Caribbean Property & Investment Review — Edition 102

Publication Date: 3 February 2018  |  Coverage Period: 3 January – 2 February 2018

Morning Briefing

• Jamaica’s winter 2017–18 season is delivering record performance across both its tourism and residential property markets, with north-coast resort occupancy at multi-year highs and transaction volumes in the residential sector maintaining a strong pace heading into the February peak period.
• Barbuda remains effectively evacuated four months after Hurricane Irma’s catastrophic 6 September strike destroyed 95 percent of the island’s structures. The political and practical debate over repopulation continues within the Antigua and Barbuda government with no definitive timeline established.
• Insurance premium increases of 30–60 percent are being applied to hurricane-exposed Eastern Caribbean properties at the January 2018 reinsurance renewal, with some specialist underwriters reducing or withdrawing capacity from the most exposed island markets.
• Puerto Rico’s power restoration continues, with grid coverage in urban areas improving but many rural communities still experiencing outages more than four months after Maria’s 20 September landfall. The island’s population decline has accelerated sharply as residents relocate to the US mainland.
• Barbados’s property market is enjoying an exceptional winter season, with luxury west-coast villa properties reporting strong inquiry and transaction activity driven by the redirection of premium Caribbean buyer demand from storm-affected northern islands.
• The Caribbean Development Bank has approved a series of reconstruction loan facilities for storm-affected territories, providing initial financing for infrastructure and housing rebuilding programmes in Dominica and Anguilla.

Jamaica: A Winter Season of Record Strength

Jamaica’s tourism and property market entered February 2018 in a condition that can only be described as exceptional. The winter high season, which traditionally runs from December through April, is delivering performance metrics that most operators had not seen since before the 2008 global financial crisis. Hotel occupancy rates across the north-coast resort corridor — Montego Bay, Negril, Ocho Rios and the adjacent south coast — have been running at levels that leave properties with little discretionary inventory to sell, and room rates have responded accordingly with meaningful year-on-year gains.

The villa and short-term rental market is arguably performing even more strongly than the hotel sector. The displacement of luxury Caribbean travel demand from storm-devastated Anguilla and the British Virgin Islands has brought a cohort of premium visitors to Jamaica who would historically have chosen those ultra-exclusive northern island alternatives. These visitors — high-net-worth, typically repeat Caribbean travellers now discovering Jamaica’s north coast for the first time — are generating villa rental revenues that exceed prior-year comparisons by significant margins, and a meaningful proportion of them are making real estate inquiries during their stays.

The National Housing Trust continues to be the backbone of Jamaica’s residential mortgage market, maintaining its lending programme at pace and supporting first-time buyer demand across the mid-market price band. Private-sector lenders have also been active, with several of Jamaica’s commercial banks competing aggressively for mortgage business in a market where forward indicators remain positive. Construction of new residential communities — particularly in Portmore, Clarendon and the expanding suburban belt around Kingston — is continuing at a rate that speaks to developer confidence in underlying demand.

The Insurance Market: Repricing Caribbean Risk

The January 2018 reinsurance renewal — the annual process by which property insurers renew their risk transfer arrangements with the global reinsurance market — has delivered the price signals that the industry had been anticipating since the September storms. Across the Caribbean, property insurance premiums for hurricane-exposed locations are rising significantly. The increases are most acute for properties in the Eastern Caribbean’s ‘hurricane alley’ — the arc of islands from the Leeward Islands through the Windwards — where the combined claims experience of Irma and Maria has fundamentally repriced the market’s assessment of expected annual losses.

For property owners in the BVI, Anguilla and the US Virgin Islands who are rebuilding damaged properties, the insurance situation is particularly challenging. Insurers who are processing claims on one hand are simultaneously repricing coverage on the other, and the renewal terms being offered to reconstruction-phase properties in these high-risk markets are materially more expensive than pre-storm cover. Some property owners have reported difficulty obtaining comprehensive coverage at any price, particularly for properties in locations that were most severely damaged — a dynamic that raises serious questions about the long-term insurance economics of development in the most exposed hurricane locations.

Across the broader Caribbean market, including the unaffected islands, property insurance premiums are rising by lesser but still material amounts as global reinsurance capacity reprices Caribbean catastrophe risk in aggregate. Jamaica, Barbados and Trinidad & Tobago property owners are not immune from this trend: their insurers purchase reinsurance from the same global markets that are repricing Eastern Caribbean exposure, and the cost of that reinsurance is rising for all Caribbean books of business. The implications for property development economics across the region are significant, as higher insurance costs must either be absorbed by developers and investors or passed through to tenants and buyers.

