Caribbean Property & Investment Review — August 2019

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

Morning Briefing

• Caribbean summer tourism is performing at its strongest in years, with Jamaica, Barbados, St Lucia, Antigua, and the Eastern Caribbean CBI destinations all reporting July visitor volumes tracking ahead of 2018 comparatives as the region approaches what analysts increasingly believe will be a record full-year arrivals total.
• Dominican Republic’s tourism sector shows clear signs of stabilisation following the hotel safety crisis of May-June, with July occupancy data from Punta Cana and other resort zones recovering meaningfully and the government’s enhanced hotel inspection and certification regime earning positive international recognition.
• ExxonMobil’s Guyana Liza Phase 1 project continues pre-production progress, with the Destiny FPSO commissioning programme advancing on schedule and first oil now widely expected in the second half of 2019 — a milestone that is driving extraordinary commercial real estate activity in Georgetown.
• The US Federal Reserve cut interest rates by 25 basis points at its July 31 meeting — the first cut since 2008 — bringing the federal funds rate to 2.25% and signalling a shift to an accommodative policy stance that Caribbean property markets expect to provide meaningful support to mortgage affordability and investment returns.
• Caribbean hotel development pipeline remains robust with multiple resort projects across Jamaica, the Dominican Republic, Grenada, and St Lucia either under construction or in advanced planning, reflecting sustained investor confidence in the region’s long-term tourism fundamentals.
• Jamaica’s National Housing Trust reports strong mid-year lending performance with first-time buyer applications running above the same period in 2018, as the government’s housing programme continues to address the significant affordable housing deficit in the Kingston metropolitan area and resort communities.

Caribbean Summer Tourism 2019: Tracking Toward a Record Year

The Caribbean Tourism Organisation’s mid-year tracking data presents a picture of sustained, broad-based momentum across virtually every major destination in the region. The combination of continued airlift expansion — with multiple airlines adding Caribbean capacity on both North American and European routes through 2019 — and strong consumer demand in key source markets has produced a summer season that is outperforming already-elevated 2018 comparatives. The full-year prospect of a record stayover arrivals total — potentially exceeding the 31 million mark for the first time — is becoming an increasingly mainstream expectation rather than an optimistic projection.

Jamaica has been the region’s most consistently outstanding performer through the first half of the year, and the summer months have confirmed that momentum. July visitor arrivals were up year-on-year for the seventh consecutive month, with both stayover and cruise passenger categories posting positive growth. The north coast resort communities — Montego Bay, Ocho Rios, Negril — all reported strong July occupancy, with the all-inclusive segment performing particularly well as North American families seek the ease and value that the Caribbean all-inclusive model delivers during the school holiday period.

For Jamaica’s property market, the tourism momentum translates directly into investment confidence. Hotel developers are advancing projects along the north coast with access to capital from a range of sources: Jamaican institutional investors, regional development banks, CBI programme funds from across the Eastern Caribbean, and international hospitality brands bringing their own balance sheets to the table. The government’s continued improvement of the physical infrastructure serving the north coast — road access, utility reliability, airport capacity — is a critical enabling factor that the investment community recognises and values.

Barbados’s summer performance has been solid rather than spectacular, reflecting the particular characteristics of the island’s source market mix. The British market — historically Barbados’s largest — delivers its summer peak volume in July and August, and 2019 data suggests the UK-Barbados travel relationship remains robust despite the macroeconomic uncertainties surrounding Brexit. The island’s US and Canadian visitor numbers are also tracking positively, supported by improved airlift that has partly compensated for the demand uncertainty that accompanied the BERT economic restructuring process.

Dominican Republic: Stabilisation After the Crisis

The Dominican Republic’s position in July 2019 is one of careful but genuine recovery from the hotel safety crisis that dominated its tourism narrative in May and June. The deaths of American tourists at several Dominican Republic hotels during those months — attributed initially to alcohol contamination but subject to more complex and varied investigations as the facts emerged — triggered a period of intense US media coverage, State Department travel advisory elevation, and booking cancellations that threatened to derail what had been an excellent first half of the year for DR tourism.

