Caribbean Property & Investment Review — Edition 112, April 2017

Publication Date: 3 April 2017  |  Coverage Period: 3 March – 2 April 2017

Morning Briefing

• The UK formally triggered Article 50 on March 29, 2017, beginning the two-year Brexit negotiation process with direct implications for Caribbean financial centres and CARIFORUM-EU trade arrangements.
• The 2016-2017 Caribbean winter tourism season closed with strong overall results, with Jamaica, the Dominican Republic, and Barbados all reporting occupancy and revenue figures ahead of prior year comparatives.
• Guyana’s Stabroek Block oil development continues to attract milestone attention, with construction activity advancing and the international service company community in Georgetown expanding.
• Dominican Republic resort and residential investment flows maintained their strong 2017 trajectory, with new project announcements adding to an already robust development pipeline in Punta Cana and Cap Cana.
• Caribbean spring tourism — the Easter period and early shoulder season — is generating solid demand across most destinations, with villa and boutique hotel properties performing particularly well.
• US-Caribbean diplomatic relations continue their careful navigation under the Trump administration, with CARICOM maintaining engagement on diaspora welfare, trade, and security cooperation.

Winter Season Debrief: Caribbean Tourism Delivers

The 2016-2017 Caribbean winter tourism season has now effectively concluded, and the preliminary results confirm what the industry’s forward booking data had suggested: this was a strong season across most of the region’s established markets, with visitor numbers and hotel revenues broadly ahead of the prior year’s already impressive comparatives. The season’s performance is particularly notable given the dual disruptions of Hurricane Matthew in October and the political uncertainty created by the Trump election result — disruptions that the industry feared might damp demand but which, in the event, proved largely surmountable through effective recovery messaging and the resilience of the US and Canadian tourist markets.

Jamaica’s tourism sector delivered its strongest winter season on record, with the north coast resort corridor from Montego Bay to Ocho Rios achieving exceptional occupancy and average daily rate performance through the December-to-March peak. The Jamaica Tourist Board’s marketing investment in the North American market produced measurable returns, and the airlift that Jamaica has been developing — through relationships with major carriers and through the continued development of Sangster International Airport — supported strong visitor volumes. For property investors in Jamaica’s resort corridor, these numbers provide clear validation of the market’s fundamentals and support continued confidence in resort-related real estate investments.

The Dominican Republic’s tourism performance through the winter season was similarly impressive, with the Punta Cana resort cluster — the largest all-inclusive resort concentration in the world — achieving high occupancy through the peak period. The DR’s ability to market to a diverse range of source markets — North American, European, and Latin American — provides it with a diversification of demand that gives greater resilience than markets dependent on a single visitor nationality. The DR’s total stopover arrivals for the winter season are expected to be among the highest in the region, maintaining its position as the Caribbean’s single largest tourism economy.

Barbados and the Eastern Caribbean islands also reported solid winter season performances, with the luxury and boutique segments of the market particularly strong. Sandy Lane, Coral Reef Club, and other flagship Barbadian properties maintained the premium rates and occupancy levels that underpin their asset valuations and operational business models. In St. Lucia, Antigua, and Grenada, the combination of natural beauty, improving airlift, and the quality of premium property development has continued to attract high-spending visitors who generate disproportionate tourism revenue relative to their numbers. The Eastern Caribbean’s success in the premium segment provides a model that other destinations seeking to improve their tourism yield per visitor would do well to study.

Guyana Oil: Construction Progress and Georgetown Property Demand

ExxonMobil’s Liza Phase 1 development in Guyana’s Stabroek Block is advancing through its construction and development programme with the kind of methodical progress that the company’s project management reputation would lead one to expect. The subsea infrastructure, the FPSO vessel procurement and outfitting, and the related onshore support infrastructure are all progressing toward the targeted first oil date in late 2019. While that date remains nearly three years away, the economic transformation of Georgetown is already underway in anticipation.

The Georgetown real estate market is experiencing a qualitative transformation driven by the requirements of the international oil company community. Expatriate engineers, project managers, geologists, and the full range of technical and commercial professionals associated with a large oil development project require accommodation that meets international standards — standards that much of Georgetown’s existing residential and hotel stock has historically struggled to achieve. This gap between demand quality and supply quality is driving investment in new residential and serviced apartment development targeted at the expatriate and professional segments of the market. Rental rates for quality accommodation in Georgetown’s established residential neighbourhoods — Prashad Nagar, Bel Air Park, and similar addresses — have risen measurably as demand from oil sector personnel has intensified.

The commercial property market in Georgetown is experiencing analogous pressures. International service companies — in engineering, logistics, legal services, financial advisory, and catering — are establishing or expanding their Guyana operations, creating demand for office and operational space that the existing commercial property stock is challenged to satisfy at the required standards. This is driving new commercial development and significant refurbishment of existing stock. For property investors able to navigate Guyana’s relatively undeveloped professional real estate market — with its associated challenges of title clarity, professional services depth, and construction quality standards — the medium-term return potential is genuinely distinctive.

Article 50 Triggered: Caribbean Financial Centres in Focus

The United Kingdom formally triggered Article 50 of the Treaty on European Union on March 29, 2017, beginning the two-year countdown to Brexit. Prime Minister Theresa May delivered the formal notification to EU Council President Donald Tusk in what marks a moment of profound consequence not only for the UK and EU but for the Caribbean territories whose constitutional and economic relationships with both parties will be affected by the outcome of the negotiations now formally underway.

For the British Virgin Islands and Cayman Islands, the triggering of Article 50 brings into sharper focus a set of questions that have been the subject of intensive legal and policy analysis since the June 2016 referendum result. Both territories’ financial services industries operate within a regulatory and market access framework that has been shaped by their connection to the UK, which is in turn connected to the European single market. Post-Brexit, the precise terms of UK-EU market access for financial services will be determined through negotiation, and those terms will have knock-on implications for BVI and Cayman firms and funds that have relied on UK-EU regulatory equivalence or passporting arrangements as part of their business model.

