Caribbean Property & Investment Review

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

Morning Briefing

• Caribbean summer tourism achieves its strongest July performance in years as travellers pivot away from still-recovering Irma-affected islands toward Jamaica, Dominican Republic, Barbados and the Cayman Islands
• Barbados Prime Minister Mia Mottley’s government, now two months in office, is advancing IMF consultations with an urgency that signals a programme agreement could be reached before year-end
• BVI luxury villa market sees first reopenings of flagship Irma-damaged properties; operators report strong advance bookings from loyal clientele eager to return to the territory
• Dominica’s reconstruction, now ten months post-Maria, remains the most challenging in the Eastern Caribbean; the island’s government presses ahead with its bold plan to become the world’s first climate-resilient nation
• Jamaica’s hotel development pipeline adds three new large-scale resort approvals in Trelawny and Hanover, reinforcing the island’s position as the Caribbean’s most dynamic hospitality investment destination
• Guyana’s Georgetown property market continues its pre-oil surge; commercial rents in the capital’s business district have risen 40–60% over the past eighteen months as oil-sector companies expand local footprints

Summer Tourism Recovery: Who is Winning the Diverted Traffic

The summer of 2018 is proving to be a watershed season for Caribbean destinations that escaped the direct fury of Hurricanes Irma and Maria. With the BVI, USVI and much of the northern Leeward Island chain still operating at reduced capacity, North American and European travellers who had previously built their Caribbean summer plans around those destinations have had to look elsewhere. Jamaica, the Dominican Republic, Barbados, the Cayman Islands and St Lucia have been the primary beneficiaries, each recording occupancy and revenue figures that represent notable improvements on the pre-2017 baseline.

Jamaica’s north coast has been particularly well positioned to absorb this diverted demand. The corridor from Montego Bay through Runaway Bay to Ocho Rios combines large-scale all-inclusive capacity with a growing luxury boutique sector that appeals to the BVI and USVI clientele seeking comparable quality in a secure alternative. Jamaica’s hotel operators report July occupancy rates in the high eighties to low nineties percentile range — figures that justify the ambitious development pipeline being planned and financed for the 2019–22 construction period.

The property market impact of this tourism surge is direct and measurable. Increased hotel revenues translate to stronger land values in tourism corridors, better lease terms for retail and F&B operators, and more robust feasibility numbers for new development projects. Developers and investors who locked in land positions along Jamaica’s north coast in 2016–17 are finding that their patience is now being rewarded. New entrants to the market face higher land costs but can nonetheless construct credible investment cases on the back of the current occupancy environment.

Barbados: Mottley’s Economic Reform Agenda Takes Shape

The Barbados Labour Party government of Prime Minister Mia Mottley has spent its first two months in office executing an aggressive assessment of the country’s fiscal position and beginning the substantive work of what promises to be a comprehensive economic reform. The picture that has emerged is sobering in its detail but, paradoxically, encouraging in terms of political will. Mottley has not hidden from the scale of Barbados’s challenges — a debt burden that ranks among the highest in the world relative to GDP, foreign exchange reserves at critically low levels, and a public sector wage bill that consumes a disproportionate share of government revenues.

The IMF consultations now underway are being conducted with an uncommon degree of transparency relative to previous Caribbean adjustment programmes. Mottley has been publicly clear that a programme is being sought and that it will require structural fiscal adjustment. This candour has been received by Caribbean and international investor communities as a signal of seriousness that distinguishes this administration from its predecessor, which resisted external engagement even as the fiscal position deteriorated.

For the Barbados property market, the dynamics are layered. At the luxury end, represented by the West Coast’s world-class villa and resort portfolio, international buyer demand has been relatively insulated from domestic fiscal turbulence. These buyers — UK, European, North American — make purchase decisions on the basis of lifestyle value and long-term appreciation potential, not Barbados’s short-term fiscal ratios. Several significant West Coast transactions completed during July, suggesting this segment remains liquid. The domestic market is a different story: local professional buyers are watching their purchasing power carefully as the reform programme takes shape, and transaction volumes in the $350,000–$800,000 segment have been notably subdued.

BVI Luxury Market: Cautious Reopening, Pent-Up Demand

The British Virgin Islands has now passed ten months since Hurricane Irma’s catastrophic passage, and the pace of recovery is beginning to differentiate meaningfully between properties and operators. At the top end of the market, several landmark villas and boutique resort properties have completed or are completing structural reconstruction funded by comprehensive international insurance policies. These properties — some of which represent investments of $15 million to $50 million or more — are being rebuilt to enhanced specifications, incorporating superior storm-resistant construction, reinforced infrastructure and, in some cases, entirely redesigned layouts that improve resilience and guest experience simultaneously.

The pent-up demand from BVI’s loyal client base is a material asset for the territory’s recovery. Many frequent BVI visitors — particularly the sailing and yachting community and the ultra-high-net-worth villa holiday segment — have maintained strong emotional connections to the destination and have been actively monitoring reopening announcements. The Moorings, Sunsail and other charter operators have progressively rebuilt their BVI fleets, and the 2018–19 high season is expected to see substantially higher sailing activity than the 2017–18 season, which was effectively lost.

