Caribbean Property & Investment Review — May 2017

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

Morning Briefing

• Caribbean 2017 summer tourism advance bookings are tracking strongly, with July-August hotel reservations across major destinations significantly ahead of the prior year’s comparable period.
• Citizenship by investment programmes across the Eastern Caribbean maintained robust application volumes through April, with real estate investment the dominant qualifying route in most territories.
• Brexit negotiations formally under way as the UK and EU exchange opening positions; Caribbean financial centres intensify their monitoring of financial services market access discussions.
• Barbados faces a critical fiscal juncture, with IMF discussions intensifying and the Stuart government under pressure to accelerate structural reform ahead of an election that cannot be delayed beyond 2018.
• Jamaica’s construction sector shows positive momentum, with residential development activity in the Greater Kingston area and resort corridor both generating sustained employment and property supply.
• Dominican Republic maintained its regional investment leadership position through April, with confirmed hotel openings and resort development completions adding to the tourism infrastructure pipeline.

Caribbean Tourism 2017: Building Toward a Record Year

The Caribbean tourism industry entered May 2017 with the quiet confidence of a sector that has delivered a superb winter season and is now seeing compelling evidence that the summer season ahead may push 2017 toward another record-breaking year. Advance booking data across multiple Caribbean destinations — Jamaica, the Dominican Republic, Barbados, St. Lucia, Antigua, and the Bahamas — shows summer hotel reservations tracking meaningfully ahead of 2016’s already strong comparable figures. The industry’s marketing investment is clearly translating into demand, and the airlift capacity that carriers have maintained and in several cases expanded on Caribbean routes reflects the commercial confidence of the aviation sector in the destination’s demand fundamentals.

The summer season has a distinctly different character from the winter peak in Caribbean tourism. Where the December-to-April high season is dominated by North American and European leisure travellers seeking to escape winter, the summer brings a significant component of Caribbean diaspora visitors — Caribbean-Americans, Caribbean-Canadians, and Caribbean-Britons returning home during school holiday periods to reconnect with family and island life. This diaspora travel segment has a somewhat different spending profile from the conventional leisure traveller — often staying in family homes or with relatives rather than hotels, for instance — but it generates meaningful economic activity in domestic retail, restaurants, family celebrations, and local services. For the short-term rental market, diaspora visitors who seek independence from family accommodation represent an important demand segment.

The tourism industry’s property market implications continue to be significant and multidimensional. Strong tourism performance supports hotel asset valuations directly through the income stream it generates for operating properties. It supports villa and short-term rental yields by sustaining occupancy and rates. It supports resort corridor land values by maintaining the attractiveness of locations for hospitality development. And it supports domestic residential markets indirectly through the employment and income that tourism generates for the population of resort-intensive communities. The virtuous cycle between tourism performance and property market health is one of the most important structural features of Caribbean real estate investment economics.

Specific markets showing particularly strong summer booking momentum include Jamaica’s north coast — where the Jamaica Tourist Board’s marketing campaigns in the US and Canada have achieved measurable penetration — and the Dominican Republic’s Punta Cana corridor, which continues to benefit from the diversity of its airlift and the scale of its all-inclusive inventory to capture demand from the broadest range of source markets. In the luxury segment, Turks and Caicos, St. Barts, and premium Barbadian properties are seeing strong summer demand from high-net-worth travellers who are increasingly looking to Caribbean islands as alternatives to Mediterranean destinations during the peak summer period.

Citizenship by Investment: Sustained Demand, Rising Standards

The Caribbean’s citizenship by investment (CBI) programmes — offered by St. Kitts and Nevis, Antigua and Barbuda, Dominica, Grenada, and (in a residency-to-citizenship pathway) St. Lucia — continue to generate a steady and in some cases growing stream of international investment into Caribbean real estate development. The programmes work by offering qualifying foreign nationals a path to citizenship in exchange for a qualifying investment, typically either a direct contribution to a government fund or an investment in an approved real estate development. The real estate route typically requires a minimum investment in the range of USD 200,000 to USD 400,000 depending on the territory, held for a minimum period of five years.

