Caribbean Property & Investment Review — Edition 106

Publication Date: 3 October 2017  |  Coverage Period: 3 September – 2 October 2017

Morning Briefing

• Hurricane Irma — one of the most powerful Atlantic hurricanes ever recorded, with sustained winds of 185 mph — struck Barbuda, Anguilla, the British Virgin Islands and the US Virgin Islands on 6 September 2017, causing catastrophic destruction across the northern Leeward Islands and the Virgin Islands chain.
• Hurricane Maria, a second Category 5 storm forming just days after Irma, struck Dominica on 18 September 2017 with almost total devastation — 90 percent of buildings destroyed — before battering Puerto Rico on 20 September causing damage estimated at more than $90 billion.
• Barbuda suffered near-total structural destruction on 6 September — 95 percent of all structures damaged or destroyed — and the entire population of approximately 1,800 people has been evacuated to Antigua. The island is essentially uninhabitable.
• Puerto Rico faces a humanitarian crisis of extraordinary severity: power is out across almost the entire island, water systems are disrupted, food supply chains are broken, and the Federal Emergency Management Agency is managing a response of historic scale.
• The Caribbean property insurance market faces claims that will likely run to tens of billions of dollars — the largest single-season loss event in the region’s history — and questions are already being asked about insurers’ capacity to pay and the adequacy of coverage held by property owners across the affected islands.
• Unaffected islands including Jamaica, Barbados, Trinidad & Tobago and the Dominican Republic are receiving emergency assistance requests and are bracing for a potential surge in tourists diverted from the devastated northern Caribbean destinations.

Hurricane Irma: Catastrophe Across the Northern Leeward Islands

Hurricane Irma made its devastating passage through the Caribbean’s northern Leeward Islands on 6 September 2017, leaving destruction on a scale that has left experienced disaster-response professionals and property market analysts struggling to find adequate language. Irma, which had intensified to Category 5 status with sustained winds of 185 miles per hour — making it one of the strongest Atlantic hurricanes ever recorded — struck a series of islands that, combined, represent some of the most valuable real estate in the entire Caribbean basin.

Barbuda bore the initial and most complete devastation. The storm struck the island directly and with unrelenting ferocity, and preliminary assessments conducted in the days following indicate that approximately 95 percent of all structures — residential, commercial, government and tourism — were damaged or destroyed. The entire population of approximately 1,800 Barbudans has been evacuated to sister island Antigua. The infrastructure of the island — roads, utilities, water systems, communications — has been comprehensively destroyed. Barbuda’s tourism industry, anchored by the exclusive Barbuda Belle and the celebrity-magnet K Club, faces an existential rebuilding challenge. The island’s real estate market, which had attracted significant foreign buyer interest for beachfront villa development, is effectively suspended indefinitely.

Anguilla, which Irma also struck on 6 September, suffered severe structural damage to property across the island. Anguilla’s high-value luxury villa market — one of the most exclusive in the Caribbean, attracting ultra-high-net-worth buyers who favour the island’s low-density, privacy-focused character — sustained significant losses. Several of the island’s landmark properties, including resort complexes on the island’s famously pristine beaches, were heavily damaged. The immediate economic impact has been devastating: Anguilla’s tourism-dependent economy will effectively be shut down for an extended period as the island undertakes the enormous task of reconstruction.

The British Virgin Islands suffered what local officials have described as catastrophic damage on 6 September. Road Town, the capital on Tortola, sustained widespread destruction. The BVI’s sailing and charter boat industry — the beating economic heart of the territory, hosting one of the Caribbean’s largest charter fleets — was decimated, with hundreds of vessels either sunk, severely damaged or driven ashore. The territory’s marina infrastructure, which underpins a multi-million dollar tourism economy, will require years of reconstruction. The residential and villa property market, which had attracted consistent investment from UK and European buyers drawn by the territory’s combination of natural beauty and British legal system, faces a prolonged period of disruption as property owners assess damage, pursue insurance claims and make decisions about reconstruction or sale.

