Caribbean Property & Investment Review — Edition 115, January 2017

Publication Date: 3 January 2017  |  Coverage Period: 3 December 2016 – 2 January 2017

Morning Briefing

• The Caribbean tourism sector closes 2016 with record or near-record visitor arrivals across most major destinations, representing a remarkable performance against the backdrop of Hurricane Matthew and global political uncertainty.
• Donald Trump takes office on January 20, 2017; Caribbean governments and diaspora organisations are watching closely for early signals on immigration enforcement, trade, and US-Caribbean relations.
• Guyana’s Stabroek Block oil development progresses through the transition into 2017, with ExxonMobil and partners advancing toward a targeted first oil date in late 2019.
• Haiti’s Matthew reconstruction remains the region’s most pressing humanitarian and property challenge; donor fatigue and governance constraints continue to slow the pace of recovery.
• Jamaica’s fiscal reform programme delivered another year of IMF programme compliance, with the Holness government maintaining reform momentum into 2017.
• Brexit negotiations are approaching: the UK has signalled intent to trigger Article 50 by end of March 2017, raising questions for Caribbean British overseas territories and CARIFORUM-EU trade arrangements.

2016 Caribbean Year-End Review: A Year of Resilience

As 2016 draws to a close, the Caribbean’s property and investment landscape presents a study in contrasts: remarkable resilience in some markets, acute stress in others, and the ever-present undercurrent of external vulnerabilities that make the region’s economic fortunes so dependent on forces beyond its control. The year that began with cautious optimism was punctuated by Hurricane Matthew’s devastating October passage and concluded with the seismic political shock of Donald Trump’s election victory. Yet the overall picture is more encouraging than the headline disruptions might suggest.

Tourism was the region’s standout performer of 2016. The Caribbean Tourism Organisation’s preliminary figures point to record or near-record visitor arrivals across most major destinations, with the cruise sector also delivering strong numbers. The Dominican Republic continued its remarkable run of growth, welcoming more than six million stopover visitors for the year. Jamaica’s tourism sector posted its strongest performance on record, with Montego Bay, Negril, and Ocho Rios all reporting excellent hotel occupancy figures for the year as a whole. Even with Hurricane Matthew disrupting October in affected markets, the overall 2016 numbers for most destinations absorbed the impact without losing their record-breaking character. This tourism strength has direct property market implications: resort corridor land values, villa rental yields, and hotel asset valuations are all supported by the sector’s robust performance.

The construction and development pipeline across the region in 2016 reflected this positive tourism momentum. The Dominican Republic led the way, with major hotel and resort projects advancing in Punta Cana, Cap Cana, and along the north coast. Jamaica saw several significant resort and residential developments progress through planning and toward ground-breaking. Barbados, despite its government’s fiscal constraints, maintained activity in the luxury segment of its property market. The Cayman Islands continued to attract high-net-worth residential investment. And across the Eastern Caribbean, the citizenship by investment programmes of St. Kitts and Nevis, Antigua and Barbuda, Dominica, and Grenada continued to channel foreign capital into real estate development, providing a steady pipeline of new hotel and residential product.

The challenging side of 2016’s ledger was anchored by Hurricane Matthew and by Trinidad and Tobago’s extended economic difficulty. Matthew’s impact on Haiti represents perhaps the most severe single-event property and infrastructure catastrophe the Caribbean has experienced since the 2010 earthquake. In T&T, the continued depression of oil and gas prices through most of 2016 kept government revenues compressed, forced ongoing austerity measures, and maintained downward pressure on the domestic property market. Port of Spain’s commercial property sector saw reduced demand and some softening in prime office rents as companies managed costs in a difficult economic environment.