The aggregate economic significance of CBI real estate investment to the Eastern Caribbean cannot be overstated. For small island economies with limited domestic capital markets and restricted access to mainstream international investment flows, the CBI channel provides a mechanism for funding hotel and resort development that would otherwise be extremely difficult to finance. Approved CBI real estate projects — which typically include resort hotels, branded residences, and tourism infrastructure — have collectively contributed hundreds of millions of dollars to Eastern Caribbean development over the past decade. This funding is the difference between development happening and development not happening in many cases, and its economic multiplier effects in construction employment, service sector development, and tourism capacity expansion are substantial.

The CBI sector faces ongoing regulatory scrutiny from international bodies including the OECD, FATF, and the EU, which have concerns about the potential for citizenship programmes to facilitate tax evasion, money laundering, and circumvention of sanctions regimes. These concerns have driven significant improvements in CBI programme due diligence standards over recent years, and the better-managed programmes — particularly in St. Kitts and Antigua — now operate with considerably more rigorous applicant screening than was the case in the sector’s earlier years. The regulatory pressure is unlikely to abate, and Caribbean governments operating CBI programmes will need to continue investing in their compliance and due diligence infrastructure to maintain the programmes’ international legitimacy.

Barbados at a Fiscal Crossroads

Barbados’s fiscal situation has developed through 2017 to a point that demands more than the gradual adjustment that Prime Minister Stuart’s government has been implementing. The IMF’s assessments of Barbados’s debt sustainability — which point to a debt-to-GDP ratio approaching 150 percent and a fiscal deficit that has proven resistant to reduction — paint a picture of an economy that requires more fundamental structural reform than has yet been delivered. The foreign exchange reserves, which provide the buffer for Barbados’s fixed exchange rate peg to the US dollar, have been declining, and maintaining the peg while simultaneously addressing the fiscal deficit represents an increasingly demanding policy challenge.

For Barbados’s property market, the fiscal environment creates a mixed picture. The luxury segment — anchored by the west coast’s internationally recognised premium hotels and villas — is somewhat insulated from domestic fiscal pressures, as its clientele is primarily international and its investment dynamics are driven by global luxury property market trends as much as by Barbadian economic conditions. The domestic segment — mid-market residential, commercial property in Bridgetown, and residential developments catering to Barbadian households — is more directly exposed to the domestic economic environment, and the combination of rising taxes, reduced public spending, and consumer confidence affected by fiscal uncertainty has constrained activity in this segment.

The political context adds a further dimension of uncertainty. A general election must be held in Barbados by early 2018, and the opposition Barbados Labour Party under Mia Mottley is widely regarded as favourably positioned. The prospect of a change of government — and potentially a more decisive turn toward the IMF programme-style structural adjustment that some economists argue Barbados needs — adds a political variable to the market’s assessment of Barbados’s fiscal trajectory. Property investors and developers operating in Barbados are carefully monitoring both the fiscal data and the political signals as they make medium-term planning decisions.

Jamaica’s Construction Pipeline and Property Market

Jamaica’s property construction sector showed sustained momentum through April 2017, with residential development activity proceeding across multiple price points in Greater Kingston and continuing in the north coast resort corridor. The NHT’s active mortgage lending programme provides a steady floor of demand for affordable and middle-market housing, and private sector developers have been responding to this demand with new residential schemes targeted at the NHT-eligible buyer segment. The availability of NHT financing at below-market rates enables developers to price projects at levels that would be difficult to achieve if buyers were dependent exclusively on commercial bank mortgage rates.

Commercial property in Jamaica is also showing encouraging signs. The Kingston waterfront development programme — which has been a government priority for several years and has involved significant infrastructure investment — is beginning to attract private sector commercial interest, with hospitality and entertainment concepts being developed in the waterfront area that could transform a historically underutilised urban asset. The BPO sector’s continued growth is also generating sustained demand for purpose-built office facilities in Kingston and Portmore, with several significant facilities at various stages of development. Jamaica’s overall commercial property market is perhaps the most diversified and active of any smaller Caribbean territory, a reflection of the island’s size, its economic complexity, and its position as a regional business hub.