The US Virgin Islands — St Thomas and St John in particular — also suffered severe damage when Irma passed directly over on 6 September. The US territory’s cruise ship infrastructure, which serves as the economic anchor of the island chain, sustained substantial damage. Hotels, resorts and villa complexes across both islands were significantly affected. The USVI, notably, would be struck again just two weeks later when Hurricane Maria tracked across the already-devastated islands.

Irma went on to strike Turks and Caicos on 7 September, Cuba on 9 September, and finally made landfall in Florida on 10 September — but it is the Caribbean islands struck on 6 September that will bear the most enduring scars of this extraordinary storm.

Hurricane Maria: Dominica Destroyed, Puerto Rico in Crisis

Before the Caribbean had barely begun to comprehend the scale of Irma’s destruction, a second catastrophic hurricane was forming in the Atlantic. Hurricane Maria, which developed to Category 5 intensity in the warm waters of the central Atlantic, struck the island of Dominica on 18 September 2017 with a ferocity that locals described as unlike anything in living memory — an assessment that devastating data now confirms. Approximately 90 percent of buildings on the island were destroyed or severely damaged. Prime Minister Roosevelt Skerrit, sheltering in place during the storm as conditions outside made movement impossible, reported to the world via social media that the roof of his residence had been blown away even as he posted — a moment of raw, real-time horror that conveyed the reality of the storm better than any official report.

Dominica, a relatively modest-sized island of approximately 72,000 people, had been developing a promising ecotourism and property investment sector built on its extraordinary natural environment — lush rainforest, volcanic hot springs, and some of the most dramatic scenery in the Eastern Caribbean. The island had also launched a citizenship-by-investment programme that was beginning to generate real estate development activity in the hills above Roseau and along the coast. All of that development momentum has been utterly suspended. The immediate priorities are entirely humanitarian: search and rescue, food, water, shelter and medical care for a population that has, in the most meaningful sense, lost almost everything. The economic and property market consequences are secondary — but they are profound, and they will persist for years.

Maria then tracked northwest and made landfall in Puerto Rico on 20 September as a Category 4 hurricane, hitting an island of 3.4 million people that was already in severe fiscal distress following years of economic contraction and a debt crisis that had left the Puerto Rico Electric Power Authority unable to maintain its infrastructure adequately. The consequences have been catastrophic. The power grid — fragile before Maria arrived — has been essentially destroyed, and as this edition goes to press, the island is operating in near-total darkness. Water treatment plants cannot function without power; food supply chains have broken down; hospitals are operating on emergency generators. Federal authorities estimate that restoring power across the island may take months. The property damage alone has been estimated at over $90 billion, placing Puerto Rico’s Maria recovery alongside the most costly natural disasters in US history.

The US Virgin Islands, already severely damaged by Irma on 6 September, were struck again by Maria on 20 September. The compounded damage across St Croix, St Thomas and St John is extensive, and the humanitarian and economic challenges facing the territory are immense.

Insurance Implications: An Industry-Defining Event

The Caribbean property insurance industry has never faced anything like the combined claims burden that Irma and Maria will generate. Initial industry estimates — which all analysts caution are preliminary and likely to be revised upward as full damage assessments are completed — point to insured losses across the Caribbean and Florida from Irma alone exceeding $50 billion, with Maria adding many additional billions on top. For context, this is a claims event that rivals or surpasses anything in the history of Caribbean property insurance, and it arrives at a moment when the regional insurance market was already grappling with questions about pricing adequacy in a period of elevated risk.

For individual property owners across the affected islands, the immediate priority is the submission of insurance claims — but the process will not be simple or quick. Claims adjusters are overwhelmed across the region; some are themselves dealing with damage to their own homes and offices. Reinsurance arrangements — which determine how ultimate losses are distributed across the global insurance industry — will be tested at levels they have not previously been required to bear in the Caribbean context. Lloyd’s of London and the major Bermuda-domiciled reinsurers are understood to be facing significant exposure.