Trump Transition: Caribbean Policy Watch

With the Trump inauguration now just weeks away — scheduled for January 20, 2017 — Caribbean governments and business communities have had nearly two months since the election to assess the potential implications of a Trump presidency for the region. The consensus, to the extent one can be discerned, is that uncertainty is itself the defining characteristic of the new environment. Trump’s positions on the issues most consequential for the Caribbean — immigration, trade, and foreign policy — have been expressed in campaign rhetoric that did not always translate into detailed policy specifics, leaving significant ambiguity about what the new administration’s actual programme will mean in practice.

On immigration, the signals have been the most concerning. Trump’s campaign commitments on aggressive deportation of undocumented immigrants and tightening of legal immigration channels represent a direct threat to Caribbean diaspora communities in the United States. The Caribbean-American communities in New York, Miami, and other major cities are among the most politically engaged and economically active diaspora populations anywhere in the world; any significant disruption to their status, earnings, or ability to remit funds to their home countries would reverberate across Caribbean economies from Jamaica to Guyana.

Caribbean governments have been diplomatically measured in their public responses to the Trump election, conscious that the incoming president will be in office for at least four years and that antagonising him serves no constructive purpose. Behind the diplomatic language, however, there is genuine concern about the policy direction and significant work underway to understand and respond to what a Trump presidency may mean for the region’s interests. The CARICOM Secretariat, OAS, and bilateral diplomatic channels are all being activated to ensure Caribbean voices are heard as the new administration defines its foreign policy posture.

Brexit and Caribbean Financial Centres

The United Kingdom’s June 2016 vote to leave the European Union — the Brexit decision — carries implications for the Caribbean that are both direct and indirect. Most directly, the UK’s fourteen overseas territories include five in the Caribbean: the British Virgin Islands, the Cayman Islands, Anguilla, Montserrat, and the Turks and Caicos Islands. These territories’ relationship with the European Union has been mediated through their constitutional connection to the UK. As Brexit restructures that relationship, questions arise about the territories’ future status with respect to EU markets, regulations, and the arrangements that govern their access to European financial services markets.

For the BVI and Cayman Islands in particular, whose financial services industries represent the economic backbone of those territories, the question of how Brexit affects the regulatory relationships that underpin their business models is a serious one. Both territories have highly sophisticated legal and financial services communities actively working to understand and respond to the Brexit implications. The consensus view, at this stage, is that the direct impact is manageable but that close attention to the UK’s negotiation strategy will be required through 2017 and beyond.

More broadly, the CARIFORUM-EU Economic Partnership Agreement — which governs trade and economic cooperation between the Caribbean and the European Union — will need to be renegotiated or extended in its relationship to the UK as Brexit proceeds. This is a technical but consequential process that Caribbean trade negotiators and business communities will need to engage with throughout 2017. The UK has been one of the Caribbean’s most important tourism and investment source markets; maintaining the strength of that relationship as the UK navigates its post-EU trajectory is a priority for Caribbean governments.

2017 Property Market Outlook

The outlook for Caribbean property markets in 2017 is shaped by the intersection of the region’s strong structural tourism fundamentals, the political uncertainties introduced by Trump’s election and Brexit, the ongoing challenge of Matthew recovery in Haiti and to a lesser extent Jamaica, and the specific trajectories of individual island economies. On balance, the picture is one of measured optimism for most markets, with meaningful risks attached to the external political environment.

Jamaica enters 2017 in its strongest macroeconomic position in many years, with IMF programme compliance maintained, fiscal reform delivering results, and the Holness government projecting confidence about its economic management. The NHT’s active housing programmes and ongoing middle-market residential development in St. Andrew, St. Catherine, and the resort parishes provide a foundation of transactional activity that insulates the domestic market from the worst external uncertainties. The tourism sector’s record 2016 performance sets a high benchmark for 2017, but the demand fundamentals remain solid.

The Dominican Republic is positioned as the region’s most dynamic property market for 2017, with the Medina government’s construction and investment promotion continuing to attract international capital. Guyana’s emergence as a pre-oil-boom frontier investment destination adds a genuinely new dimension to Caribbean investment conversations, with Georgetown’s real estate market beginning to price in the transformational expectations of the Liza Phase 1 development. Trinidad’s recovery from its energy-price-induced austerity cycle will depend on how quickly global energy markets recover and how effectively the Rowley government manages fiscal consolidation without suppressing economic activity.

