Caribbean Property & Investment Review — Edition 95 | September 2018

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

Morning Briefing

• The 2018 Atlantic hurricane season is now in its climatologically active phase, with Caribbean governments, property owners, and insurance markets on heightened alert following the devastating storms of 2017.
• Barbados Prime Minister Mia Mottley marks three months in office with her government’s economic reform programme gaining definition, including early signals about the structure of a prospective IMF engagement.
• Jamaica’s fiscal performance continues to impress programme monitors, with the government on track to achieve another year of fiscal primary surplus and continued debt reduction.
• Caribbean property insurance premiums are rising sharply across the region following the 2017 hurricane losses, with several international reinsurers reducing exposure to Caribbean cat risk and driving premium increases of 30-50% in the most affected territories.
• The Dominican Republic’s tourism sector records its best August on record, with Punta Cana international airport processing passenger volumes at levels that are stretching infrastructure capacity.
• Guyana’s government engages financial advisers to develop a sovereign wealth fund framework ahead of anticipated oil revenues, as the timeline to first oil from the Liza field moves closer.

Hurricane Season 2018: A Region on Watch

Twelve months ago, the Caribbean was entering the most traumatic period in its modern meteorological history. Hurricanes Irma and Maria struck within two weeks of each other, Irma making landfall on Barbuda on September 6, 2017, and Maria devastating Dominica on September 18-20 before tearing through Puerto Rico. The combined destruction was almost incomprehensible in scale: Barbuda lost 95 percent of its built environment, Dominica saw 90 percent of its buildings damaged or destroyed, and Puerto Rico suffered damage estimated at $90 billion. The BVI, USVI, Anguilla, Turks and Caicos, and Sint Maarten all took severe blows from Irma. The 2017 season fundamentally changed how the Caribbean thinks about climate risk, property development standards, and the economic architecture of small island states.

Against that backdrop, the 2018 season has, so far, been considerably less threatening to the Caribbean region. Meteorological forecasters who had initially predicted a near-normal season have seen their predictions bear out through the August period, with storm activity concentrated in the open Atlantic and the Gulf of Mexico rather than tracking through the island chain. Caribbean governments, mindful of 2017, have nonetheless invested substantially in preparedness: early warning systems have been upgraded, emergency response protocols refined, and evacuation plans rehearsed with greater rigour than in previous years.

For the property and investment community, hurricane season preparedness has taken on a new commercial significance. Insurance coverage that was previously treated as a commodity purchase has become a subject of intense scrutiny, with property owners and developers examining the fine print of their policies — particularly sub-limits for wind damage, business interruption coverage, and the terms governing claims processes — with a thoroughness that was absent before 2017. The experience of claimants in the BVI, USVI, and Dominica, where some policies proved less comprehensive than owners had assumed, has prompted a regional re-evaluation of insurance as a risk management tool.

Caribbean Property Insurance: The Market Recalibrates

The insurance market implications of the 2017 hurricane season are now being felt across the Caribbean property sector with full force. International reinsurers, who absorbed the majority of Caribbean catastrophe losses, are repricing their exposure to the region significantly. Cedant insurers — the local and regional companies that provide primary property coverage to Caribbean homeowners and businesses — are passing these increased reinsurance costs through in the form of substantially higher premiums. In the BVI, Barbuda, and parts of the USVI, some premium increases have exceeded 50 percent, and in a small number of cases, coverage has been declined outright for the most exposed properties.

For property developers considering new construction across the Caribbean, the insurance landscape is reshaping the economics of development in fundamental ways. Projects designed to pre-2017 building standards are increasingly difficult to insure at commercially viable premium levels. Developers who are willing and able to build to enhanced standards — higher wind resistance ratings, elevated foundations in flood-prone areas, impact-resistant glazing — are finding preferential treatment from insurers and, in some jurisdictions, from planning authorities who have updated their codes in response to the 2017 experience. The upfront cost premium for resilient construction is real but is increasingly being offset by lower lifetime insurance costs and, in some markets, by a buyer premium that resilient properties are beginning to command.

Regional insurance bodies are advocating for the development of a Caribbean catastrophe risk pooling mechanism that could reduce the per-territory cost of reinsurance by aggregating risk across multiple small island states. The Caribbean Catastrophe Risk Insurance Facility has demonstrated the model at a sovereign level; extending similar logic to the commercial property sector is a policy discussion that is gaining momentum, though implementation will require both regulatory alignment and significant political will across the diverse jurisdictions of the region.

Barbados at Three Months: Reform Progress and Market Implications

Prime Minister Mottley’s government, now three months in office, has moved with notable speed to lay the groundwork for Barbados’s economic reconstruction. The administration has completed its initial diagnostic of the public finances and communicated with credibility and transparency to both domestic and international audiences about the severity of the challenges inherited. External debt restructuring discussions are understood to be progressing, and the contours of an IMF programme engagement are becoming clearer, with the government signalling that it expects to conclude a formal arrangement before the end of the year.

