Caribbean Property & Investment Review — Edition 104

Publication Date: 3 December 2017  |  Coverage Period: 3 November – 2 December 2017

Morning Briefing

• Jamaica, Barbados and the Dominican Republic are entering the 2017–18 winter high season with exceptionally strong forward booking positions, as international travellers who would normally visit Barbuda, Anguilla, the BVI or the USVI redirect their holiday plans to unaffected southern Caribbean destinations.
• Puerto Rico’s power restoration effort has made progress but the island remains partially without electricity three months after Hurricane Maria’s 20 September landfall — an ongoing humanitarian concern that continues to deter both tourism and investment recovery.
• Insurance claim processing across the storm-affected Caribbean territories is advancing, with early settlements being made in Anguilla and the BVI, but the overall claims process is expected to extend well into 2018 as the full scope of losses is assessed and disputed cases are resolved.
• Barbuda remains effectively uninhabited, with only a small number of residents having returned to assess their properties. The Antigua and Barbuda government faces complex decisions about the terms and timeline of repopulation, with debates ongoing about land tenure, building standards and the island’s governance framework.
• A construction boom is taking shape in the BVI and the USVI, with significant volumes of building materials, heavy equipment and construction workers arriving to begin the rebuilding of homes, hotels and infrastructure.
• The Caribbean property insurance market is approaching 2018 reinsurance renewals with insurers seeking premium increases of 20–50 percent or more for hurricane-exposed properties, with some markets in the most exposed territories facing coverage gaps.

The Unaffected Islands: A Holiday Season Boom

The 2017–18 winter tourism season is shaping up to be one of the strongest on record for the Caribbean’s unaffected destinations — an extraordinary irony given the catastrophic season the region as a whole has endured. Jamaica, Barbados, Trinidad & Tobago, the Dominican Republic, St Lucia, Grenada and other southern and western Caribbean islands are entering December with forward booking volumes that their tourism authorities describe as exceptional, driven in significant measure by the displacement of demand from the devastated northern island destinations.

Jamaica’s tourism sector is particularly bullish. The island’s main resort areas — Montego Bay, Negril and Ocho Rios — are reporting advance bookings for the Christmas and New Year period that represent meaningful improvements on 2016. Hotels and villa complexes across the north coast are operating at or near capacity, and accommodation operators are receiving premium pricing in a market that recognises the relative scarcity of high-quality Caribbean sun-and-sea inventory this winter. The north-coast property market is benefiting from associated uplift, with rentals performing strongly and some owner-investors reporting reduced supply as owners hold rather than offer properties to the short-term rental market in a strong demand environment.

Barbados is having an exceptional start to its winter high season. The island’s luxury villa market on the west and south coasts — which had shown some softness in recent years amid the island’s fiscal challenges — is enjoying renewed vigour as high-net-worth travellers who would previously have gone to Anguilla or the BVI redirect their attention to alternatives. Platinum Coast villa operators are reporting full occupancy through January and February, with some properties commanding rates not seen since the pre-2008 era. Barbados’s property market is benefiting from the resulting owner confidence: several significant west-coast properties that had been listed for sale were quietly withdrawn in November as owners reassessed their capital appreciation prospects.

The Dominican Republic’s all-inclusive resort sector — already the Caribbean’s highest-volume tourism market — is absorbing additional demand with relative ease given its sheer scale of supply. Punta Cana’s resort corridor is reporting strong December bookings, and the destination’s real estate market, which had been performing steadily throughout 2017, is receiving additional attention from investors conscious of the DR’s status as a storm-safe alternative with deep hotel and villa inventory.

Reconstruction Progress: Three Months On

The territories struck by Irma on 6 September — Barbuda, Anguilla, the British Virgin Islands and the US Virgin Islands — are now three months into their recovery. The picture varies significantly by territory. The BVI, which has the advantage of being a prosperous British Overseas Territory with access to UK government support, is in active reconstruction mode. Road Town is being rebuilt, essential services have been partially restored across Tortola, and the financial services sector — which had been operating remotely in the immediate aftermath of the storm — is largely back in function. However, the tourism infrastructure, particularly the marina and charter boat sector, remains severely disrupted, and the island’s hotels are not expected to be receiving visitors at meaningful scale before 2018 at the earliest.

Anguilla’s recovery is progressing, but the island’s luxury tourism economy remains essentially suspended. The high-end villa and resort properties that define Anguilla’s international brand are in various stages of damage assessment, insurance claims and early reconstruction planning. The island’s tourism authority is carefully managing communications with its premium international audience, reassuring regular visitors that Anguilla will return, but being realistic about timelines. A partial reopening for the 2017–18 high season may be possible for some properties, but full capacity will not be reached this winter.

