Caribbean Inflation Eases: Property Markets Stabilise as Development Finance Flows — May 2023

Publication Date: 3 May 2023  |  Coverage Period: 3 April – 2 May 2023

Morning Briefing

• Jamaica BOJ holds rate: The Bank of Jamaica kept its policy rate at 7.0% at its late April meeting, signalling confidence that domestic inflation is on a downward path toward the 4–6% target range.
• IDB commits US$200M to Caribbean housing: The Inter-American Development Bank announced a regional affordable housing facility targeting Jamaica, the Dominican Republic and Trinidad and Tobago, with disbursements expected to begin in Q3 2023.
• Dominican Republic construction sector grows 6%: Official figures showed the DR’s construction sector expanded 6.2% year-on-year in Q1 2023, driven by tourism infrastructure and mixed-use residential projects near Punta Cana and Santo Domingo.
• Caribbean food inflation still elevated but easing: Regional food price indices tracked by the Caribbean Development Bank show average food inflation across CARICOM states dropped to approximately 12% in March 2023, down from peaks above 18% in mid-2022.
• Barbados launches new mortgage guarantee scheme: The Barbados Mortgage Finance Company unveiled a pilot guarantee product targeting first-time buyers, aiming to reduce deposit requirements from the standard 20% to 10% for qualifying applicants.
• Cayman Islands luxury sales remain robust: Real estate agents in Grand Cayman reported continued strong demand in the Seven Mile Beach corridor, with average luxury unit prices holding above US$1.5 million despite higher global interest rates.

Inflation Moderation: What It Means for Caribbean Property

After eighteen months of relentless price pressure, there is cautious optimism across the Caribbean that the worst of the inflation surge is passing. The global context has shifted materially: US Consumer Price Index data released in April 2023 showed annual inflation at around 5%, still elevated but dramatically lower than the 9.1% peak recorded in June 2022. For Caribbean economies that import the majority of their food, fuel and construction materials, this US moderation feeds through relatively quickly into domestic price dynamics.

Jamaica’s Statistical Institute reported that consumer price inflation fell to 6.9% in March 2023, down from peaks above 10% in 2022. This is within touching distance of the Bank of Jamaica’s 4–6% target band, a significant achievement given the global environment. Fuel prices, which had spiked dramatically following Russia’s February 2022 invasion of Ukraine, have partially normalised, reducing the transportation and energy cost component of construction budgets across the island.

For the property market, moderating inflation has two principal effects. First, it relieves some pressure on construction costs, which had surged 30–50% above pre-pandemic levels at their 2022 peak. Developers reported in April that steel, cement and timber prices were 10–15% below their worst levels, though still well above 2020 baselines. Second, it creates conditions in which central banks can consider easing monetary policy — though that step remains premature across most of the region. The Bank of Jamaica’s decision to hold at 7.0% was widely interpreted as a signal that rates have peaked, even if cuts are not imminent.

Barbados, operating under its IMF-supported economic reform programme, has seen inflation decline more sharply, falling to around 6% by March 2023. Prime Minister Mia Mottley’s administration has pointed to fiscal discipline and managed energy pricing as contributing factors. The Barbadian property market, particularly on the platinum west coast, has been somewhat insulated from domestic inflation pressures by sustained demand from UK and European buyers, many of whom are drawn by Barbados’s Welcome Stamp remote-working visa programme, which continues to attract high-net-worth remote workers to the island.

IDB and CDB Development Finance: A Lifeline for Affordable Housing

The Inter-American Development Bank and Caribbean Development Bank have emerged as critical sources of project finance for Caribbean affordable housing programmes at a time when commercial borrowing costs remain elevated. With the US Federal Reserve’s benchmark rate at 4.75–5.0% following its May 2023 meeting, commercial lenders across the Caribbean are pricing mortgage products at 10–12%, levels that place homeownership firmly out of reach for median-income households without some form of concessional support.