For Barbados’s property market, the reform narrative is creating a bifurcated environment. Domestically, purchasing activity has softened as households and businesses manage uncertainty and begin to absorb the early fiscal adjustment measures. The government has introduced a number of revenue-raising measures — including modifications to land tax and property-related duties — that are adding to transaction costs for domestic buyers. First-home buyers dependent on the mortgage market are experiencing both tighter lending conditions and the prospect of a constrained macroeconomic environment over the adjustment period.

International buyers present a different dynamic. Several high-profile luxury properties in the St James and St Peter parishes have transacted at premium prices through the August period, reflecting the sustained appetite of UK, North American, and European buyers for Barbados’s west coast. These buyers are often less sensitive to domestic fiscal developments than to global wealth dynamics, currency movements, and Barbados’s perceived security and lifestyle premium. The government is acutely aware of the importance of maintaining international investor confidence and has been careful to signal commitment to property rights and the rule of law throughout the adjustment process.

Jamaica: Fiscal Success and Tourism Momentum

Jamaica continues to demonstrate that Caribbean fiscal reform programmes, when implemented with consistency and political commitment, can produce real dividends. The government’s multi-year engagement with the IMF has delivered measurable improvements in Jamaica’s debt trajectory, fiscal balances, and sovereign risk profile. The practical expression of this in the property market is a more stable environment for mortgage lending and a housing sector that, while still constrained by affordability pressures, is operating within a more predictable macroeconomic frame than was the case three or four years ago.

Tourism’s exceptional performance — with Jamaica’s hotels operating at peak occupancy through the summer months — is generating cash flows that are beginning to reinvest in the real estate sector. Hoteliers who have benefited from the post-Irma demand diversion are considering capacity expansions. Short-term rental operators who have capitalised on the visitor surge are using their returns to fund additional property acquisitions. The north-coast resort corridor from Montego Bay to Ocho Rios is experiencing the most sustained period of real estate investment activity in a generation.

Caribbean Leaders This Month

Jamaica resort corridor property remains the region’s most active investment market, combining fiscal stability dividends, tourism-driven yields, and strong diaspora investor engagement in an unusually favourable conjunction of positive drivers.

Dominican Republic north coast is experiencing a breakout moment for development, with Puerto Plata and the surrounding coastline attracting hotel and residential resort investment that has historically been concentrated further east in Punta Cana.

BVI villa market is showing resilience beyond expectations, with several properties completing reconstruction and listing at prices that reflect both the island’s restored appeal and the higher build quality of post-Irma reconstruction.

Guyana Georgetown residential continues its rapid appreciation trajectory, with supply of quality housing unable to keep pace with demand from the expanding oil-sector professional workforce.

Barbados international luxury demonstrates remarkable resilience, with high-end transactions continuing despite domestic fiscal headwinds, as foreign buyers take a long view on the island’s enduring lifestyle premium.

Cayman Islands prime residential continues its steady appreciation, with strong demand from financial services professionals and a very limited supply pipeline supporting prices at record levels.

Trinidad commercial sector shows early signs of life, with energy sector employment beginning to recover and office leasing activity in Port of Spain’s central district modestly ahead of the same period in 2017.

Overall regional performer this month: Jamaica resort corridor, which maintains its leading position on the strength of exceptional tourism revenues, stable fiscal conditions, and the most active foreign-national and diaspora buyer market in the English-speaking Caribbean.

Looking Ahead

September and October will see the Caribbean hurricane season reach its statistical peak. While the 2018 season has been less threatening to the region than 2017, the window of elevated risk remains open through the end of October, and markets will remain alert to any storm development that might affect the region. Property owners and investors should ensure that insurance coverage is in place and that claims procedures are well understood — the lessons of 2017 have made this a more urgent priority than it has historically been treated.

Barbados’s anticipated IMF programme conclusion will be a key event for regional investment confidence through the fourth quarter. A successful deal would remove a significant source of uncertainty from the Eastern Caribbean investment narrative and signal to regional and international investors that the mechanism for managing Caribbean fiscal stress is functioning as intended. The editors expect this to be the dominant story in Caribbean economic coverage through the October period.

For investors monitoring Guyana, the coming months will bring further advances in the Liza Phase 1 project timeline, with the FPSO conversion progressing toward completion and commissioning. Each milestone development maintains the extraordinary momentum of Guyana’s emergence as a petroleum province and continues to drive property and commercial market activity in Georgetown. The opportunity window ahead of first oil continues to narrow.

Caribbean Property & Investment Review is an independent publication. All market commentary reflects conditions as observed during the coverage period and should not be construed as investment advice.