Caribbean Property & Investment Review — Edition 94 | October 2018

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

Morning Briefing

• The first anniversary of Hurricane Irma’s catastrophic strike on Barbuda and the BVI on September 6, 2017 prompts a comprehensive regional assessment of reconstruction progress and remaining gaps one year on.
• The 2018 hurricane season has largely spared the Caribbean, with significant storm activity in 2018 affecting the US mainland rather than the island territories that bore the brunt of 2017’s destruction.
• Barbados’s IMF programme negotiations are understood to be in their final stages, with a formal announcement of a programme arrangement widely anticipated before the end of 2018.
• Caribbean property insurance markets continue to harden significantly, with post-2017 reinsurance repricing flowing through to dramatically higher premiums for property owners across the region.
• ExxonMobil confirms continued progress on the Liza Destiny FPSO, maintaining the target for Guyana’s first oil in 2019 as engineering and fabrication work advances on schedule.
• Jamaica’s real estate sector reports its strongest quarter since 2015, with tourism-driven demand, diaspora investment, and NHT-supported first-home purchases combining to drive transaction volumes higher.

One Year On: Taking Stock of Caribbean Reconstruction

September 6, 2019 will mark one year since Hurricane Irma made its catastrophic landfall on Barbuda, and September 18-20 marks a year since Maria devastated Dominica and tore through Puerto Rico. The anniversary invites a sober assessment of how far the region has come and how far it still must travel. The honest answer is: considerably farther on the first count than early pessimists feared, but still a long way from whole on the second.

The British Virgin Islands has been the most dramatic reconstruction success story. Within a year, the territory has restored essential services, reopened schools and medical facilities, rebuilt significant portions of its housing stock, and begun welcoming tourists back to several of its major resort properties. Road Town’s commercial district is functioning, the ferry services that form the territory’s circulatory system are running, and the characteristic beauty of the BVI’s natural environment — which no storm could permanently diminish — is once again drawing sailing enthusiasts and divers. The BVI’s success reflects a combination of factors: strong governance, high insurance penetration relative to the broader Caribbean, significant UK financial support, and a private sector with the resources and motivation to move quickly.

Anguilla has similarly made impressive progress. The island’s tourism-dependent economy was severely disrupted by Irma, but the government’s decisive management of the immediate aftermath, combined with Anguilla’s reputation as an ultra-luxury destination that commands the loyalty of high-spending repeat visitors, has supported a faster-than-expected recovery. Several of the island’s signature properties have reopened or are expected to open for the coming winter season.

Barbuda’s situation remains the most unresolved. The near-total destruction of the island’s built environment, combined with the evacuation of virtually its entire population to Antigua, created a situation without modern precedent in the Caribbean. Rebuilding has begun, and some families have returned, but significant questions about the governance framework, land rights, and the appropriate development model for Barbuda remain actively contested. International investors have expressed interest in Barbuda as a development opportunity, but the reputational and political risks of moving ahead without a settled community consensus have given most serious operators pause.

Dominica’s reconstruction has been the slowest and most challenging. A year after Maria destroyed an estimated 90 percent of the island’s buildings, significant portions of the rural housing stock remain in disrepair, and the island’s economy is heavily dependent on continuing donor support and citizenship by investment revenues. Prime Minister Roosevelt Skerrit’s vision of Dominica as the world’s first climate-resilient nation is compelling and has attracted international attention, but translating vision into completed buildings is a slow and resource-intensive process. Investors with development mandates in Dominica need deep pockets and significant patience.

The Caribbean Insurance Market After the Storm

Perhaps no sector of the Caribbean economy has been more fundamentally reshaped by the 2017 hurricane season than property insurance. The combined insured losses from Irma and Maria across the Caribbean exceeded $50 billion, making 2017 the costliest hurricane season in history by a considerable margin. International reinsurers, who ultimately bore the majority of those losses, have responded with a fundamental reassessment of Caribbean catastrophe risk that is driving a structural shift in the regional insurance market.

Across the Eastern Caribbean, property owners are receiving renewal notices that bear little resemblance to the premiums they have historically paid. In the territories most severely affected by Irma — BVI, Anguilla, Turks and Caicos — premium increases of 30 to 80 percent are not uncommon, and in some cases coverage has been restructured with higher deductibles or sub-limits that effectively transfer more risk back to the property owner. The economics of property ownership in these territories has been permanently altered, and investment appraisals need to model insurance costs at post-2017 pricing rather than the historical rates that characterised the pre-2017 era.

