Caribbean Property & Investment Review — Edition 103

Publication Date: 3 January 2018  |  Coverage Period: 3 December 2017 – 2 January 2018

Morning Briefing

• The Caribbean closes 2017 as the most damaging hurricane year in the region’s recorded history: Hurricanes Irma and Maria — both Category 5 storms — struck the northern and eastern Caribbean in September, causing destruction estimated at well over $200 billion across all affected territories.
• Jamaica, Barbados, the Dominican Republic and other unaffected destinations delivered an outstanding 2017–18 Christmas and New Year holiday season, with occupancy rates, visitor spending and property rental income all posting multi-year highs as displaced demand flowed to the southern Caribbean.
• Puerto Rico ended 2017 still partially without power, four months after Maria’s devastation — a humanitarian failure with deep implications for the island’s property and investment recovery prospects entering 2018.
• Barbuda remained effectively uninhabited at year’s end, with fewer than 100 residents having returned to an island where 95 percent of structures were destroyed by Irma on 6 September. Repopulation timelines remain deeply uncertain.
• The Caribbean property insurance market has entered 2018 reinsurance renewals with premium increases of 25–60 percent being applied to hurricane-exposed properties across the Eastern Caribbean, with some underwriters reducing or withdrawing capacity from the most exposed markets.
• Guyana enters 2018 as the region’s most dynamic growth story, with ExxonMobil’s Stabroek block appraisal programme continuing to expand the country’s confirmed oil resource base and Georgetown’s property market reflecting increasing expatriate and commercial demand.

The Year in Review: 2017 — The Hurricane Year

No assessment of the Caribbean property and investment market in 2017 can begin anywhere other than with the twin catastrophes of Hurricanes Irma and Maria. In the space of two weeks in September — Irma striking on 6 September, Maria on 18–20 September — the Caribbean experienced a concentrated sequence of destruction that has no parallel in the region’s modern history. Two Category 5 hurricanes. Multiple islands devastated. Tens of thousands of properties destroyed or severely damaged. Entire communities displaced. An insurance industry facing claim loads it has never previously been required to bear.

Hurricane Irma — which formed as a tropical depression on 30 August 2017, intensified to Category 5 with sustained winds of 185 miles per hour, and struck the northern Leeward Islands on 6 September — stands among the most powerful Atlantic hurricanes ever recorded by any meteorological measure. Barbuda bore the full force of the storm: 95 percent of all structures on the island were damaged or destroyed, the entire population was evacuated, and the island effectively ceased to exist as a functioning community. Anguilla, the British Virgin Islands and the US Virgin Islands all suffered devastating strikes on the same day. Turks and Caicos followed on 7 September, Cuba on 9 September, and Irma finally reached Florida on 10 September.

Fourteen days later, Hurricane Maria formed, intensified with terrifying speed, and struck Dominica on 18 September 2017 as a Category 5 hurricane. The destruction wrought on Dominica — 90 percent of buildings damaged or destroyed, the island’s entire infrastructure collapsed, Prime Minister Roosevelt Skerrit sheltering in place as his roof was blown away — represented the most devastating single hurricane strike of any Caribbean island in living memory. Maria then tracked northwestward to hit Puerto Rico on 20 September as a Category 4 storm, causing damage estimated at over $90 billion and triggering a humanitarian crisis that the island was still living through at year’s end. The US Virgin Islands, already reeling from Irma, were struck again by Maria on 20 September.

The property market implications of 2017’s hurricane season cannot be overstated. For the directly affected territories, the disruption will be measured in years and decades, not quarters. For the broader Caribbean market, the events of September 2017 have permanently altered the risk calculus for property investment in hurricane-exposed locations, triggering an insurance market restructuring, a reconsideration of building codes and development location choices, and a reassessment by international investors of the risk-return profile of Caribbean real estate.

The Other Story of 2017: Unaffected Islands Flourish

Amid the devastation, it is important to record that 2017 was, for a significant part of the Caribbean, a year of considerable market strength. Jamaica, Barbados, Trinidad & Tobago, the Dominican Republic, St Lucia, Grenada, St Kitts and Nevis, and the unaffected Eastern Caribbean island nations all operated throughout 2017 with tourism and property markets that were unaffected by the September storms.

For Jamaica, 2017 was arguably the island’s best tourism year in a decade. Stopover arrivals grew consistently through the year, the north-coast resort corridor delivered strong occupancy and rate performance, and the property market saw steady transaction volumes supported by National Housing Trust lending and growing private-sector mortgage activity. The Christmas and New Year season that closes 2017 has been exceptional: hotels across Montego Bay, Negril and Ocho Rios are reporting near-capacity occupancy at premium rates, and villa and short-term rental operators are enjoying a market that has never been more favourable. Jamaica enters 2018 in an enviable position within the regional peer group.

