Caribbean Property & Investment Review — June 2014

Publication Date: 3 June 2014  |  Coverage Period: 3 May – 2 June 2014

Morning Briefing

• Oil near cycle highs: WTI crude has pushed above $100 per barrel and traded near $105 through May, keeping Trinidad & Tobago’s fiscal position robust and energy sector employment strong.
• Tourism peak season opens: The Caribbean Tourism Organisation reports advance booking data pointing to a record summer 2014 for regional visitor arrivals, with Jamaica, the Dominican Republic and Barbados among the strongest performers.
• Hotel investment pipeline expands: Major international hotel brands are actively developing or planning new Caribbean properties across the mid-market and luxury segments, encouraged by consistently strong occupancy data and improving airlift.
• CBI demand sustains premium real estate: Citizenship by investment enquiries continue at elevated levels across St Kitts, Grenada, Antigua and Dominica, with developers reporting strong pre-sales at qualifying resort projects.
• Jamaica NHT expands mortgage book: The National Housing Trust reports a year-on-year increase in approved mortgage applications for the first quarter of 2014, a positive signal despite the broader macroeconomic austerity context.
• Barbados tourism cautiously upbeat: The Freundel Stuart government welcomes data showing improved visitor spending in April and early May, providing some relief to a tourism-dependent economy facing persistent fiscal pressure.

Caribbean Tourism Peak Season 2014: Strong Bookings, Expanding Airlift

The Caribbean tourism industry approaches the summer of 2014 with justified optimism. Across the region, advance booking data gathered by the Caribbean Tourism Organisation and individual national tourism boards points to year-on-year improvements in visitor numbers, with particularly strong performance anticipated in Jamaica, the Dominican Republic, Barbados, the Bahamas and the smaller Eastern Caribbean destinations that benefit from CBI-linked resort activity.

The drivers of this strength are multiple and reinforcing. US consumer confidence has been gradually recovering since the 2008 financial crisis, and Caribbean holidays — which were among the first discretionary expenditures cut during the downturn — are returning to household budgets. The low US interest rate environment has freed up consumer spending power. European arrivals, particularly from the UK and Germany, are recovering as those economies stabilise. And new source markets, including Brazil and increasingly China, are contributing incremental demand that previous Caribbean visitor statistics barely captured.

Airlift expansion is a crucial enabler. American Airlines, JetBlue and Southwest have all been adding Caribbean routes or increasing frequency on established routes in response to demand signals. The UK’s British Airways and Virgin Atlantic maintain strong Jamaica programmes, while European charter operators are filling hotels in the Dominican Republic and Cuba on a scale that continues to surprise analysts accustomed to thinking of the Caribbean as primarily a North American travel market. Cuba aside — where US visitors are still largely absent due to the longstanding embargo — the Caribbean is benefiting from the broadest international demand it has seen in years.

For the property investment community, sustained tourism strength translates directly into improved hotel valuations, better short-term rental yields, and greater developer confidence in bringing new hospitality product to market. The cycle is self-reinforcing: strong occupancy data attracts new hotel investment, which in turn expands capacity and product quality, which attracts more visitors.

Hotel Investment Pipeline: Brands Place Their Caribbean Bets

The hotel investment pipeline across the Caribbean is arguably more active in mid-2014 than at any point since the pre-2008 boom. Major international operators — Hyatt, Marriott, Hilton, Sandals and the all-inclusive specialists — are either building, planning or actively seeking development sites across the region. The motivations are clear: Caribbean hotel RevPAR (revenue per available room) has been recovering steadily, construction costs in many destinations remain manageable, and the long-term structural case for Caribbean tourism — driven by demographic trends in source markets and the enduring appeal of the region’s natural assets — is as compelling as ever.

Jamaica is one of the most active markets. Sandals Resorts, the homegrown all-inclusive giant, continues to invest in its existing Jamaican properties while evaluating expansion options. The north coast corridor from Montego Bay to Ocho Rios remains the primary focus, but developers are also exploring Negril, which offers a distinct beach and lifestyle experience. IDB and other development finance institutions have been active in supporting tourism infrastructure investment in Jamaica, recognising the sector’s centrality to economic recovery under the IMF framework.

Barbados presents a more nuanced investment picture. The west coast — the famous Platinum Coast — remains a premium destination where villa and boutique hotel values are sustained by an affluent, largely British buyer and guest base. However, the broader Barbados economy’s fiscal challenges are creating an environment of uncertainty that is deterring some larger-scale development proposals. Developers who know the island well are proceeding carefully, focused on quality over volume and on assets that can command premium pricing regardless of broader market fluctuations.

The Dominican Republic continues to absorb hotel investment at a pace that outstrips all other Caribbean destinations. The Punta Cana-Bavaro corridor alone has several major new all-inclusive properties under construction, while smaller boutique hotels are emerging in Las Terrenas on the Samana Peninsula and in Cabarete on the north coast. International hotel management companies have embraced the Dominican Republic as a growth market, drawn by the consistently strong occupancy rates and the government’s supportive attitude toward tourism investment.