Reconstruction Update: BVI, Dominica, Puerto Rico and Barbuda

The British Virgin Islands’ reconstruction effort, now four months in, has made meaningful progress in restoring essential services and beginning the physical rebuilding of the territory’s residential and commercial stock. UK government funding has underpinned a substantial construction mobilisation, and the territory’s financial services sector — the other pillar of the BVI economy alongside tourism — has maintained operational continuity through the crisis. However, the tourism economy remains far from restored: the charter boat industry that defines the BVI experience is operating at a fraction of pre-storm capacity, and the hotels and villas that would normally be receiving the peak winter season are still in various stages of repair and insurance settlement.

Dominica’s reconstruction is advancing on the framework of the government’s climate-resilient nation strategy, with international partners providing both technical and financial support for a rebuilding programme that aims to produce stronger structures, more resilient infrastructure and better-designed communities than existed before Maria struck on 18 September. The citizenship-by-investment programme is being promoted internationally as a mechanism for funding reconstruction, with the government offering a donation track to the National Transformation Fund as an alternative to the traditional real estate investment route. This creative use of the CBI framework is attracting interest from the international market and providing a meaningful income stream for the reconstruction effort.

In Puerto Rico, the slow and uneven pace of power restoration continues to be the central challenge for both the humanitarian situation and economic recovery. FEMA and the Army Corps of Engineers are working to restore grid functionality, but the pre-existing deterioration of the Puerto Rico Electric Power Authority’s infrastructure means that restoration is more complicated than a simple repair exercise. Many rural communities across the island’s mountainous interior remain without grid power four months after Maria, relying on diesel generators where available. The implications for the property market are severe: commercial tenants cannot operate without reliable power, residential values in affected communities are depressed, and the population flight to the US mainland continues to accelerate.

Caribbean Leaders This Month

Jamaica continues as the regional standout performer, with its winter season record performance confirming the island’s status as the most resilient and diverse Caribbean market. The combination of strong tourism demand, robust National Housing Trust lending activity and continued commercial real estate investment makes Jamaica the obvious regional leader at this point in the cycle.

Barbados is delivering an exceptionally strong winter season, with the luxury villa market in particular benefiting from displaced premium demand. The approaching general election — due by May 2018 — is adding political interest to an already active market, with investors monitoring the campaign closely for signals about the economic policy direction of a potential Mottley-led BLP government.

Dominican Republic is maintaining its position as the Caribbean’s volume tourism and real estate powerhouse, with the Punta Cana corridor continuing to absorb additional demand without strain. Several new branded resort properties opened or advanced through construction during the coverage period.

Guyana continues its steady oil-sector-driven investment build-up, with Georgetown’s commercial property market remaining active and several mixed-use development projects advancing through planning. The country’s profile as a regional investment destination continues to rise in international capital market circles.

Trinidad & Tobago is in Carnival preparation mode, with the February Carnival season generating significant short-term accommodation demand and providing a seasonal boost to the island’s hospitality economy. The Port of Spain commercial market remains steady if unspectacular.

St Kitts and Nevis earns recognition this month for the continued strong performance of its citizenship-by-investment programme, which continues to generate consistent real estate investment into a market that would otherwise be too small to attract significant international attention.

BVI continues to be recognised for its determination and pace of reconstruction. The territory’s financial services community has demonstrated extraordinary resilience in maintaining operational continuity, and the physical rebuilding of the island is proceeding at a rate that gives grounds for cautious optimism about a partial tourism reopening later in 2018.

Overall regional performer: Jamaica — for delivering the Caribbean’s most robust market performance across every segment of the property and tourism economy.

Looking Ahead

The Caribbean property market’s 2018 narrative is being written on two very different tracks simultaneously. The reconstruction track — dominated by the BVI, USVI, Anguilla, Barbuda, Dominica and Puerto Rico — will be defined by insurance settlement progress, reconstruction finance availability and the effectiveness of government-led rebuilding programmes. The performance track — led by Jamaica, Barbados, the Dominican Republic and the southern Eastern Caribbean — will be shaped by the continuation of the diverted tourism demand tailwind and the underlying strength of each market’s fundamentals.

The Barbados general election, which must be called by May 2018, is emerging as the region’s most closely watched political event of the year. The Mottley-led BLP opposition has maintained a strong polling lead over the Stuart DLP government, and the business community is attentive to the economic policy signals coming from both campaigns. The outcome will have implications for Barbados’s fiscal trajectory, its relationship with the IMF, and the investment climate that has been gradually improving despite ongoing fiscal challenges.

The approach of the 2018 hurricane season — now just four months away — is beginning to feature in risk discussions across the Caribbean investment community. The region’s experience in 2017 has fundamentally altered the way that investors, developers, lenders and insurers think about hurricane risk, and the structural changes in insurance pricing that are now being implemented will reshape property development economics across the entire Eastern Caribbean for years to come.

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.