Caribbean Leaders This Month

Jamaica — PM Andrew Holness: A strong year-end for Holness’s government, with fiscal reform on track and tourism performing at record levels. The NHT’s continued activity in affordable housing and the growing pipeline of investment in the north coast resort corridor provide grounds for measured optimism as 2017 begins.

Dominican Republic — President Danilo Medina: Medina’s government concluded 2016 as the regional standout performer, with GDP growth, tourist arrivals, and construction activity all at impressive levels. The DR enters 2017 as the Caribbean’s most active property investment market by a considerable margin.

Guyana — President David Granger: Granger is overseeing a country in the early stages of an extraordinary economic transformation. The Liza Phase 1 development’s construction progress through 2016 has made Guyana one of the most discussed frontier investment opportunities in the hemisphere. Managing this transformation equitably and sustainably will be the defining challenge of his presidency.

Trinidad and Tobago — PM Keith Rowley: Rowley’s government ends 2016 having navigated a difficult austerity environment without triggering a fiscal crisis, though the economic pain for ordinary Trinidadians has been real. The outlook for 2017 depends substantially on energy price developments beyond the government’s control.

Barbados — PM Fruendel Stuart: Stuart’s government enters 2017 under continued fiscal pressure, with IMF engagement ongoing and debt sustainability concerns requiring sustained attention. The tourism sector’s performance will be critical to generating the revenue growth needed to stabilise Barbados’s fiscal trajectory.

BVI — Premier Orlando Smith: The BVI concluded 2016 continuing to navigate the post-Panama Papers environment, with its financial services sector maintaining client relationships while working to enhance transparency and demonstrate compliance with international standards. Brexit implications for the territory’s relationship with EU financial markets will require close attention in 2017.

Cayman Islands — Premier Alden McLaughlin: The Cayman Islands continue to operate one of the Caribbean’s most successful financial services jurisdictions, with strong fund administration, banking, and insurance sectors. Like the BVI, Brexit implications require careful monitoring and proactive engagement with UK policy development.

Overall Performer This Month / Year-End: Jamaica earns the year-end recognition for the strength of its 2016 overall performance — record tourism, sustained fiscal reform, active housing markets, and a government projecting coherent economic management heading into 2017.

Looking Ahead

January 2017 will be dominated by the Trump inauguration and the first weeks of the new US administration’s operation. Caribbean governments and businesses will be watching the early executive orders and policy signals with acute attention. The specific questions of immigration enforcement policy and any early moves on trade agreements will be most carefully tracked. Caribbean diaspora advocacy organisations in the United States will be active in making the case for their communities’ interests, and the diplomatic engagement of Caribbean governments with Washington will intensify.

The 2016-2017 winter tourism season is now in full swing, and early results from the Christmas and New Year peak period will provide the first real-time data point for how the season is performing. Strong peak-week numbers will set a positive tone for the remainder of the January-to-April high season. For Caribbean property investors and hospitality operators, a solid season would confirm the market’s resilience and provide confidence for investment decisions in 2017.

The UK is expected to trigger Article 50 of the Treaty on European Union by end of March 2017, formally beginning the two-year process of Brexit negotiations. This will be a significant moment for Caribbean financial centres and CARIFORUM trade negotiators alike, as it will define the specific negotiating framework within which the future UK-EU relationship — and by extension, the Caribbean’s relationships with both — will be determined. Caribbean governments would be well served by preparing their positions for this process in advance of the formal trigger.

The Caribbean Property & Investment Review is published monthly for property professionals, investors, and development practitioners across the Caribbean region. All market assessments reflect conditions as of the coverage period end date. This publication does not constitute investment advice.