The insurance market disruption has created some unexpected opportunities. Specialised carriers and capacity providers who focus on catastrophe-exposed coastal and island markets are finding that the exit or retrenchment of traditional capacity providers has created pricing opportunities for those willing to deploy capital thoughtfully. Parametric insurance products — which pay out based on measurable physical parameters such as wind speed or storm surge height rather than assessed damage — are gaining traction as a complement to traditional indemnity coverage, offering faster payouts and greater certainty in the claims process. For Caribbean property developers designing new projects, incorporating parametric triggers into their insurance programme is becoming standard practice at the most sophisticated end of the market.

Barbados IMF Negotiations: Approaching the Finish Line

Barbados’s engagement with the International Monetary Fund has now been underway for several months, and the market consensus is that a formal programme announcement is imminent. Prime Minister Mottley’s government has demonstrated a seriousness of purpose that has impressed international observers — it has been transparent about the scale of the fiscal challenges, has moved quickly on several structural reform measures, and has conducted a debt restructuring exercise with external creditors that, while painful, is widely regarded as a necessary step toward restoring debt sustainability.

For Barbados’s property market, an IMF programme announcement would represent an important inflection point. The period of maximum uncertainty — which has weighed on domestic purchasing activity and slowed transaction volumes — would give way to a more defined, if still challenging, adjustment trajectory. International investors, in particular, tend to respond positively to the credibility anchor that an IMF programme provides, as it signals a commitment to a reform path and reduces the risk of disorderly policy shifts. Several international real estate advisers with Barbados mandates report that some buyers who have been waiting for clarity before transacting are prepared to move when a programme is formally in place.

Caribbean Leaders This Month

Jamaica real estate has its strongest quarter since 2015, with the convergence of tourism revenues, diaspora investment, NHT-supported homeownership, and fiscal stability creating the most favourable conditions in years for broad-based market activity.

BVI resort and villa reconstruction has emerged as a success story, with properties reopening ahead of schedule and advance bookings for the 2018-19 winter season suggesting that the market’s recovery may be faster than most early forecasts anticipated.

Dominican Republic resort development maintains its position as the Caribbean’s most active new-build market, with construction cranes a permanent feature of the Punta Cana and Las Terrenas skylines.

Guyana Georgetown property continues to appreciate rapidly, driven by the oil-sector demand for quality commercial and residential space that the market is currently unable to satisfy at the required volume.

Barbados international luxury is showing resilience at the top end, with several high-value west coast transactions completing through the September period despite the continuing domestic fiscal adjustment.

Cayman Islands prime residential remains the benchmark for Caribbean property resilience, with consistent demand, very limited supply, and strong institutional confidence in the territory’s long-term stability supporting prices at elevated levels.

Anguilla villa market is emerging from its post-Irma period of uncertainty, with several iconic properties completing rebuilding and the island’s ultra-luxury positioning reasserting itself ahead of the winter season.

Overall regional performer this month: Jamaica, which has the region’s most active real estate market measured by transaction volume, the most stable macroeconomic environment, and the strongest tourism-sector tailwind of any English-speaking Caribbean destination.

Looking Ahead

The Caribbean now stands at the threshold of the critical winter tourism season. For destinations in recovery — BVI, Anguilla, parts of USVI — the 2018-19 winter represents a pivotal test of whether the reconstruction effort has been sufficient to recapture the visitor volumes that sustained those economies before 2017. Early booking data suggests cautious optimism. For the unaffected islands, the winter season offers the prospect of a second year of exceptional demand, as travel patterns normalised by the 2017 diversion may prove stickier than initially assumed.

The anticipated Barbados IMF programme announcement is the most significant individual event on the regional economic calendar for the October-November period. Its conclusion would represent the closing of an important chapter of uncertainty and the opening of a defined, if demanding, adjustment path. The property and investment community will be watching carefully for the programme’s structural conditions and what they mean for the medium-term outlook for Barbadian domestic purchasing power and international investor confidence.

The one-year anniversary of the 2017 storms has also renewed focus on regional resilience investment — in building codes, insurance frameworks, climate adaptation infrastructure, and disaster preparedness systems. These are slow-moving policy domains, but the 2017 experience has given them a political urgency that was previously absent. Investors with a long time horizon should view the region’s emerging resilience framework as a positive structural development, even as the immediate costs of insurance and compliance add near-term friction to the development process.

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.