Caribbean Property & Investment Review — Edition 95

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

Morning Briefing

• The Atlantic hurricane season reaches its statistical peak with Caribbean governments on high alert; the 2018 season has so far spared the region from major landfalls but the memory of 2017 keeps preparedness at an unprecedented level
• Barbados IMF programme negotiations are in advanced stages; PM Mottley signals the final shape of a stabilisation deal could emerge before October, potentially transforming investor confidence in the island
• Jamaica records its best August tourism statistics since records began, with the north coast operating at near-full capacity and Montego Bay airport handling record passenger volumes
• Dominican Republic hotel construction pipeline expands further; the DR now has more hotel rooms under active construction than any Caribbean nation, underlining its dominance of the regional investment landscape
• Caribbean construction costs remain significantly elevated post-Irma/Maria as labour shortages and materials demand from reconstruction work across affected territories compress regional supply chains
• Guyana oil development: Liza Phase 1 infrastructure progresses toward commissioning, with ExxonMobil maintaining its end-2019 first-oil target, driving ongoing Georgetown commercial property demand

Hurricane Preparedness: The New Investment Imperative

No event in recent Caribbean history has changed investor behaviour around property more profoundly than the September 2017 storms. One year on from Irma and Maria, the Caribbean property industry has undergone a fundamental reassessment of risk, and the practical implications for investors, developers, lenders and insurers are reshaping how the entire market operates. Hurricane preparedness is no longer a peripheral compliance issue; it has moved to the centre of property investment due diligence across the entire region.

The insurance market has led this transformation. Following the extraordinary Caribbean losses of 2017 — insured losses alone were estimated at over US$60 billion across the Caribbean and Gulf region — major international reinsurers significantly repriced Caribbean risk. Property insurance premiums in the most exposed territories rose by 30–70% in renewal cycles following the 2017 season. Some insurers withdrew from certain Eastern Caribbean markets entirely, leaving a coverage gap that affected both homeowners and commercial property operators. The regional government-backed Caribbean Catastrophe Risk Insurance Facility paid out substantial claims, demonstrating the value of that mechanism, but also revealing the limitations of aggregate coverage relative to total losses.

Developers and lenders have responded by imposing more rigorous construction standards as conditions for project financing. Banks active in Caribbean construction lending are now requiring independent structural engineering certification to enhanced wind-resistance standards as a condition of drawdown. Several major Caribbean financial institutions have published updated guidelines explicitly tying lending terms to building standard compliance, and the expectation is that this trend will deepen as the industry normalises post-2017. For investors, this evolving standard creates an important property selection criterion: buildings constructed to or upgraded to meet current enhanced standards will command a meaningful insurance and financing premium over older stock that has not been assessed or upgraded.

Barbados IMF Negotiations: The Endgame Approaches

Barbados’s economic stabilisation programme is entering its decisive phase. Prime Minister Mottley’s government has now spent three months in intensive dialogue with the IMF, and the broad contours of a programme have been taking shape. The economic adjustment required is substantial: Barbados needs to move from a primary fiscal deficit to surplus, rebuild foreign reserves from critically depleted levels, and restructure its public debt in a way that creates sustainable debt service obligations. None of these objectives is achievable without pain, and the political management of that pain has tested the Mottley administration’s communication skills and political capital.

The restructuring of Barbados’s domestic debt — held substantially by local financial institutions, pension funds and retail investors — is the most sensitive element of the programme. Haircuts or maturity extensions on government bonds would affect the balance sheets of the National Insurance Scheme, commercial banks and the significant segment of the Barbadian population that holds government paper directly. Mottley’s government has been carefully managing the messaging around this element, emphasising the shared sacrifice framing and the long-term necessity of the adjustment.

For international property investors in Barbados, the IMF programme story is ultimately a positive one. A credible stabilisation framework, backed by the IMF’s imprimatur, addresses the sovereign risk premium that has hung over Barbados property transactions for several years. Buyers who have been sitting on the sidelines waiting for clarity about Barbados’s economic direction are beginning to re-engage with the market. The West Coast luxury segment — which has never been primarily driven by domestic economic factors — should benefit from improved sentiment, while the stabilisation of the broader economy should gradually support a recovery in domestic-market transaction volumes.

Construction Cost Inflation: The Hidden Challenge of Recovery

The Caribbean construction industry is experiencing a period of significant cost inflation that predates the 2017 hurricanes but has been dramatically intensified by post-storm reconstruction demand. Across the region, the combination of skilled labour shortages, elevated materials costs driven by high demand, and logistics constraints in the small-island context is pushing construction costs to levels that are materially affecting project feasibility across all segments.

In the most severely affected reconstruction territories — Dominica, BVI, parts of the USVI — construction labour is operating under a premium that reflects the extraordinary volume of work to be completed. Skilled tradespeople — masons, carpenters, electricians, plumbers — are commanding day rates 40–60% above pre-2017 norms. This is not simply Caribbean inflation; it reflects a genuine labour market tightening in which reconstruction demand across multiple territories simultaneously has absorbed the region’s skilled workforce and drawn in additional workers from the broader Caribbean, Latin America and further afield at premium rates.

