Caribbean Property & Investment Review — Edition 84

Publication Date: 3 August 2019  |  Coverage Period: 3 July – 2 August 2019

Morning Briefing

• US Federal Reserve cuts interest rates by 25 basis points on 31 July — the first rate cut since December 2008 — providing immediate support for Caribbean property markets and international buyer demand
• Dominican Republic tourism authorities report that July booking volumes have stabilised following the June crisis, with new safety certification programme for all-inclusive hotels generating positive travel trade response
• Jamaica records its best-ever July for stopover arrivals, with Montego Bay’s Sangster International Airport operating at capacity on multiple days as peak summer season delivers record throughput
• ExxonMobil confirms Guyana’s Liza Phase 1 floating production vessel is completing final commissioning ahead of expected first oil production in late 2019 — the countdown is on
• Atlantic hurricane season intensifies with Tropical Storm Erin forming in the open Atlantic, though forecasters note the storm poses no current threat to Caribbean islands
• Caribbean hotel investment transactions reach a five-year high in the first half of 2019 as institutional buyers seek yield in an environment of declining US interest rates and strong regional tourism fundamentals

US Rate Cut Lands: Caribbean Property Gains Immediate Tailwind

The US Federal Reserve’s decision on 31 July to cut the federal funds rate by 25 basis points — reducing the target range from 2.25–2.5% to 2.0–2.25% — was immediately welcomed by Caribbean property market professionals as a meaningful positive development for the region’s investment climate. The cut, the first since the financial crisis era and the product of months of evolving Fed communication about downside economic risks, fed directly into the conditions that drive international Caribbean property demand: the cost of US dollar mortgage finance for second home buyers, the relative attractiveness of Caribbean real estate yields versus alternative US investments, and the broader confidence of wealthy North American purchasers who represent the dominant buyer group in Jamaica, Barbados, the Turks and Caicos, and the Bahamas.

Mortgage brokers in Florida and New York — key feeder markets for Caribbean second home buyers — reported that the rate cut had prompted a flurry of enquiries from existing homeowners seeking to leverage lower rates to finance Caribbean purchases. The 30-year US fixed mortgage rate had already fallen to below 3.75% in anticipation of Fed action, down from above 4.5% at the end of 2018, and further declines were expected if the Fed moved again in September as financial markets were pricing. For a buyer financing a USD$800,000 Caribbean villa with 60% mortgage, the difference in monthly payment between 4.5% and 3.75% was material — equivalent to several thousand dollars annually — enough to shift the psychology of a purchasing decision from marginal to confident.

Caribbean institutional investors were equally attentive to the rate environment. Hotel investment transactions across the region had reached a five-year high in the first half of 2019, reflecting the search for yield in a world of declining risk-free rates. Caribbean resort hotels, with their established track record of occupancy and rate growth, offered attractive income yields compared to alternative real estate investments in the United States and Europe. Several transactions involving mid-scale and luxury resort properties in Jamaica, the Turks and Caicos, and Aruba were reported to be at advanced stages during July, with institutional buyers from North America and Europe among the bidders.

Dominican Republic Rebuilds Confidence After June Crisis

The Dominican Republic’s tourism and hospitality sector used July to mount an evidence-based recovery from the reputational pressure of the June hotel deaths controversy. The government’s comprehensive hotel inspection programme had by July examined hundreds of all-inclusive properties, with the majority cleared as compliant with revised standards and a small number facing ongoing enforcement action. The Dominican Tourism Ministry published its inspection results in full, a transparency measure that was well received by international travel industry operators who had been pressing for data rather than reassurance.

Major US and European tour operators who had temporarily suspended promotional activities for Dominican Republic products began to re-engage during July, reviewing their autumn and winter 2019/20 programmes and restoring Dominican Republic hotels to their catalogues. Several operators publicly cited the government’s transparency and the pace of the safety certification process as factors in their decision to recommence promotion. Dominican Republic hotels participating in the new national hotel safety certification scheme used the certification as a marketing asset, and early data suggested that certified properties were experiencing a faster recovery in booking pace than those still completing the process.

For the Dominican Republic property market, the July stabilisation was encouraging. International buyer enquiries, which had paused in June, began to resume toward the end of the month. Developers with resort real estate projects in Punta Cana and Cap Cana — the highest-profile development zones — reported that their investor pipelines, while temporarily quieter, had not experienced material cancellations. The Dominican Republic’s fundamental attraction as the Caribbean’s largest and most affordable premium destination, with unrivalled airlift from North America and Europe, remained intact. Real estate advisers counselled that the crisis, while serious, was episodic rather than structural in its implications for the market.

Guyana’s Liza Phase 1: Final Countdown

The Guyana oil story entered its most anticipated phase through July 2019, as ExxonMobil confirmed that the Liza Destiny FPSO — the floating production, storage and offloading vessel at the heart of the Liza Phase 1 development — had completed major commissioning milestones and was being prepared for first oil production before the end of 2019. The Liza Destiny, contracted from SBM Offshore and custom-built for operations at the Stabroek Block offshore Guyana, had arrived at the block in June and the commissioning process was advancing on schedule.

For regional observers who had been tracking the Guyana oil story since the first Stabroek Block discoveries in 2015, the confirmation of imminent first oil production represented the culmination of years of anticipation. Guyana’s transformation from a low-income agricultural economy dependent on sugar, rice, and gold into a significant oil producer was about to become reality, and the implications for the country’s fiscal position, infrastructure investment capacity, and development trajectory were profound. Regional economists continued to note that the pace at which Guyana could translate oil revenues into tangible improvements in public services and living standards would determine whether the oil boom delivered its theoretical potential.