The IDB’s newly announced Caribbean Affordable Housing Facility represents one of the largest coordinated regional interventions in the residential sector in recent memory. The US$200 million envelope is structured as a blend of loans and technical assistance grants, with country-specific allocations based on housing deficit data. Jamaica, with an estimated shortfall of over 150,000 units according to the National Housing Trust, is expected to receive the largest single-country share. The IDB’s terms — typically 25–30 year maturities at concessional interest rates — allow on-lending to beneficiaries at rates well below commercial levels.

Jamaica’s National Housing Trust remains the centrepiece of the island’s affordable housing delivery system. The NHT reported in April 2023 that it had disbursed over J$10 billion in mortgages in the first quarter of the year, with average loan sizes of approximately J$6 million. The Trust’s fixed mortgage rate of 7–9% for qualifying members stands in sharp contrast to commercial bank rates, which have risen to 12–15% over the past year. For the roughly 30% of Jamaica’s formal workforce who contribute to the NHT, access to below-market financing represents the primary pathway to homeownership.

The Caribbean Development Bank, based in Bridgetown, Barbados, has simultaneously been advancing its Social Sector Response Facility, which includes housing components for several Eastern Caribbean states. St Lucia, Grenada, St Kitts and Nevis and Antigua and Barbuda have all received or are processing CDB housing-related allocations in 2023, with a focus on post-hurricane resilient construction standards. These requirements — which mandate compliance with enhanced wind-resistance and flood-mitigation specifications — add 15–20% to baseline construction costs but are increasingly viewed as essential given the Caribbean’s escalating climate risk exposure.

Property Market Stability: Signs of a Soft Landing

Against a backdrop of high interest rates and elevated construction costs, Caribbean property markets have demonstrated unexpected resilience through the first quarter of 2023. The feared sharp correction in values — widely anticipated when the US Federal Reserve began its aggressive hiking cycle in March 2022 — has not materialised in the premium segments that dominate Caribbean transaction data. Several structural factors explain this relative stability.

Demand from the diaspora and foreign buyers has remained a powerful stabilising force. Jamaica’s real estate market data for Q1 2023 shows that transactions involving overseas-based buyers — predominantly Jamaicans resident in the United States, United Kingdom and Canada — accounted for approximately 35% of residential sales by value. These buyers, transacting in hard currency, are insulated from local borrowing costs and often purchasing outright without mortgage financing. Similarly, in Barbados, the platinum coast luxury segment continues to attract British, American and Canadian buyers for whom the island’s political stability, English-language legal system and tropical lifestyle are more important than cyclical interest rate movements.

In Trinidad and Tobago, the property market has been supported by the country’s energy revenues, which remain healthy despite some moderation in global natural gas prices from 2022 peaks. The government’s continued investment in public infrastructure — including road upgrades in the east-west corridor and housing developments in central Trinidad — has underpinned demand in the middle market. Commercial real estate in Port of Spain has been slower, reflecting structural questions about office space demand in a post-pandemic hybrid working environment, but industrial and logistics property is seeing increased interest linked to T&T’s role as a regional transshipment hub.

Guyana continues to be the regional outlier — a market where property price growth is driven not by tourism or diaspora remittances but by direct energy sector investment. The country’s oil production, now approaching 380,000 barrels per day as ExxonMobil and its partners continue to ramp up Stabroek Block output, is generating extraordinary fiscal revenues and private sector investment. Georgetown’s commercial real estate market has seen office and retail rents increase significantly over the past eighteen months, driven by energy company office requirements, and residential demand in the capital and its eastern suburbs remains robust. The challenge for Guyana is ensuring that infrastructure development — roads, power, water — keeps pace with this extraordinary growth.

Dominican Republic: Regional Construction Leader

The Dominican Republic has maintained its position as the Caribbean’s most dynamic construction market through early 2023. The government’s ambitious infrastructure programme — centred on the expansion of the metro system in Santo Domingo, highway upgrades connecting tourism zones, and social housing schemes targeting urban informal settlers — continues to inject substantial demand into the construction sector. Private sector investment has followed, with major mixed-use developments underway in Cap Cana, Punta Cana and the Bávaro corridor catering to the tourism and second-home markets.

