Caribbean Property & Investment Review

Publication Date: 3 July 2018  |  Coverage Period: 3 June – 2 July 2018

Morning Briefing

• Barbados PM Mia Mottley, elected May 24, signals bold fiscal reform agenda and opens dialogue with the IMF as Barbados seeks a path out of its debt crisis
• ExxonMobil’s Liza Phase 1 project in Guyana’s Stabroek Block advances on schedule; first oil now widely anticipated by end of 2019, triggering a wave of speculative property interest in Georgetown
• Post-Irma reconstruction in the BVI proceeds cautiously; luxury villa operators report partial reopenings but full capacity remains months away for the most-affected estates
• Jamaica’s north coast hotel pipeline registers record forward bookings for the summer season, with several all-inclusive expansions completing construction phases
• Dominican Republic logs another quarter of double-digit tourism revenue growth, underpinning strong demand for beachfront and resort-adjacent residential property
• The US Federal Reserve’s rate-hiking cycle — three increases since January 2018, benchmark now at 2.0% — is beginning to filter through to Caribbean mortgage pricing, adding headwinds for first-time buyers

Barbados: A New Chapter Opens Under Mottley

Barely six weeks into office, Prime Minister Mia Amor Mottley is already rewriting the terms of debate about Barbados’s economic future. After years of fiscal drift under the previous administration, the new Barbados Labour Party government inherited a country with foreign reserves critically depleted, a debt-to-GDP ratio hovering near 175%, and a sovereign credit rating in junk territory. Mottley moved immediately, signalling to the IMF that Barbados was ready for a programme and beginning the hard internal work of identifying spending reductions and revenue measures that would allow the country to stabilise without social collapse.

For property investors, the immediate question is what this period of reform means for the West Coast luxury market that has long been Barbados’s flagship offering. The answer, for now, is cautious optimism. Mottley’s government has been careful to signal that Barbados remains open for business and that the rule of law and property rights that underpin the luxury market are non-negotiable. Several high-profile villa transactions on the Platinum Coast proceeded through June, suggesting that ultra-high-net-worth buyers see the reform programme as a positive rather than a negative development.

The bigger risk for the Barbados property market is the broader fiscal tightening that must accompany any IMF programme. If public sector wages are frozen, if the national insurance fund comes under pressure, and if credit conditions tighten, domestic demand for mid-market housing could soften. Barbados has a substantial local professional class that drives demand for the $300,000–$700,000 residential segment, and any sustained squeeze on disposable income would show up in transaction volumes. Investors in that segment are advised to monitor the IMF programme negotiations carefully through the coming months.

Guyana: Property Market Awakens to the Oil Era

ExxonMobil’s Stabroek Block development is not simply a story about oil production; it is a story about economic transformation on a scale that the Caribbean has rarely witnessed. With Liza Phase 1 construction well advanced and first oil targeted for late 2019, Georgetown is experiencing what can only be described as a pre-boom property surge. Commercial rents in the central business district have risen sharply over the past twelve months as international oil-service companies, consultancies, legal firms and engineering contractors establish Guyana presences. Demand for serviced office space has outstripped supply, and several purpose-built developments are now under construction to meet the shortfall.

The residential market tells a similar story. Expatriate housing demand — particularly for secure, well-appointed properties in East Bank Demerara and the newer gated communities on the outskirts of Georgetown — is driving rents to levels that surprise long-term residents. Properties that rented for US$1,500 per month two years ago are now achieving $2,800–$3,500, and landlords with well-maintained stock in desirable locations are reporting vacancy rates close to zero. This rental yield environment is beginning to attract serious attention from Trinidadian and Barbadian investors who understand the Caribbean property market well but are newer to Guyana.

Caution is nonetheless warranted. Guyana’s oil wealth remains prospective at scale; Liza Phase 1 will produce around 120,000 barrels per day — substantial, but not yet the transformative numbers that come with Phase 2 and Payara. Infrastructure investment by the government has been modest relative to the opportunity. Roads, utilities and flood-control systems in Greater Georgetown remain challenged. Investors buying into the pre-boom phase are taking a risk on execution — that both the oil development and the government’s capacity to manage revenues and infrastructure meet expectations. Those with the appropriate risk appetite and a five-to-ten year horizon, however, are finding Guyana among the most compelling emerging property stories in the Americas.

Post-Irma Recovery: BVI, Anguilla and Barbuda Nine Months On

Nine months after Hurricane Irma scoured the northern Leeward Islands on September 6, 2017, the reconstruction picture is uneven and, in places, painfully slow. The British Virgin Islands has made the most visible progress, reflecting both the scale of international insurance payouts and the organisational capacity of a well-established financial centre with strong legal and professional infrastructure. Several of the BVI’s flagship luxury villa estates — properties whose rebuilding bills ran to tens of millions of dollars — have completed or are close to completing reconstruction, and some are reopening for the first time since the storm. Forward bookings for the 2018–19 winter season are beginning to come in, cautiously.

Anguilla’s recovery has been steadier than feared. The island’s small population and tight-knit community, combined with strong diaspora support and targeted government assistance, has allowed substantial residential rebuilding. The luxury end of the market — Cap Juluca, Belmond Cap Juluca, and the ultra-premium villa sector — has benefited from determined ownership groups willing to fund reconstruction at pace. Anguilla tourism is expected to approach pre-Irma levels by the 2018–19 high season.