Barbados delivered a winter season of remarkable quality given the island’s continuing fiscal challenges. The luxury villa market on the west coast performed strongly throughout the December period, with properties that had languished on the market for extended periods now receiving serious buyer interest as the post-Irma redirection of premium Caribbean travel brought new audiences to the island. The Mottley-led BLP opposition’s polling position as 2017 closes suggests a general election is approaching, with potential implications for the island’s economic management and investor relations that the property market will be watching closely.

Reconstruction Territories: Year-End Assessment

For the four months since the storms, reconstruction progress across the affected territories has been uneven. The BVI has mounted an impressive physical reconstruction effort, with UK government support enabling a pace of rebuilding that is beginning to restore basic functionality to Tortola and the main islands. However, the territory’s tourism economy — centred on sailing and water sports — is not expected to return to meaningful capacity before 2019 at the earliest. The charter boat fleet that was decimated by Irma is being partially rebuilt, but the economics of rebuilding a yacht charter business from zero are challenging, and some operators have exited the market permanently.

Dominica’s reconstruction has been defined by the ambition of the government’s ‘climate-resilient nation’ framework and the gap between that ambition and the resources currently available to realise it. International pledges of support — from the Caribbean Development Bank, the EU, France, the UK and others — are being translated into disbursements at an inevitably bureaucratic pace, while the need on the ground is urgent. The island’s citizenry have demonstrated extraordinary resilience in the face of total disruption to the normal patterns of life, and the government’s determination to rebuild better rather than simply restore what was lost is a commendable long-term aspiration that comes with significant short-term costs.

Puerto Rico ends 2017 in a condition that reflects both the scale of Maria’s physical destruction and the pre-existing structural weaknesses of the island’s governance and infrastructure management. Partial power restoration has been achieved in San Juan and other urban centres, but rural communities across the island continue to live without reliable electricity four months after the storm. The population exodus that had already been depleting Puerto Rico’s demographic and economic base before Maria has accelerated dramatically, with estimates of net migration to the US mainland since the storm running into the tens of thousands. This demographic haemorrhage compounds the already severe challenge of economic recovery and property market normalisation.

Caribbean Leaders This Month

Jamaica closes 2017 as the undisputed regional market leader, delivering a Christmas and New Year season of exceptional quality across its tourism and property sectors. The island’s market breadth — luxury villas, all-inclusive resorts, urban commercial property and affordable residential — provides a resilience that no other Caribbean market can match.

Barbados delivered a strong December performance that has reinforced the island’s position as the premier luxury destination in the southern Caribbean. The political calendar — with a general election due by May 2018 — adds a note of uncertainty, but the property market fundamentals remain sound.

Dominican Republic consolidated its position as the Caribbean’s highest-volume tourism and real estate market, absorbing displaced visitor demand from the storm-affected islands without any apparent strain on its vast resort and accommodation capacity.

Guyana enters 2018 as the Caribbean’s most exciting investment story, with oil sector development momentum generating commercial and residential property demand in Georgetown that the market is only beginning to satisfy. First oil remains a 2020 horizon, but the investment build-up is happening now.

Trinidad & Tobago delivered a steadier if less spectacular performance, with the Carnival season approaching and some improvement in energy revenue providing modest macroeconomic relief. Port of Spain’s commercial market remains soft, but the residential sector held up through the year.

St Lucia and Grenada both delivered strong years, benefiting from citizenship-by-investment real estate activity and growing visitor arrivals. Both islands are well-positioned for continued growth in 2018.

BVI receives recognition for its extraordinary resilience and the determination of its reconstruction effort — a territory that was essentially destroyed in September is fighting its way back with remarkable tenacity.

Overall regional performer: Jamaica — for delivering the Caribbean’s most consistently strong property and tourism market performance across an extraordinarily difficult year for the region.

Looking Ahead to 2018

The Caribbean property and investment market enters 2018 carrying the legacy of 2017’s extraordinary events. For the reconstruction territories, the year ahead will be dominated by the pace of insurance claim settlements, the availability of reconstruction finance and the effectiveness of international support programmes in translating pledges into physical rebuilding. The question of whether Barbuda can be repopulated, whether Dominica can rebuild to the climate-resilient standard the government has committed to, and whether Puerto Rico’s power and infrastructure can be fully restored within a reasonable timeframe will be among the defining stories of 2018.

For the unaffected islands, 2018 begins with considerable momentum. Strong winter season bookings, improved investor sentiment and — in several markets — the tailwind of diverted tourism demand from the devastated northern Caribbean create a favourable backdrop. The Barbados general election, due by May 2018, is the most significant single political event on the regional calendar, with potential implications for the island’s economic policy direction and investor relations.

The 2018 Atlantic hurricane season, which opens on 1 June, will be approached with an anxiety that has no precedent in recent Caribbean history. The industry and governments across the region must use the six months between now and June 1 to strengthen building codes, improve insurance penetration, and invest in the physical and institutional infrastructure of resilience. The Caribbean cannot afford another September 2017.

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.