Caribbean Property & Investment Review — Edition 90 | February 2019

Publication Date: 3 February 2019  |  Coverage Period: 3 January – 2 February 2019

Morning Briefing

• Barbados opens 2019 under its IMF Extended Fund Facility, with the Mottley government committed to delivering the first round of programme performance benchmarks through the first quarter of the year.
• Caribbean winter tourism season is performing at exceptional levels across the region’s major destinations, with Jamaica and the Dominican Republic in particular reporting record January visitor arrivals.
• Guyana’s Liza Phase 1 project continues to advance toward first oil, with the Liza Destiny FPSO vessel progressing through final commissioning preparations that keep the 2019 production target intact.
• US Federal Reserve signals a pause in its rate-hiking cycle for 2019, providing some relief to Caribbean mortgage markets and dollar-linked economies that have been managing the headwind of four increases in 2018.
• Reconstruction activity in the BVI, Anguilla, and Dominica continues to drive construction sector employment and materials demand across the region, now seventeen months on from the catastrophic 2017 hurricane season.
• Jamaica’s National Housing Trust reports strong loan approvals for the January period, confirming that first-home buyer demand remains robust as the economy’s steady improvement continues to translate into household aspirations for property ownership.

The 2019 Caribbean Investment Landscape: Themes and Trajectories

The Caribbean investment environment at the opening of 2019 is shaped by a set of structural forces that have been building through the preceding eighteen months and are now reaching their points of maximum consequence. The post-hurricane reconstruction cycle, which has driven construction sector activity across the region since late 2017, is entering its mature phase — with the most urgent repair work largely complete in the better-resourced territories and the more complex long-term rebuilding in less-resourced islands like Dominica still years from completion. The fiscal adjustment narrative, which found its most dramatic expression in Barbados’s IMF programme but is present in various forms across the region, is reshaping the domestic property markets of several Caribbean economies. And Guyana’s oil development is creating an anticipatory investment climate in Georgetown that is unlike anything the region has seen in a generation.

Against this backdrop, the US Federal Reserve’s signal at the opening of 2019 that it may pause its rate-hiking cycle is potentially significant for Caribbean property markets. The four increases of 2018 raised financing costs for Caribbean developers and buyers in dollar-linked markets to levels that have meaningfully affected project economics. A pause in the tightening cycle, if sustained, would stabilise those financing costs and potentially support a modest easing of mortgage rate pressure in markets like Jamaica and the Dominican Republic where private mortgage lending plays a significant role in supporting transaction volumes.

The broader global economic environment is also relevant. Signs of slowing growth in Europe and concerns about the US economic cycle are creating some uncertainty about the durability of the tourism demand that has underpinned Caribbean property investment through 2017 and 2018. Caribbean tourism has historically shown resilience to moderate economic headwinds in its key source markets, but a sharper global slowdown would affect visitor volumes and spending, with knock-on implications for the hospitality-sector property demand that has been one of the principal drivers of Caribbean real estate activity.

Barbados: First Months of IMF Programme Implementation

Barbados enters the first full year of its IMF programme with a reform agenda that is simultaneously ambitious and fragile. The October 2018 programme signing provided an important credibility anchor, but the test of any adjustment programme is in the quarterly performance reviews rather than the signing ceremony. Prime Minister Mottley’s government has indicated that it is committed to the programme’s targets and has moved to implement a range of structural measures — including reforms to state-owned enterprise governance, improvements to tax administration, and adjustments to the public sector wage bill — that demonstrate seriousness of intent.

For the Barbados property market, the first months of programme implementation are creating the conditions described in our previous editions: an international luxury segment that is beginning to stabilise and attract renewed foreign buyer interest, and a domestic market that remains under pressure from the household income impact of fiscal adjustment. Mortgage conditions are tight, and first-home buyer activity has been subdued by a combination of reduced purchasing power and cautious lending from commercial banks navigating their own balance sheet challenges through the adjustment period. The government’s social housing initiatives, while meaningful, cannot fully compensate for the reduced activity in the private mortgage market.

Tourism’s performance through the January period has been a bright spot, with Barbados’s winter season proceeding well and luxury villa rentals along the west coast fully committed through February. This revenue stream is critical to the programme’s assumptions about foreign exchange earnings and economic activity, and its resilience through the first months of adjustment provides some basis for confidence that the programme’s growth assumptions are not unrealistic. The government is working carefully to maintain international investor confidence in Barbados’s governance and rule of law — the institutional foundations that distinguish the island as an investment destination and that cannot be sacrificed to short-term fiscal pressures.

Post-Hurricane Reconstruction: The Seventeen-Month Assessment

Seventeen months after Hurricanes Irma and Maria transformed the Caribbean’s development landscape, the reconstruction story continues to evolve in ways that carry significant implications for property investment across the region. In the BVI and Anguilla, the recovery is sufficiently advanced that market activity is returning to something approaching normality — transactions are occurring, international buyers are re-engaging, and the discourse has shifted from crisis management to medium-term development planning. Several luxury properties in both territories have changed hands at prices that, while reflecting some post-storm discount, suggest that the international market’s confidence in these destinations has survived the crisis.

