Caribbean Property & Investment Review — Edition 91 | January 2019

Publication Date: 3 January 2019  |  Coverage Period: 3 December 2018 – 2 January 2019

Morning Briefing

• The Caribbean closes 2018 having navigated a year of reconstruction, fiscal adjustment, and sustained tourism momentum, with the overall property and investment picture considerably more positive than many observers forecast at the start of the year.
• Barbados’s IMF Extended Fund Facility, signed in October 2018, provides the Mottley government with a credible framework for fiscal recovery and has begun to stabilise international investor sentiment toward the island.
• Jamaica records its strongest year of real estate transactions since 2014, driven by a virtuous cycle of tourism revenues, diaspora investment, NHT-supported homeownership, and improving macro stability.
• The 2018 hurricane season’s relative quiescence — a stark contrast to the catastrophic 2017 season — allowed reconstruction across the BVI, Anguilla, and other affected territories to advance without further setback.
• Guyana’s oil development moves ever closer to the first-oil milestone, with the Liza Phase 1 FPSO conversion on track and Georgetown’s property market reflecting the pre-revenue anticipation of a transformative economic event.
• The US Federal Reserve’s four rate increases in 2018, cumulative, have raised the federal funds rate to 2.5%, creating a persistent headwind for Caribbean mortgage markets and dollar-linked economies that will carry into 2019.

2018 in Review: A Year of Caribbean Recovery

Viewed from the vantage point of January 2019, 2018 emerges as a year that the Caribbean navigated with considerably more resilience than the scale of the 2017 challenges might have predicted. Fifteen months ago, as Irma and Maria’s destruction was being absorbed, there were legitimate questions about whether certain Caribbean territories could rebuild at all — and whether the regional investment narrative might be permanently damaged by the demonstration of climate vulnerability at scale. A year later, those fears have been substantially, if not entirely, allayed. The BVI is receiving tourists again. Anguilla’s ultra-luxury brand is intact. Barbados has a credible economic programme. Jamaica is thriving. And Guyana is on the threshold of a petroleum-fuelled economic transformation.

The year’s defining story for Caribbean property investment was undoubtedly the convergence of two major fiscal narratives: Jamaica’s continued success in its IMF programme, demonstrating what patient reform can deliver; and Barbados’s more turbulent journey toward its own programme, signed in October after months of difficult negotiations, debt restructuring, and political courage from the Mottley administration. Together, these two stories bracket the range of Caribbean fiscal experience — from a system that has been functioning for several years and is delivering measurable results, to one that was in acute crisis at the start of 2018 and has, with significant effort, established a viable path forward.

Tourism’s performance was the other defining theme of 2018. The combination of sustained strong demand from North America and Europe, the continuing diversion of visitor flows from still-recovering destinations, and the broader appeal of Caribbean travel as a lifestyle choice produced an exceptional year for the region’s unaffected islands. The revenues that flowed from this performance are beginning to recycle through the property market — hotel operators investing in capacity expansion, short-term rental entrepreneurs reinvesting returns in additional units, and diaspora investors capitalising on tourism yields to build Caribbean property portfolios.

Reconstruction: Progress and Remaining Gaps

The reconstruction picture at the close of 2018 is genuinely mixed. The British Virgin Islands has achieved a recovery that, sixteen months after Irma, exceeds what most observers would have predicted in October 2017. Essential services are restored, significant portions of the residential and commercial property stock have been rebuilt, several major resort properties are welcoming winter visitors, and the territory’s governance and institutional capacity have proven more resilient than the physical infrastructure. The BVI’s experience suggests that territories with strong institutions, high insurance penetration, and significant external financial support can recover from even catastrophic hurricane damage within a property-market-relevant timeframe.

Dominica tells a different story. Maria’s destruction was more total and Dominica’s starting position — with limited fiscal resources, a smaller construction industry, and a more dispersed rural population — more challenging. Sixteen months on, significant quantities of rural housing remain unrepaired, agricultural production has not fully recovered, and the gap between the government’s climate-resilient vision and the current reality on the ground remains substantial. The island’s citizenship by investment revenues and donor support are keeping reconstruction moving, but the timeline to full recovery is measured in years, not months.

For property investors, the reconstruction geography of the Caribbean is increasingly stratified: the best-resourced and best-governed territories have used the crisis to rebuild to higher standards and are positioned for strong medium-term performance; the most damaged and least-resourced territories face longer recovery timelines but may offer disproportionate returns to investors with patient capital and development expertise. Reading this stratification correctly is one of the most important analytical challenges for Caribbean property investment in the year ahead.