Barbuda remains the territory in the most parlous state three months on. The island is essentially uninhabited — the entire population of approximately 1,800 people remains displaced to Antigua — and the physical rebuilding of even basic infrastructure has barely begun. The political and legal debates about Barbuda’s land tenure system — which vests communal ownership of land in Barbudans collectively — have become intertwined with reconstruction planning in ways that complicate both timelines and external investment. For property investors who had been developing or considering projects on Barbuda, the outlook for return on investment must be measured in years, not months.

Puerto Rico’s power restoration, while improving from the near-total blackout that followed Maria’s 20 September strike, remains incomplete. The island’s tourism industry — its hotels, hospitality businesses and cultural attractions — is beginning to reopen where power and operational capacity allow, with Old San Juan’s heritage district and some major resort properties announcing reopening timelines for early 2018. But the residential and commercial property market is nowhere near normalisation, and the combination of ongoing infrastructure disruption and the pre-existing fiscal crisis continues to weigh heavily on investment confidence.

Insurance Claims and Market Restructuring

The property insurance claims process across the storm-affected Caribbean is advancing, but the scale and complexity of the losses mean that full settlement of the majority of claims is unlikely before mid-2018 at the earliest. In the BVI and Anguilla, where property values are highest and the international insurance market is most directly engaged, claims are in active assessment and some early settlements have been processed. However, the sheer volume of claims — affecting virtually every property on several islands — has overwhelmed the normal claims processing capacity, and many policyholders are experiencing delays that add financial and psychological strain to what is already a highly stressful recovery.

The reinsurance market’s annual renewal negotiations, which take place in January, are expected to result in significant premium increases across Caribbean hurricane-exposed markets. Industry sources are indicating increases of 20 to 50 percent or more for properties in the highest-risk zones, with some of the smaller Eastern Caribbean islands facing the prospect of reduced coverage availability as international reinsurers reconsider their appetite for concentrations of hurricane-exposed risk. For property developers in these markets, the impact on project economics is significant: insurance costs that were already a meaningful component of operating expenses for resort and residential developments will become an even larger burden, potentially making some projects unviable at their original financial assumptions.

Caribbean Leaders This Month

Jamaica enters the holiday season as the unambiguous standout performer in the Caribbean property and tourism market. Strong advance bookings, a robust property transaction pipeline and an investment climate that continues to attract both domestic and international capital position the island well for what promises to be an excellent winter season.

Barbados is experiencing a notable uplift in its luxury villa and boutique hotel market, with west coast properties in particularly high demand. The island’s property market, which had been searching for positive catalysts amid fiscal headwinds, has found one in the redirection of premium Caribbean travel demand post-Irma.

Dominican Republic is deploying its vast resort capacity to absorb displaced Caribbean tourism demand at scale. Several major hotel brands with damaged properties in the northern Caribbean are promoting their DR sister properties to clients who would otherwise be unable to travel to their preferred destination.

St Lucia is having an excellent start to the winter season, with boutique and plantation inn properties reporting strong bookings and several real estate developments on the island’s south coast attracting renewed investment interest.

Grenada is capitalising on increased visitor interest, with its citizenship-by-investment programme continuing to generate real estate investment activity. The island’s positioning as an authentic, hurricane-safe alternative is resonating with a growing segment of Caribbean property seekers.

BVI earns recognition for the pace and determination of its reconstruction effort, even as the territory faces a long road back to economic normalcy. The resilience of the BVI’s business and professional community in maintaining essential financial services operations throughout the crisis has been remarkable.

Dominica, three months after Maria’s near-total destruction, is beginning to show signs of the extraordinary resilience that Caribbean people have demonstrated repeatedly in the face of natural disaster. International aid flows are increasing, and the government’s climate-resilient rebuilding framework is attracting genuine international interest.

Overall regional performer: Jamaica — for delivering a robust market performance in the most challenging regional environment in living memory.

Looking Ahead

As the Caribbean property and investment community prepares to close the books on 2017 — the most catastrophic year in the region’s modern property market history — the task of reconstruction and recovery will dominate the agenda for 2018. The pace of insurance claim settlements, the availability and cost of reconstruction finance, and the willingness of international investors to re-engage with the affected markets will be critical determinants of how quickly the storm-hit territories can begin their return to economic normalcy.

For the unaffected islands, the holiday season boom represents both an opportunity and a responsibility. The opportunity is commercial: a strengthened market position, enhanced brand visibility and improved revenue performance at a critical time. The responsibility is to the wider Caribbean community: to use the season’s good fortune to extend genuine solidarity and practical assistance to the islands still deep in the recovery process.

The 2018 Atlantic hurricane season will open in just six months. The Caribbean’s experience in 2017 has created an urgent imperative to strengthen building codes, improve insurance penetration and develop more resilient infrastructure across the entire region — not just the islands that were struck this year. The work of making the Caribbean more resilient must begin now, while the lessons of 2017 remain vivid and the political will to act is at its strongest.

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.