A particular concern for the Caribbean market is the question of underinsurance and non-insurance. Across the region, a significant proportion of residential properties — particularly in lower-income communities — are uninsured or insured for less than their full replacement value. In Dominica and Barbuda, where the destruction has been essentially comprehensive, the social and economic consequences of uninsured property loss will be severe and long-lasting. Reconstruction will depend heavily on government assistance, international aid and bilateral support rather than on insurance payouts.

Caribbean Leaders This Month

Jamaica has emerged as one of the region’s critical support hubs during this extraordinary crisis. The island, which was not significantly affected by either Irma or Maria at hurricane force, has mobilised emergency supplies, offered logistical assistance and opened its facilities to those displaced from affected islands. Jamaica’s property market and tourism sector continue to operate normally, and the island is expected to benefit from diverted visitor flows as travellers who would have gone to the BVI, USVI or Barbuda seek alternative destinations.

Barbados, similarly unaffected by the storms, has positioned itself as a key staging ground for regional relief efforts. The Grantley Adams International Airport handled significant volumes of emergency flights during and after both storms. Barbados’s property and tourism markets remain intact, and forward bookings for the winter season are being maintained — though hoteliers note some anxiety from prospective visitors uncertain about which Caribbean islands have been affected.

Dominican Republic was largely spared from hurricane-force impacts from both Irma and Maria, and its tourism and property markets are continuing to operate. The DR is likely to see substantial visitor volume gains as tourists seek mainland Caribbean alternatives to the devastated island destinations of the north.

Trinidad & Tobago, south of the main storm tracks and essentially unaffected, continues its steady if unspectacular market performance. The country has made its emergency services available to regional relief efforts.

Antigua has performed an extraordinary act of regional solidarity by absorbing the entire evacuated population of Barbuda — approximately 1,800 people — in the aftermath of Irma. The economic and logistical strain this has placed on the twin-island state should not be underestimated, and the island will require international support to manage this ongoing humanitarian responsibility.

Dominica stands as this month’s stricken market, a designation that carries no criticism — only recognition of the extraordinary catastrophe this nation has endured. With 90 percent of its buildings destroyed, Dominica faces a reconstruction challenge that will define its next decade. The resilience and determination of the Dominican people will be tested as never before.

Puerto Rico’s property and investment market faces a crisis that is simultaneously humanitarian, economic and political. The island’s pre-existing fiscal collapse — under PROMESA oversight, with $70 billion in public debt — means the federal government and international community will effectively be funding reconstruction for years, and the pace of that reconstruction will shape the island’s investment attractiveness for a generation.

Overall regional observation: There is no ‘performer’ to celebrate this month. The Caribbean has endured its worst natural disaster in living memory. The unaffected islands must lead the recovery effort with generosity and solidarity.

Looking Ahead

The Caribbean property and investment landscape has been fundamentally reshaped by the events of September 2017. The months ahead will be defined by the pace of reconstruction across Barbuda, the BVI, the USVI, Anguilla and — most challengingly — Dominica and Puerto Rico. International aid commitments, insurance claim settlements and the availability of reconstruction finance will determine how quickly these islands can begin the journey back to economic functionality, let alone to the vibrant markets they were before the storms.

For property investors across the wider Caribbean, the September 2017 events will inevitably sharpen focus on hurricane risk assessment and insurance adequacy. The question of whether properties in high-risk hurricane zones are genuinely insured for their full replacement value — and whether the insurers holding those policies have sufficient reinsurance backing to actually pay claims at scale — will receive urgent attention. Premium increases across the entire Caribbean market are now essentially certain, and some insurers may withdraw from the most exposed markets entirely.

The 2017 Atlantic hurricane season formally continues until 30 November. While the statistical probability of further major Caribbean strikes diminishes as the season progresses, the extraordinary events of September serve as a reminder that the Caribbean’s greatest investment risk remains its climate exposure. Those who build and invest in this region must do so with that risk at the centre of their planning — not as a footnote.

The Caribbean Property & Investment Review is published monthly. All market data reflect conditions during the stated coverage period. This publication does not constitute financial, legal or investment advice. Readers should seek independent professional guidance before making property or investment decisions.