Barbuda presents the starkest case. The island, which sustained destruction of roughly 95% of its building stock, remains in an early reconstruction phase. Fundamental questions about land tenure — Barbuda operates under a communal land system distinct from Antigua’s freehold market — have complicated private investment. The Barbudan people, evacuated almost entirely in Irma’s aftermath, have been returning gradually, but the physical rebuilding of the island’s housing and infrastructure is a generational project, not a quarterly one. Investors who have examined Barbuda land opportunities are advised that any returns from such investments lie many years away and depend on policy choices not yet fully determined.

Rising US Rates: The Headwind Caribbean Mortgage Markets Cannot Ignore

The Federal Reserve’s determined rate-hiking cycle is beginning to create real headwinds for Caribbean property markets. With the Fed funds rate having moved from 1.25% in mid-2017 to 2.0% by June 2018 — with further increases widely expected — the era of historically cheap money that has supported Caribbean property values for most of the decade is drawing to a close. Caribbean commercial banks, which access US dollar wholesale funding and price many mortgages off US benchmarks, are transmitting these increases to borrowers with increasing directness.

In Jamaica, where the Bank of Jamaica has been engaged in its own monetary normalisation, mortgage rates for qualifying borrowers now sit in the 8.5%–10% range for Jamaican dollar loans, and the National Housing Trust — the critical vehicle for affordable homeownership — has had to balance its mandate with the realities of rising funding costs. The NHT’s lower-rate offerings remain the primary route to homeownership for middle-income Jamaicans, but the organisation’s capacity is finite relative to demand.

Across the Eastern Caribbean, where many mortgage markets are dollarised and directly tied to US rates, the compression of purchasing power has been more acute. Buyers who qualified for properties at 2016–17 interest rate levels may find that qualification thresholds have moved against them. First-time buyers are most exposed: they tend to borrow at higher loan-to-value ratios, have less flexibility to absorb higher monthly payments, and are more dependent on the gap between achievable mortgage amounts and entry-level property prices — a gap that rising rates narrow. Regional lenders are watching delinquency data carefully for early signals of stress.

Caribbean Leaders This Month

Jamaica (North Coast Hotels): The north coast hotel and resort market is the standout performer of June 2018. Record forward bookings, aided by diverted Caribbean tourist flows and aggressive destination marketing by the Jamaica Tourist Board, have filled capacity to levels not seen since pre-2017. Construction activity at new resort projects is creating secondary property demand in Trelawny and Portland.

Dominican Republic: The DR continues to draw investor capital at a pace that sets it apart from the rest of the Caribbean. A combination of geographic scale, infrastructure investment, competitive tax incentives for tourism development, and political stability has produced an investment environment that attracts not just regional capital but significant European and North American FDI. Punta Cana and Cap Cana remain the marquee addresses, but Las Galeras and Samaná are emerging as the next frontier.

Guyana (Georgetown Commercial): Georgetown’s commercial property sector is the fastest-moving market in the region. Pre-oil-boom demand is creating rental yields that are attracting investors willing to absorb the frontier-market risks of a country at the beginning of its oil transformation. Those already positioned are seeing returns that justify the early entry risk.

Cayman Islands: Seven Mile Beach continues to set new per-square-foot records for luxury residential sales. Grand Cayman has benefited from BVI wealth seeking a more secure comparable address post-Irma; several notable acquisitions in June reflected this reallocation of ultra-high-net-worth Caribbean property holdings.

St Lucia: The citizenship-by-investment programme is driving steady villa and boutique hotel investment, particularly in the Soufrière and Cap Estate areas. St Lucia has avoided the worst Irma disruption and is positioning as a beneficiary of reconstruction-era investment flows.

Barbados (Platinum Coast): Despite — or perhaps because of — the political transition, the Platinum Coast luxury market has been active in June. Several significant villa transactions completed as high-net-worth buyers assessed the Mottley reform agenda and concluded the fundamentals remain intact.

Trinidad (Port of Spain Commercial): Trinidad’s commercial property market shows the first tentative signs of recovery after several difficult years of adjustment to lower oil prices. Some speculative development has returned to the Port of Spain fringe areas, though the market remains cautious.

Overall June 2018 Performer: The Dominican Republic takes the overall award for June. Consistent investment flows, expanding hotel development pipeline, and growing international recognition as a prime Caribbean destination continue to deliver returns across the residential, commercial and hospitality property spectrum.

Looking Ahead

The Caribbean property market enters the second half of 2018 with a fundamentally more constructive outlook than the same point last year, when the region was still absorbing the psychological shock of the 2017 hurricane season. The unaffected islands are performing strongly. The affected islands are — at varying speeds — rebuilding. The question for investors is whether this rebuilding momentum, combined with Guyana’s emerging oil story and Barbados’s reform narrative, can outweigh the headwinds from rising US interest rates and elevated construction costs.

The IMF negotiations in Barbados are the single most consequential political-economy event to watch in the coming months. An agreement would signal a watershed moment for Caribbean economic governance and would likely trigger an upgrade in investor sentiment toward Barbados property that has been lacking since the country’s credit rating deteriorated. How quickly a deal is struck, and on what terms, will tell investors a great deal about the Mottley government’s capacity to deliver on its ambitious reform programme.

Hurricane season is entering its peak months. The 2018 Atlantic season is forecast to be below normal — a modest but meaningful comfort after 2017. Caribbean investors and developers are watching the tropics more carefully than ever, and insurance arrangements, building standards and property resilience are commanding attention they did not always receive in pre-Maria years. The best-prepared markets, those that build back stronger and insure more comprehensively, will be best positioned for the long term regardless of what the season brings.

The Caribbean Property & Investment Review is published monthly for professional investors and property practitioners. All market data reflects conditions as at the coverage period end date. This publication does not constitute investment advice.

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