The DR’s property market remains attractive to both Latin American investors and North American second-home buyers. A combination of relatively low property taxes, a politically stable investment environment under President Luis Abinader’s administration, and strong tourism infrastructure makes the DR one of the most accessible high-growth property markets in the broader Caribbean basin. Construction costs have risen, as they have across the region, but the DR’s larger domestic construction industry — with more local manufacturing capacity for building materials than smaller island states — has experienced somewhat lower price inflation than its neighbours.

Foreign direct investment into the DR’s tourism-linked real estate sector remains buoyant. Hotels and integrated resort communities — where hospitality, residential units and retail are combined within a single development — continue to attract international capital from European and North American institutional investors who view Caribbean tourism as a structural growth market. Cap Cana alone has seen several major project announcements in the first months of 2023, including hotel expansions and branded residential communities tied to international hospitality chains.

Caribbean Leaders This Month

Jamaica continues to demonstrate macro-economic resilience, with the BOJ’s rate hold signalling growing confidence in the inflation trajectory. The property market is holding firm, supported by NHT lending and diaspora investment, even as commercial mortgage rates remain elevated.

Dominican Republic leads the region in construction output, with Q1 2023 growth of 6.2% in the sector underlining the country’s position as the Caribbean’s largest construction market. Tourism-linked investment continues to flow into integrated resort developments.

Barbados is demonstrating the benefits of its IMF-supported reform programme, with inflation declining faster than regional peers and a new mortgage guarantee scheme signalling policy attention to affordability. The luxury market remains well-supported by international demand.

Trinidad and Tobago benefits from its energy revenues in maintaining public investment in infrastructure and housing, providing a buffer against the global rate environment that smaller, more tourism-dependent economies lack.

Guyana remains the region’s most dynamic growth story, with oil revenues driving commercial and residential real estate demand in Georgetown at a pace that tests infrastructure capacity. The challenge of managing rapid wealth-driven urbanisation is becoming increasingly acute.

Cayman Islands continues to demonstrate the premium end of the Caribbean market, with Seven Mile Beach luxury inventory holding firm above US$1.5 million average pricing. Financial sector strength and limited land supply continue to support values.

St Lucia is benefiting from the CDB’s Eastern Caribbean housing finance facility, with new affordable schemes announced for the Vieux Fort and Castries areas. Tourism recovery continues to support short-term rental yields in prime beach areas.

Antigua and Barbuda saw continued interest in its Citizenship by Investment programme’s real estate option, with approved projects marketing strongly to Middle Eastern and Asian investors during April. The programme remains one of the Caribbean’s most active CBI real estate pipelines.

Overall regional performer this month: Dominican Republic, whose combination of construction sector growth, sustained foreign investment attraction and government infrastructure commitment makes it the standout market across the Caribbean in the April 2023 reporting period.

Looking Ahead

The critical question for Caribbean property markets over the coming months is whether the moderation in inflation translates into central bank rate cuts — and if so, how quickly. Most regional economists do not anticipate BOJ rate reductions before late 2023 at the earliest, meaning commercial mortgage rates are likely to remain elevated through the summer season. This sustained affordability pressure on first-time buyers will continue to test the relevance and reach of schemes like the NHT and Barbados’s new mortgage guarantee.

Development finance from the IDB and CDB will be increasingly important in bridging the gap between commercial rates and what Caribbean households can afford. The success or failure of the newly announced Caribbean Affordable Housing Facility — in terms of speed of disbursement and quality of project execution — will be closely watched as a test case for whether regional multilateral finance can be deployed at the scale and pace that housing deficits demand.

On the construction side, the gradual easing of global supply chain pressures and commodity prices offers some relief to developers who have been managing historic cost inflation since 2021. If material prices continue their downward trend through Q2 2023, the second half of the year could see more projects that were delayed or shelved during the cost spike return to active development — potentially adding much-needed inventory to markets that have seen supply constrained precisely when demand has been strongest.

The Caribbean Property & Investment Review is published monthly and covers developments during the preceding calendar month. All factual statements reflect information publicly available at the time of publication.

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