In Georgetown, property market conditions in July reflected the continued build-up of oil sector activity. Demand for Grade A office space remained well above historical norms, with international energy services companies, law firms, and financial institutions all seeking presence in the capital. Serviced apartment inventory was under pressure as expatriate oil workers and regional professionals arriving to service the growing sector competed for a limited supply of high-quality residential accommodation. Local developers were advancing several new condominium and commercial projects in response, though completion timelines extended into 2020 and beyond, meaning the supply-demand imbalance in the premium segment was unlikely to resolve quickly.

Caribbean Summer Tourism Peak: Records Across the Board

Caribbean tourism authorities across multiple island destinations reported record or near-record summer performance through July 2019. Jamaica’s Montego Bay airport operated at capacity on multiple peak days as charter and scheduled airlines brought in the highest volumes of summer visitors the island had ever recorded. Barbados’s Grantley Adams International Airport reported its strongest July passenger throughput in five years. The Turks and Caicos Islands, with their limited air access, were effectively sold out across their top-tier resort inventory for the peak summer weeks, with some properties commanding daily rates well above their published rack rates due to demand pressure.

The breadth of the Caribbean’s summer 2019 performance underscored the structural strength of demand for the region. Multiple source markets — the United States, Canada, the United Kingdom, Germany, and increasingly Latin American countries — were contributing to the visitor flow, providing a diversification of demand that reduced the region’s vulnerability to weakness in any single economy. Caribbean tourism organisations had worked for years to build this multi-market approach, and the 2019 summer results suggested the strategy was delivering. The 31-million stayover visitor target for the full year 2019 was looking not just achievable but potentially conservative.

For property investors monitoring vacation rental yield performance through the summer, July delivered strong results. Well-managed villa properties in Jamaica’s north coast corridor, in Barbados’s west coast resort strip, and in the Turks and Caicos’s Grace Bay area all reported high July occupancy rates and strong average daily rates. The combination of record arrivals, growing platform-mediated distribution, and professional property management was enabling the best-located vacation rental properties to generate annualised returns that made Caribbean resort real estate increasingly compelling relative to alternatives in saturated urban rental markets.

Caribbean Leaders This Month

Jamaica delivered its best-ever July tourism performance, with record airport throughput at Sangster International confirming the island as the Caribbean’s standout summer destination. Vacation rental yields kept pace with the record hotel occupancy, rewarding property investors across the north coast corridor.

Dominican Republic demonstrated exceptional crisis recovery capability, with July booking stabilisation and the credible safety certification programme restoring travel trade confidence faster than many observers had anticipated. The resilience of the world’s most-visited Caribbean destination was on full display.

Guyana commanded the region’s investment imagination with confirmation that Liza Phase 1 first oil was on imminent approach. Georgetown’s property market continued to price in the historic transformation that was weeks or months away.

Turks and Caicos Islands capitalised on its premium positioning with a sold-out summer season, demonstrating that the ultra-luxury Caribbean segment commands its own demand dynamic largely independent of broader market conditions.

Barbados recorded strong July airport arrivals while advancing its renewable energy investment agenda. The island’s growing reputation as both a tourism and investment reform story was attracting a widening range of international attention.

Saint Lucia maintained strong performance through July, with the north coast resort corridor operating at high occupancy and the island’s development pipeline advancing. Several villa sales on the southern tip near Soufriere were noted during the coverage period.

Cayman Islands sustained its premium residential market through July, with Grand Cayman’s Seven Mile Beach corridor remaining among the Caribbean’s most expensive beachfront real estate locations and drawing consistent interest from financial sector buyers.

Overall July performer: Jamaica, for combining record summer tourism with strong property investment sentiment and continued NHT programme delivery — a trifecta of performance that placed the island at the forefront of Caribbean property and tourism in 2019.

Looking Ahead

August marks the deepest period of the Atlantic hurricane season, and Caribbean property stakeholders will be monitoring tropical weather development in the Atlantic basin with characteristic vigilance. Meteorological conditions in the deep Atlantic have supported storm formation in recent weeks, and the peak weeks of the season — historically centred on early to mid-September — remain ahead. Insurance and preparedness protocols across the region are well-established, but the unpredictable nature of hurricane track and intensity keeps the sector on perpetual alert through the autumn.

The US Federal Reserve’s next scheduled meeting falls in September, and financial markets are pricing a further 25 basis point cut to follow the July reduction. If delivered, this would extend the supportive monetary environment for Caribbean property investment and reinforce the relative attractiveness of Caribbean real estate yields versus US dollar alternatives. Caribbean developers and hotel investors will be watching the Fed’s September meeting as a significant input to investment planning for the fourth quarter and into 2020.

Guyana’s approaching first oil moment will dominate regional economic commentary through August and September. The historic significance of the event — transforming a small South American nation into an oil producer and reshaping Caribbean economic geography — cannot be overstated. Property and investment professionals across the region are already positioning themselves for the commercial opportunities that Guyana’s oil era will create, both within the country and across the wider Caribbean basin.

The Caribbean Property & Investment Review is published monthly. All market data and commentary reflect conditions during the stated coverage period. This publication does not constitute investment advice.