Guyana: The Countdown Intensifies

As 2019 begins, Guyana’s oil development is the most consequential single story in the Caribbean investment landscape. The Liza Phase 1 project is advancing toward a first-oil milestone that is now widely expected to occur before the close of 2019, and the implications of that event for Guyana’s economy, public finances, and property market are the subject of active analysis by investors, policy makers, and multilateral institutions. Georgetown’s commercial property market has already absorbed much of the anticipatory demand — hotel rates and occupancy are high, quality office space is scarce, and residential rents in the desirable inner-city districts are rising rapidly — but the arrival of actual production revenues will represent a qualitative shift in the investment dynamic.

The governance dimension of Guyana’s oil transition is receiving increasing attention. How the revenues are managed — through what institutional framework, with what degree of transparency and community benefit — will determine whether the oil windfall translates into broad-based economic development or becomes a source of political instability and resource-curse dynamics. The government has engaged international advisers on sovereign wealth fund design and has committed to transparency frameworks, but the proof will be in the implementation. Investors who are building exposure to Guyana’s pre-revenue property market need to hold a realistic assessment of the governance risk alongside the extraordinary economic opportunity.

2019 Outlook: Key Themes to Watch

The Caribbean property and investment landscape in 2019 will be shaped by several interacting themes. Barbados’s IMF programme implementation will be the region’s most closely watched fiscal story — early compliance or deviation from programme targets will send important signals about the trajectory of the island’s recovery and the outlook for its property market. Jamaica’s continued fiscal reform success, now well-established, will maintain the stable macroeconomic environment that has underpinned the property market’s strong performance. Guyana’s first oil — whether it arrives in 2019 or in early 2020 — will be the region’s most anticipated single economic event.

The US interest rate environment will remain a material factor throughout 2019. The Federal Reserve’s rate-hiking cycle has been a consistent headwind for Caribbean mortgage markets and dollar-linked economies since 2015, and while the pace of future increases is now subject to debate, the level of rates is substantially higher than it was even two years ago. Caribbean property developers and buyers need to model their financing costs at current and plausible future rate levels rather than at the near-zero rates that characterised the post-2008 era.

Caribbean Leaders This Month

Jamaica property market opens 2019 as the undisputed regional leader, closing 2018 with record transaction volumes and entering the new year with strong tourism bookings, diaspora investor activity, and NHT-supported first-home purchase momentum.

Barbados international luxury is showing post-IMF-programme stabilisation, with several significant west coast transactions advancing and international buyer interest beginning to return as programme clarity replaces open-ended uncertainty.

Dominican Republic resort corridors enter 2019 as the Caribbean’s most active new-build destination, with a strong pipeline of hotel openings adding inventory to a market where tourism demand continues to grow faster than regional supply.

Guyana Georgetown property enters 2019 at peak anticipation as the first-oil countdown accelerates, with quality space across all sectors remaining significantly undersupplied relative to the oil-sector demand that continues to flow into Georgetown.

BVI resort and villa market opens its second post-Irma winter season with confidence, as strong 2018-19 occupancy validates the reconstruction investment and positions the territory for a return to its pre-storm tourism performance benchmark.

Cayman Islands prime residential maintains its decadelong record of consistent appreciation, entering 2019 with no meaningful supply additions expected and sustained professional-class demand from the financial services sector.

Trinidad commercial property shows modest improvement as the energy sector’s gradual stabilisation begins to support renewed business investment and office leasing activity in Port of Spain.

Overall regional performer this month and for the full year 2018: Jamaica, whose property market has delivered the strongest combination of transaction volume, yield performance, diaspora engagement, and macroeconomic stability of any Caribbean market through a year of exceptional challenge and opportunity across the region.

Looking Ahead

The Caribbean enters 2019 in a position of hard-won resilience. The reconstruction from 2017’s catastrophic hurricane season is well advanced in the best-resourced territories and continuing in the most challenged. The region’s macroeconomic governance has been tested by the Barbados fiscal crisis and the Jamaica reform journey, and has demonstrated — imperfectly but meaningfully — that Caribbean economies can navigate major fiscal dislocations through credible adjustment rather than disorderly default. And Guyana’s oil development brings to the region’s doorstep a potentially transformative economic story that will define Caribbean investment conversations for years to come.

The property market investor who enters 2019 with a clear-eyed understanding of the region’s stratified risk and return profile — who recognises the difference between Jamaica’s stability dividend and Dominica’s patient-capital opportunity, between Barbados’s post-programme recovery potential and Guyana’s pre-revenue speculation — is well positioned to benefit from what promises to be a dynamic year across Caribbean markets.

The Caribbean Property & Investment Review will continue to track all of these themes through 2019, bringing readers the analytical depth and historical context needed to navigate the region’s most compelling investment market with confidence. We wish our readers a prosperous new year.

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.