The resort property pipeline along Jamaica’s north coast continues to advance, with several major hotel development and refurbishment projects in various stages of implementation. The continued development of Moon Palace’s Jamaica properties, alongside ongoing refurbishment and repositioning activity at established resorts, reflects the hotel industry’s confidence in Jamaica’s tourism fundamentals. For resort-adjacent residential property — villas, condominiums, and residential communities within proximity of the major resort zones — this sustained hotel investment activity supports land values and the attractiveness of the broader tourism corridor.

Caribbean Leaders This Month

Jamaica — PM Andrew Holness: Jamaica’s construction and tourism momentum continued under Holness’s stewardship, with the domestic property market maintaining solid activity and the government’s investment promotion agenda generating continued international interest. The NHT’s housing programme remained a cornerstone of the government’s social and economic policy.

Dominican Republic — President Danilo Medina: The DR maintained its regional investment leadership through April, with hotel openings, resort developments, and strong FDI flows all confirming the market’s momentum. Medina’s government continued to provide the stable, investment-friendly policy environment that has made the DR the Caribbean’s pre-eminent property investment destination.

Barbados — PM Fruendel Stuart: Stuart’s government navigated a difficult April period as fiscal pressures mounted and IMF engagement intensified. The property market showed resilience in the luxury segment but continued weakness in the domestic market. The political calendar — with an election approaching — adds uncertainty to the fiscal reform environment.

St. Kitts and Nevis — PM Timothy Harris: Harris’s government continued to manage one of the Caribbean’s most successful CBI programmes, with the sugar plantation and Christophe Harbour developments attracting continued CBI investment. The federation’s fiscal position, buoyed by CBI revenues, remained among the stronger in the Eastern Caribbean.

Antigua and Barbuda — PM Gaston Browne: Browne’s government maintained its active CBI programme, with Jolly Harbour and other approved real estate projects continuing to attract investment. Antigua’s tourism performance in the winter season had been solid, providing a positive backdrop for the hospitality property market.

Guyana — President David Granger: Georgetown’s property market continued to reflect the growing presence of the oil services community, with accommodation and office space demand maintaining upward pressure on rents in quality locations. The Granger government’s fiscal management was supported by the anticipation of future oil revenues, even as the pre-oil economy remained under some pressure.

Trinidad and Tobago — PM Keith Rowley: T&T’s economy continued its gradual stabilisation as oil prices held at levels that provided some fiscal relief, though the structural challenges of diversification and public sector reform remained the defining medium-term policy priorities. The property market remained subdued relative to its pre-austerity peak.

Overall Performer This Month: Jamaica earns recognition this month for the breadth and sustainability of its property market activity — from affordable NHT-financed housing through resort corridor development to commercial property regeneration — reflecting a market with genuine depth and momentum across multiple segments.

Looking Ahead

The Atlantic hurricane season opens on June 1, and the industry will be watching NOAA’s and Colorado State University’s seasonal forecast updates with considerable attention. After Hurricane Matthew in 2016, the Caribbean property sector is sensitised to hurricane risk in a way that may not have been fully reflected in insurance purchasing behaviour in prior years. Property owners, investors, and developers would be well advised to review their coverage comprehensively before the season’s peak activity window of August through October.

Barbados’s fiscal trajectory will be one of the most closely watched developments in the Caribbean over the coming months. The combination of IMF engagement, declining foreign exchange reserves, and the approaching election creates a period of elevated policy uncertainty for the Barbados property market. Investors with significant Barbados exposure would be wise to monitor developments closely and to maintain a clear-eyed assessment of the macroeconomic risks embedded in their Barbados positions.

Caribbean summer tourism will build through May and June toward the July-August peak. The advance booking data suggests a strong season ahead, and the industry will be watching actual arrivals, occupancy, and spending data carefully as the season progresses. For property investors in the resort and villa segments, a strong summer season would provide further validation of the investment thesis and support for asset valuations across the Caribbean’s tourism-dependent markets.

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.

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