Property values in the BVI present an interesting case study for post-hurricane markets. In the immediate post-Irma period, there were fears of sustained price depression as buyers could not properly assess the condition of damaged properties. Twelve months on, the picture is clearer: properties with strong construction, good insurance outcomes and motivated owners are transacting at or near pre-Irma values for the best locations. Distressed sales at significant discounts are available but carry substantial reconstruction cost uncertainty. Sophisticated buyers are conducting detailed structural assessments before committing, and the due diligence process in the BVI market has become considerably more rigorous than it was in the pre-Irma years.

Dominican Republic: The Unstoppable Machine

The Dominican Republic’s property and investment market has operated during the entire post-Irma/Maria reconstruction period as if the storms affected a different planet. The DR’s geography — its position relative to the storm tracks that devastated the Leeward Islands — meant it largely escaped structural damage. More importantly, the DR’s diversified investment profile, large domestic market and established international resort infrastructure meant it had limited exposure to the psychological overhang that has weighed on smaller Eastern Caribbean destinations.

Hotel investment in the Dominican Republic is running at levels that have no precedent in the country’s modern economic history. The Punta Cana–Bávaro corridor alone has more than eight significant new hotel projects under construction or in advanced development, representing combined investment of well over US$2 billion. The Cap Cana ultra-luxury enclave is adding villa inventory at a pace that would have seemed unimaginable five years ago. And emerging destinations — Las Terrenas in Samaná, the south coast around Barahona, the historic Cibao valley — are beginning to attract the early-mover investor capital that follows when primary markets fully price in expected returns.

Residential property in the DR, whether purchased as primary residences by international buyers or as rental income assets managed through the growing short-term rental platforms, is delivering returns that compare favourably with alternatives elsewhere in the Americas. A well-located two-bedroom villa in Cap Cana, priced at around US$450,000, can generate gross rental yields of 7–8% through dedicated professional management. Investors from Canada, the United States and increasingly from Europe — particularly Spain, Germany and the Benelux — are taking note.

Caribbean Leaders This Month

Jamaica (Tourism Investment): The pipeline of new hotel developments approved and under construction makes Jamaica the clear leader in Caribbean hospitality investment for July 2018. The combination of government incentives, improving airlift and consistent occupancy performance is driving sustained capital commitment.

Dominican Republic (Overall Investment Volume): No Caribbean market matches the DR’s investment volume across hotel, residential and commercial segments. The country continues to attract capital that might once have been distributed more evenly across the region.

Guyana (Commercial Property): Georgetown’s commercial market remains the region’s most dynamic in yield terms. Oil-sector tenants are providing rental income security that is extremely attractive in the current environment, and properties with long-term oil-company leases are commanding significant premiums.

Cayman Islands (Luxury Residential): Seven Mile Beach and South Sound continue to generate record transaction values. The Cayman market’s combination of political stability, zero direct taxation, and world-class lifestyle amenities creates a uniquely resilient luxury market that has been unaffected by regional storm disruption.

BVI (Reconstruction Progress): The milestone of first major villa re-openings post-Irma deserves recognition. The BVI’s determination to rebuild its luxury tourism product to the highest possible standard is a statement of confidence in the destination’s long-term appeal.

Barbados (Reform Narrative): Mottley’s transparent and credible approach to Barbados’s fiscal challenges is quietly restoring international investor confidence in the island’s institutional quality. The process is uncomfortable, but the direction is right.

St Lucia (CBI Programme): St Lucia’s citizenship-by-investment programme continues to generate steady inflows into the villa and luxury residential market, providing a demand floor that is independent of cyclical tourism and domestic economic factors.

Overall July 2018 Performer: Jamaica takes the overall award for July. The combination of record tourism performance, expanding hotel pipeline, improving fiscal fundamentals and a government strongly focused on investment attraction places the island at the forefront of Caribbean property market performance this month.

Looking Ahead

August marks the peak of the Atlantic hurricane season by historical metrics, and Caribbean governments, developers and property owners are watching the tropics with the heightened vigilance that the 2017 catastrophe has permanently installed. The 2018 season is forecast to be below normal, but the events of September 2017 have demonstrated definitively that below-normal forecasts offer no guarantee against catastrophic individual storms. The investment implications are straightforward: insurance coverage, building standards and disaster preparedness are now table-stakes due diligence items for any Caribbean property transaction, not optional considerations.

Barbados’s IMF programme negotiations will be the dominant Caribbean economic story of the coming quarter. A successful agreement — which appears likely given the political will on the Barbados side — would represent a landmark moment not just for Barbados but for Caribbean economic governance more broadly. The terms of any deal will be closely scrutinised for their property market implications, particularly regarding any fiscal measures that could affect demand for Barbados’s substantial domestic residential sector.

Guyana watchers should mark the coming months as the period when the Liza Phase 1 development moves from construction to commissioning preparation. Progress updates from ExxonMobil and its partners will feed directly into property market sentiment in Georgetown. Each positive milestone confirmation will drive another increment of investor interest in the Guyanese real estate opportunity that is still in its early chapters.

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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