The CARIFORUM-EU Economic Partnership Agreement, which has governed trade and economic cooperation between the Caribbean and the European Union since 2008, will also require renegotiation or extension to address the UK’s post-Brexit status. The UK has been the single largest EU member state market for Caribbean exports and one of the most important source markets for Caribbean tourism. Ensuring that the Caribbean-UK economic relationship is maintained on equivalent or better terms after Brexit is a diplomatic priority that CARICOM governments and the CARIFORUM Secretariat have been advancing actively. The formal beginning of Brexit negotiations creates both urgency and opportunity for Caribbean engagement in this process.

Dominican Republic: Investment Leader of the Caribbean

Quarter after quarter, edition after edition, the Dominican Republic continues to distinguish itself as the Caribbean’s most dynamic and investor-attractive property market. The first quarter of 2017 has maintained this trajectory: significant resort and residential development activity in Punta Cana and Cap Cana; ongoing hotel construction in the north coast corridor; active foreign direct investment flows from North American, European, and Latin American sources; and a stable political and macroeconomic environment under President Medina’s government that provides the regulatory predictability that investors require.

The DR’s property market success is built on a combination of structural advantages: geographic scale that allows a diversity of market segments; established airlift infrastructure that supports large visitor volumes; a sophisticated hotel industry with decades of all-inclusive management experience; relatively accessible land and development costs compared to smaller island markets; and a government that has made tourism and investment attraction a central economic priority across multiple administrations. These structural strengths are complemented by the DR’s successful marketing and the cultural and culinary appeal that distinguishes the Dominican destination from competitors.

For international property investors considering the Caribbean, the Dominican Republic offers a scale and liquidity of market that no other Caribbean territory can match. The ability to execute significant transactions in Punta Cana or Cap Cana within a framework of established legal processes, professional real estate services, and secondary market depth is a decisive advantage for institutional or larger private investors. The DR’s continued investment momentum through 2017 reflects the market’s maturity and the confidence that experienced investors have in its fundamentals.

Caribbean Leaders This Month

Jamaica — PM Andrew Holness: Holness’s government completed the winter tourism season in a position of considerable strength, with Jamaica’s resort industry delivering record performance and the domestic property market maintaining solid activity. The government’s economic reform agenda continued to deliver results, with positive Q1 indicators supporting continued investor confidence.

Dominican Republic — President Danilo Medina: Medina’s government delivered another quarter of outstanding investment and tourism performance, maintaining the DR’s unchallenged position as the Caribbean’s leading property investment market. New project announcements and continued strong FDI flows confirmed the Dominican Republic’s trajectory.

Guyana — President David Granger: Georgetown’s oil-related property market continues to develop under Granger’s watch, with the Stabroek Block construction programme generating growing commercial and residential real estate demand. The institutional preparation for managing oil revenues — the sovereign wealth fund legislation and natural resource governance frameworks — is advancing, if slowly.

BVI — Premier Orlando Smith: Smith’s government was actively engaged in post-Article 50 Brexit planning, seeking to understand and influence the negotiation terms that will determine the BVI’s future relationship with EU financial markets. The territory’s financial services community was equally focused on this critical policy development.

Barbados — PM Fruendel Stuart: Stuart’s government concluded the winter season with tourism revenues providing some fiscal relief, though the structural challenges of Barbados’s debt and deficit management remained unresolved. The upcoming national election cycle was beginning to influence the political environment.

Trinidad and Tobago — PM Keith Rowley: Post-Carnival, Rowley’s government returned to the core challenge of fiscal adjustment and economic diversification. Some improvement in oil prices provided modest revenue uplift, but the structural challenge of diversifying away from hydrocarbons remained the defining medium-term policy priority.

Cayman Islands — Premier Alden McLaughlin: The Cayman Islands’ property market continued to attract premium residential investment, particularly in Grand Cayman’s Seven Mile Beach corridor. The territory’s political stability and regulatory quality maintained its appeal to high-net-worth individuals seeking a Caribbean base with sophisticated financial services access.

Overall Performer This Month: Dominican Republic earns this month’s top recognition for completing one of its strongest winter tourism seasons on record while maintaining the region’s most active property investment pipeline. The DR’s consistent execution across tourism, construction, and investment attraction remains unmatched in the Caribbean.

Looking Ahead

The Caribbean enters the April-May shoulder season with the confidence of a strong winter behind it. This period will see reduced resort occupancy compared to the peak months but will be an important time for construction progress, property refurbishment, and investment decision-making ahead of the 2017 summer season. Developers who use the shoulder season effectively to advance their projects will be better positioned for the summer tourism upturn that typically begins to build through June.

Brexit negotiations will progress through the spring and summer, with the early rounds focused on establishing the framework for discussions on citizens’ rights, financial obligations, and transition arrangements. Caribbean governments and financial centres will be monitoring progress carefully, with particular attention to the signals coming from discussions about financial services market access and the future of the UK’s relationships with its overseas territories. The two-year Article 50 window is shorter than it sounds, and early signals about the negotiation’s direction will be important.

The 2017 Atlantic hurricane season officially opens on June 1, and NOAA’s early seasonal forecasts will provide the first official assessment of the season’s expected activity. Given the memories of Matthew in 2016 and the ongoing challenge of Haiti’s reconstruction, Caribbean property owners, investors, and insurers will be attentive to the seasonal outlook and will be reviewing their preparedness and insurance coverage accordingly. The shoulder season is the ideal time to address property resilience issues before the season’s potential threats materialise.

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.