The reconstruction cycle has also had significant indirect effects on Caribbean property markets beyond the directly affected territories. The surge in construction sector employment and activity across the region has driven up labour costs, extended lead times for building materials, and created capacity constraints in the professional services ecosystem that supports development — architecture, engineering, project management, and quantity surveying. For developers planning new projects in Jamaica, Barbados, or the Dominican Republic, these supply-side constraints have added to development costs and timelines in ways that need to be factored into project economics.

The insurance market remains significantly hardened relative to pre-2017 conditions, and this is increasingly a structural feature of Caribbean property economics rather than a temporary dislocation. The international reinsurance market’s reassessment of Caribbean catastrophe risk is not a one-cycle repricing that will be reversed when memories of Irma and Maria fade — it is a fundamental recalibration of the risk framework for Caribbean property, informed by advances in catastrophe modelling that reflect the likely effects of climate change on storm intensity and frequency. Investors entering the Caribbean property market today should model insurance costs at current and plausible future levels, not at historical benchmarks that are no longer relevant.

Jamaica: The Regional Benchmark

Jamaica enters 2019 as the Caribbean property market’s most credible success story, a position it has earned through years of consistent fiscal reform, macroeconomic improvement, and the strategic development of a tourism sector that now generates revenues across a much wider range of visitor segments and experiences than the traditional all-inclusive model alone could sustain. The January 2019 data on tourist arrivals, NHT loan approvals, and residential property enquiries all point to a market that is operating with confidence and momentum.

The diaspora investor community continues to be one of the most distinctive and important features of Jamaica’s property market. The Jamaican diaspora — estimated at 2-3 million people globally, predominantly in North America and the United Kingdom — maintains a strong attachment to property in Jamaica as both an investment and a retirement option. This community provides a steady flow of capital into the Jamaican housing market that is relatively insensitive to domestic economic conditions, since the purchasing power of diaspora buyers reflects their source-country incomes rather than Jamaican wage levels. For developers with stock that meets the diaspora market’s requirements — quality construction, reliable service infrastructure, and proximity to resort amenities — this buyer segment represents a consistent and growing demand base.

Caribbean Leaders This Month

Jamaica residential and resort property opens 2019 at the top of the regional performance table, combining exceptional winter tourism revenues, active diaspora investment, and NHT-supported first-home purchase activity in the most robust property market in the English-speaking Caribbean.

Dominican Republic Punta Cana and Cap Cana continues to lead the region in new hotel and resort development, with several major openings expected through the first half of 2019 adding inventory to a market where tourism demand growth is consistently outpacing supply.

Guyana Georgetown commercial and residential is the Caribbean’s most rapidly appreciating market, driven by oil-sector anticipatory demand that is now colliding with a critically undersupplied quality property stock across all segments.

Barbados international luxury is stabilising under IMF programme clarity, with renewed UK and North American buyer enquiries beginning to translate into transactions on the west coast in a market segment that has proven remarkably resilient to the island’s fiscal difficulties.

BVI villa and resort market continues its strong recovery narrative, entering 2019 with several major properties now open, advance bookings strong through the winter season, and growing investor confidence that the territory’s market fundamentals have been restored.

Cayman Islands prime residential maintains its position as the Caribbean’s most consistently high-value market, with limited new supply and persistent professional-class demand sustaining prices at their historical ceiling.

Trinidad energy sector property shows continuing gradual recovery, with the partial stabilisation of the energy sector supporting renewed commercial leasing activity and modest improvement in the residential market around Port of Spain’s executive housing corridors.

Overall regional performer this month: Jamaica, which enters 2019 with the strongest momentum, the most diversified demand base, and the most credible macroeconomic foundation of any Caribbean property market.

Looking Ahead

The coming months will bring several important data points for Caribbean property investors. Barbados’s first IMF programme review — expected in the first quarter of 2019 — will provide an early read on whether the government’s reform commitments are translating into measurable programme performance. A positive review would provide meaningful additional confidence that the programme is on track; an early stumble would raise questions about the sustainability of the adjustment path.

Trinidad Carnival, scheduled for February 4-5, will be a useful barometer of consumer and tourism confidence in the twin-island republic. The festival’s economic footprint — in terms of hotel occupancy, retail spending, and overall economic activity through the February period — provides an annual data point on the health of Trinidad’s domestic economy and its tourism sector that is worth tracking alongside the energy sector indicators that more typically drive analysis of Trinidadian economic conditions.

And as always, the Guyana first-oil timeline will be the most watched single indicator in the Caribbean investment universe. With the Liza Destiny FPSO progressing through its final preparations, the window for first oil is narrowing, and each month that passes confirms that a genuinely transformative event is moving from the realm of the anticipated to the imminent. Caribbean property investors who have not yet formulated their Guyana strategy should be doing so now.

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.