimension that affects Caribbean economies more broadly. The CARIFORUM-EU Economic Partnership Agreement, which governs trade and economic cooperation between the Caribbean Community and the European Union — including market access for Caribbean agricultural and manufactured exports — was negotiated with the UK as an EU member. A post-Brexit UK will need to establish its own bilateral trade relationship with CARICOM and CARIFORUM states. Until that relationship is formalised — a process that could take several years, given the UK’s need to simultaneously negotiate its EU exit terms — Caribbean exporters face a degree of uncertainty about their post-Brexit access to the UK market.

For Jamaica, which exports rum, sugar, bananas, and manufactured goods to the UK under preferential EPA arrangements, and which receives a significant volume of its tourism visitors from British airports, the Brexit uncertainty is material. The Jamaica government has signalled that it will seek to maintain at minimum equivalent trade access to the UK market through bilateral negotiations, and London has informally indicated that it does not intend to disadvantage Caribbean trade partners in the post-Brexit settlement. But informal assurances are not the same as treaty commitments, and Jamaica and its CARICOM partners will need to invest in trade negotiating capacity to ensure their interests are protected in what will be complex multilateral discussions.

Caribbean Leaders This Month

Guyana Georgetown property market — The Liza FID confirmation triggered the sharpest single-event surge in Georgetown property enquiries that real estate professionals in the Guyanese capital have ever recorded. Land prices in premium residential zones rose measurably in the days following the announcement.

Jamaica summer tourism — North Coast Jamaica resorts reported strong early-summer bookings, with US traveller numbers offsetting any softness from the UK market. Montego Bay’s all-inclusive resort corridor was running at high occupancy through the late-June period.

Dominican Republic July pipeline — The DR’s east coast resort residential market demonstrated its resilience to Brexit by reporting continued strong US and Canadian buyer activity through June. The absence of UK buyer dependence gives the DR a structural advantage in the current environment.

Barbados Brexit assessment — West coast brokers reported a notable pause in UK buyer enquiries in the week following the referendum, while US and European buyer activity held steady. The market is repricing expectations for sterling-funded buyers, and several vendors have indicated willingness to negotiate price adjustments to hold transactions together.

BVI and Cayman regulatory positioning — Both BOT jurisdictions responded to the Brexit vote with public statements emphasising their constitutional stability and the continuity of their financial services frameworks. The BVI Financial Services Commission and the Cayman Islands Monetary Authority both held emergency meetings with industry bodies in the week following the referendum.

Trinidad & Tobago recovery — With oil holding near $48 and the government’s fiscal adjustment proceeding broadly on track, T&T’s Port of Spain commercial property market showed its first tentative signs of renewed transaction interest in several months, particularly in the professional office segment.

Turks & Caicos luxury — Grace Bay’s ultra-luxury condominium market, heavily dependent on UK buyers, entered a brief pause following the Brexit vote. However, the US buyer segment — historically the second-largest group — remained active, and several developers indicated that their US marketing programmes were being accelerated to compensate for the UK slowdown.

Overall regional performer: Guyana claims this month’s position unambiguously. The Liza FID is a once-in-a-generation event for a national property market, and Georgetown’s real estate community is now operating in a structurally different demand environment from that of twelve months ago.

Looking Ahead: Post-Brexit Assessment and the Guyana Build-Out

The months ahead will bring greater clarity on Brexit’s actual market impact in the Caribbean. If sterling stabilises in the $1.28–1.35 range — as some analysts project for the remainder of 2016 — UK buyer activity may resume at adjusted price points, with vendors willing to negotiate the currency differential. If sterling continues to weaken, the structural shift in UK buyer purchasing power will be more lasting, and Caribbean markets with high UK buyer dependence will need to actively diversify their international buyer base toward North America and continental Europe.

For Guyana, the next phase is construction procurement: ExxonMobil will be contracting for FPSO fabrication, subsea infrastructure, and logistics support over the coming months, each procurement decision generating secondary property demand through accommodation, office, and logistics facility requirements. Investors with capital ready to deploy in Georgetown now have a clearer investment thesis than at any previous point: the FID has converted potential into commitment, and the demand pipeline is now visible if not yet fully quantified.

The Caribbean summer season is now in full swing, and the near-term property market narrative outside Guyana will be driven by tourism performance. If summer arrivals data confirms the positive trajectory established in the first half of 2016, the investment case for hospitality-linked Caribbean real estate will be reinforced heading into the traditional autumn buying season, when institutional and sophisticated individual investors typically review their portfolios and make acquisition decisions for the following year.

The Caribbean Property & Investment Review is published monthly. Edition 121 covers the period 3 June to 2 July 2016. The Brexit referendum occurred on 23 June 2016 and the Guyana Liza FID was announced on 29 June 2016, both within the coverage period. All market data reflects information available at the time of publication. This publication does not constitute investment advice.

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