The government of President Danilo Medina responded rapidly and comprehensively. Within weeks of the initial incidents, the Ministry of Tourism had implemented emergency inspection regimes covering all hotels in the affected resort zones, with particular focus on the bar and food service supply chains that were identified as potential contamination points. The certification and labelling of alcohol products served in hotels was overhauled, with new standards requiring sealed, commercially produced products from approved suppliers. International hotel brand operators — including Hyatt, Marriott, and several major all-inclusive chains — implemented their own enhanced internal protocols, providing additional assurance to travellers and the US State Department.

The July data suggests these measures are having the desired effect on market confidence. Punta Cana resort occupancy for July has recovered meaningfully from the June trough, with several major operators reporting that cancellation rates have returned to near-normal levels and that new forward bookings are flowing for the autumn and winter seasons. The Dominican Republic Tourism Board has been running a sustained international communications campaign — including engagement with travel industry media and direct outreach to travel agents in North America — that is beginning to move the narrative from crisis to recovery.

For DR property investors, the stabilisation of the tourism market is essential context for the investment case. The Dominican Republic’s resort property market — particularly in the Punta Cana and emerging Cap Cana zones — has been one of the Caribbean’s strongest performers over the past five years, driven by the island’s competitive all-inclusive product, strong North American airlift, and a government consistently supportive of tourism investment. The crisis of May-June tested that investment case but has not broken it: the fundamentals of the Dominican Republic’s tourism proposition — its accessibility, its scale, its price competitiveness, and its hotel product quality — remain intact, and the government’s response has demonstrated a capacity for crisis management that will inform investor assessments going forward.

US Federal Reserve Rate Cut: Caribbean Property Market Implications

The US Federal Reserve’s decision to cut interest rates by 25 basis points at its July 31 meeting — the first reduction since December 2008 and one widely anticipated by financial markets — carries meaningful implications for Caribbean property markets that warrant careful consideration. The federal funds rate, now at 2.25%, directly influences the borrowing costs available to the many Caribbean property buyers and developers who finance through US-dollar instruments, as well as the USD-denominated mortgage rates that determine affordability for international buyers in markets like the Turks and Caicos, Cayman Islands, and the Bahamas.

For international buyers considering Caribbean property purchases financed through US dollar mortgages or home equity lines of credit, the rate cut provides a modest but real reduction in carrying costs. More importantly, the Fed’s shift to an accommodative stance signals that the rate environment is likely to remain supportive — at minimum, the risk of further rate increases that were weighing on some buyer calculations through 2018 has significantly receded. Market pricing suggests at least one further cut is expected before year-end, which would bring the federal funds rate to 2.0% or below.

For Caribbean central banks and financial institutions that peg to the US dollar or closely manage their exchange rates against it — including the Bahamas, the Eastern Caribbean Currency Union, and the Cayman Islands — the Fed’s move creates space for domestic monetary conditions to ease somewhat in sympathy. This may translate into modestly lower commercial lending rates over the coming months, supporting both developer project financing and local buyer mortgage affordability. The effect will vary by market and institution, but the directional impact is positive for Caribbean property market activity.

Guyana Pre-Production: Georgetown’s Transformed Market

ExxonMobil’s Liza Phase 1 commissioning programme is advancing, and Georgetown’s commercial real estate market is in full transformation mode. The July period has seen continued high leasing activity in the capital’s office market, with international energy companies, professional services firms, and logistics operators competing for the limited supply of quality office space in a city that was not designed for the commercial intensity now being imposed upon it.