Materials costs have followed a similar trajectory. Steel, concrete, roofing systems and cladding — all in high demand for reconstruction — are being procured at prices significantly above pre-hurricane levels. The small-island procurement dynamic, in which most materials must be imported in containers that arrive on infrequent shipping schedules, magnifies the impact of any supply tightening. Developers across the region are building larger contingency allowances into project budgets — typically 15–25% above 2016 benchmarks — and in some cases are deferring projects until the cost environment normalises.

Caribbean Economic Recovery: The Trajectory at Month Fifteen

Fifteen months after the peak of the 2017 hurricane devastation, the Caribbean’s economic recovery trajectory presents a picture of meaningful progress unevenly distributed. The region’s GDP growth projections for 2018, as assessed by the Caribbean Development Bank and IMF, tell a story of resilience in unaffected territories and a slower-than-hoped recovery in the most-damaged ones. Jamaica, the Dominican Republic and the Cayman Islands are performing at or above pre-storm expectations. Trinidad and Tobago, buffered from storm impacts by its southerly geography, is beginning to show signs of stabilisation after a prolonged period of adjustment to lower hydrocarbons revenues. Barbados is in its adjustment programme. The eastern Leeward Islands are rebuilding.

The tourism sector’s recovery has been the most important economic driver across the region. For the unaffected islands, the diversion of travel demand from storm-hit territories has provided a significant uplift that has more than offset any broader Caribbean risk-perception discount. The affected islands, meanwhile, are recovering faster in tourism terms than many analysts predicted — the emotional loyalty of Caribbean repeat visitors to their preferred destinations has proven to be a powerful economic recovery mechanism. Destinations like Anguilla and BVI, which had very committed repeat visitor bases, are finding these returning guests both spending freely and actively supporting local business recovery.

The property market recovery follows the tourism narrative closely, with a lag. As hotel revenues recover, as construction employment rises, as government revenues from tourism taxes improve, the conditions for property market recovery gradually assemble. The sequence is not instantaneous — it requires confidence to accumulate, transaction activity to build, and price discovery to occur through a sufficient volume of sales. Markets that are furthest along in this sequence — Jamaica, Cayman, DR — show the strongest property market dynamics. The affected island markets are beginning to enter the early stages of this sequence, and patient capital positioned now should see meaningful appreciation as the cycle completes.

Caribbean Leaders This Month

Jamaica (Tourism Records): Another record month for Jamaica’s tourism sector translates directly into property market confidence. The north coast is operating with a dynamism that is attracting new development capital, and the island’s fiscal improvement creates a supportive macro environment for property transactions at all price points.

Dominican Republic (Hotel Pipeline): The DR’s hotel construction boom continues without deceleration. With more rooms under construction than any Caribbean competitor, the DR is cementing its position as the region’s dominant hospitality investment destination for the next decade.

Barbados (Reform Credibility): PM Mottley’s government has demonstrated remarkable political skill in managing the painful early stages of economic reform. As the IMF programme approaches agreement, Barbados’s position as a credible, well-governed investment destination is being rehabilitated in international investor perception.

Guyana (Oil Infrastructure): ExxonMobil’s Liza Phase 1 continues to progress on schedule. Georgetown property operators are reporting sustained high demand from oil-sector tenants, and the ripple effect into the broader residential market is becoming more visible. Early investors are well positioned.

Cayman Islands (Market Resilience): Grand Cayman’s luxury residential market has been a model of resilience through the regional storm disruption period. Consistent transaction volumes, rising per-square-foot values, and strong rental demand from the financial services sector continue to make Cayman a cornerstone Caribbean investment market.

St Lucia (Emerging Luxury): The Soufrière bay area is increasingly mentioned in the same breath as the Caribbean’s premier luxury villa addresses. New boutique villa developments are attracting international buyers who combine lifestyle appeal with the St Lucia CBI programme as an additional asset.

Anguilla (Comeback Story): Anguilla’s recovery narrative is gaining momentum. Partial reopening of key luxury properties, combined with the island’s determination to maintain its ultra-luxury positioning, is beginning to attract the return bookings that signal market recovery.

Overall August 2018 Performer: Jamaica maintains its lead position for August. Record tourism performance, a strong hotel development pipeline, improving government finances and a property market showing broad strength across segments make Jamaica the Caribbean’s most comprehensively positive investment market this month.

Looking Ahead

September will mark the first anniversary of Hurricanes Irma and Maria — a moment of reflection for the Caribbean property industry about the progress made, the lessons learned, and the work still to be done. The anniversary also serves as a reminder that the region’s reconstruction, while impressive in many ways, is far from complete. Dominica in particular remains in an early phase of what will be a multi-year rebuilding process. Puerto Rico’s recovery, while outside the traditional Caribbean investment brief, is affecting the regional labour market and insurance environment in ways that matter to every island market.

Barbados’s IMF programme is expected to be formalised in October. The property market implications of the deal’s specific terms will become clearer when the full programme documentation is published. Investors with Barbados exposure should plan to review their positions in the light of the programme’s fiscal consolidation measures and any debt restructuring that affects local financial institution balance sheets.

The Caribbean investment calendar for the final quarter of 2018 is filling with activity. Several major regional and international property fairs, investment conferences and real estate road shows are scheduled, reflecting the industry’s confidence that the recovery trajectory justifies active marketing and deal-making. Investors looking to deploy capital before year-end will find a market that is fundamentally more transparent, better informed about risk, and, in many segments, more attractively priced than it was before 2017.

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.