T&T Energy Economy Sustains Real Estate Confidence

Trinidad & Tobago’s property market remains buoyed by the sustained strength of the energy sector. With WTI crude trading near or above $100 per barrel through May 2014, government revenues from the national petroleum company NGC, from royalties and from corporate energy taxes remain substantial. The Kamla Persad-Bissessar administration has been directing a portion of these revenues into infrastructure investment — road improvements, utility upgrades and social housing programmes — that benefit both the construction sector and the broader property market.

The energy services cluster around Point Lisas and the Point Fortin area continues to generate significant employment and commercial real estate demand. Industrial property — warehousing, fabrication yards, specialist office facilities for engineering and energy management firms — is in consistently strong demand. International energy companies maintaining T&T operations have been renewing and in some cases expanding their leased premises, a signal of ongoing commitment to the twin-island republic as a regional energy hub.

Residential demand in Port of Spain’s leafy suburbs continues at a healthy pace. The professional class employed in energy, finance and professional services is sustaining demand for mid-to-upper market housing. New condominium developments in east Port of Spain and Westmoorings are achieving sales and rental rates consistent with a market that, while not dramatically appreciating, is consolidating gains made over the previous five years of energy-sector growth. The question for analysts — not yet urgent but beginning to be discussed in property circles — is what happens to this dynamic if global oil prices experience a sustained correction.

CBI Market: Programme Competition Intensifies

The competition among Caribbean CBI programmes for international investor attention has intensified through the first half of 2014. St Kitts & Nevis, Grenada, Antigua & Barbuda and Dominica are all actively marketing their programmes at international investment migration conferences and through specialist advisory networks. The total pool of global investors seeking Caribbean passports — estimated to number in the tens of thousands annually when family applications are included — is large enough to sustain all four programmes, but each destination is working hard to differentiate its offering.

For real estate developers in the qualifying jurisdictions, the CBI pipeline represents a structurally different type of buyer from the typical holiday home purchaser. CBI buyers are often price-insensitive at the qualifying threshold — they are buying a passport, with the property as a means to that end rather than an intrinsically valued asset. This creates a somewhat artificial market dynamic in which qualifying properties command values supported less by local fundamentals than by the programme’s minimum investment requirements. Developers who understand this dynamic are structuring their projects accordingly, focusing on achieving qualifying status approval and meeting programme compliance requirements as the primary commercial objectives.

Caribbean Leaders This Month

Dominican Republic — Hotel Investment Leader: New hotel groundbreakings in Punta Cana confirm the DR’s position as the Caribbean’s premier destination for large-scale resort investment, with major international brands competing for the best coastal sites.

Jamaica — NHT Expanding Access: The National Housing Trust’s increased mortgage approvals signal that even under IMF-imposed fiscal constraints, the government’s housing finance arm is finding ways to extend homeownership access to middle-income Jamaicans.

Trinidad & Tobago — Energy Sector Confidence: Oil near $105 per barrel keeps T&T’s fiscal position strong; energy company lease renewals signal continued commercial real estate demand in Port of Spain and the energy corridor.

Grenada — CBI E-2 Advantage: Grenada’s unique US E-2 treaty visa access continues to attract a sophisticated investor profile; qualifying resort developments are reporting strong pre-sales pipelines heading into summer.

Barbados — Platinum Coast Stability: West coast villa values demonstrate resilience despite the island’s broader fiscal challenges, with UK buyer demand providing a stable base for the premium end of the market.

St Kitts & Nevis — Programme Maturity: The CBI programme’s reform process continues, with enhanced due diligence procedures strengthening the programme’s international reputation and supporting the values of qualifying real estate developments.

Bahamas — Luxury Resilience: Paradise Island and the Lyford Cay area report sustained demand from North American ultra-high-net-worth buyers, with several significant villa transactions completing in the coverage period.

Antigua — Marina and Yachting Premium: English Harbour properties are benefiting from the global yachting community’s embrace of Antigua as a premier Caribbean sailing destination, supporting values for marina-adjacent real estate.

Overall Caribbean Market Performer — June 2014: Dominican Republic. The consistent scale and quality of hotel investment flowing into the Dominican Republic, combined with record tourism arrivals, makes it the region’s standout investment destination for the second consecutive month.

Looking Ahead

The Caribbean property market’s summer season is shaping up to be the strongest in several years, supported by a convergence of favourable factors: recovering North American consumer confidence, robust airlift, sustained energy revenues in Trinidad & Tobago, and an expanding CBI market generating investment flows into qualifying real estate across the Eastern Caribbean. The macroeconomic backdrop — low US interest rates, stable global growth — remains supportive.

The Atlantic hurricane season officially opens on June 1st, and while early forecasts for 2014 suggest a below-normal season, the property market will be watching developments through August and September. A significant storm strike on a major tourism destination would have both immediate economic consequences and longer-term implications for investor sentiment and insurance costs. The 2013 season was mercifully quiet, and early indications suggest 2014 may follow suit — but prudence demands continued attention.

For CBI-linked real estate, the next quarter will test whether the strong application pipelines translate into completed qualifying transactions and funded developments. Developers who have bet heavily on CBI demand will be watching approval processing times and programme compliance requirements closely. Any regulatory changes to programme qualifying thresholds or investment structures would have immediate market implications across the Eastern Caribbean CBI destinations.

The Caribbean Property & Investment Review is published monthly and covers real estate markets, investment trends and economic developments across the Caribbean region. Edition 146, June 2014.

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