The hotel market in Georgetown merits particular attention. International hotel brands that had been watching the Guyana story from a cautious distance are now moving to commit, recognising that the first oil milestone — expected in the second half of 2019 — will trigger a sustained expansion of the business travel market in the capital. Brand-affiliated business hotels have been perennially undersupplied in Georgetown, with the existing stock dominated by independent operators of variable quality. The arrival of internationally branded hotel product will serve both the burgeoning oil sector professional community and the growing cohort of investors and business visitors for whom brand standards and loyalty programme participation are prerequisites.

The residential market for premium housing in Georgetown continues to demonstrate the supply constraints that have characterised it for the past two years. Corporate tenants — energy companies seeking accommodation for expatriate staff — are willing to pay rents that represent a significant premium over the historical Georgetown residential market, and this premium is being captured by developers and investors who anticipated the oil-driven demand shift. New residential development in Georgetown’s better-located suburbs is being absorbed rapidly, with pre-letting of residential schemes before construction completion becoming a normal feature of the market.

Caribbean Leaders This Month

Guyana (Georgetown Commercial and Residential): The pre-production oil environment has created the Caribbean’s most dynamic property market, with demand consistently exceeding supply and the structural demand drivers only growing stronger as first oil approaches.

Jamaica (Tourism and Investment): Seventh consecutive month of year-on-year arrivals growth, strong NHT lending, and an advancing hotel development pipeline make Jamaica’s 2019 one of the most comprehensively positive years in recent property market memory.

Dominican Republic (Recovery Trajectory): The stabilisation of tourism confidence following the May-June hotel crisis, combined with the government’s comprehensive and credible safety reform programme, is re-establishing the investment case for DR resort property.

Barbados (Steady Recovery): Solid summer tourism performance and continued BERT programme progress are creating the conditions for a gradual but genuine recovery in Platinum Coast property market activity.

Grenada (CBI and Hotel Development): The CBI programme continues to generate solid flows of approved investment into hotel and resort development projects, with the island’s natural assets and governance reputation supporting its premium positioning.

St Lucia (Luxury Property): The Cap Estate and Rodney Bay development corridors are seeing sustained inquiry from international buyers, supported by the island’s strong 2019 tourism season and improving direct airlift.

Turks and Caicos (Luxury Pipeline): Providenciales continues to demonstrate the consistent capital value appreciation and rental yield performance that maintains its position as the Caribbean’s premier ultra-luxury property investment address.

Overall Regional Performer — August 2019: Guyana. The transformation of Georgetown’s property market in anticipation of first oil is the Caribbean’s most dramatic and consequential real estate story, and its momentum is only building as the production milestone approaches.

Looking Ahead

The Caribbean enters August with a tourism season that is tracking toward historic highs and an investment environment that is benefiting from the Federal Reserve’s policy shift to accommodation. The near-term watch item of greatest consequence is Guyana’s first oil — still expected in the second half of 2019 — which will when it arrives represent the Caribbean’s most significant single economic event since the post-war tourist boom established the foundations of the region’s modern prosperity.

The Dominican Republic will need to sustain its recovery momentum through August and into the crucial winter booking season. The success of the government and hotel sector’s safety reform programme in restoring North American traveller confidence will be tested when Q4 advance booking data becomes available, and the outcome of that test will significantly shape the island’s investment narrative going into 2020.

Hurricane season vigilance is appropriate for all Caribbean property market participants. The peak of the Atlantic hurricane season runs from mid-August through mid-October, and while seasonal forecasts for 2019 have been moderate, the Caribbean’s experience of Hurricanes Irma and Maria in 2017 is a reminder that individual storms can cause catastrophic damage regardless of overall season activity levels. Property owners, investors, and developers would do well to review their insurance coverage and storm preparedness in the weeks ahead.

The Caribbean Property & Investment Review is published monthly. Edition 84 covers the period 3 July – 2 August 2019. All market data represents conditions during the coverage period. This publication does not constitute investment advice.

Follow Jamaica Homes on Youtube @jamaicahomes and Instagram @jamaica_homes and on Facebook @jamaicahomesnews Send us a message or email us at onlinefeedback@jamaica-homes.com or editor@jamaica-homes.com