Caribbean Property & Investment Review — July 2014

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

Morning Briefing

• WTI crude near $105 per barrel: Oil prices touched their 2014 peak in late June, sustaining Trinidad & Tobago’s energy revenues and supporting the region’s most energy-dependent economy through the summer months.
• Hurricane season 2014 opens quietly: Atlantic hurricane season began June 1st with below-normal activity forecasts from NOAA and Colorado State University; the Caribbean property market is watching but not alarmed by current conditions.
• Guyana Stabroek Block exploration: ExxonMobil’s offshore exploration programme in Guyana’s Stabroek Block continues to generate regional attention; while no commercial discovery has been confirmed, the geological promise keeps international energy investors engaged with this South American/Caribbean nation.
• Short-term rentals emerging: Platforms like Airbnb are beginning to gain traction in Jamaica and Barbados, offering a new distribution channel for villa and apartment owners; the hospitality establishment is beginning to take notice of this nascent competitive challenge.
• Caribbean construction sector active: Building activity remains elevated across multiple markets — the Dominican Republic, Jamaica, Trinidad — reflecting the momentum of investment decisions made in the positive economic environment of 2012 and 2013.
• US rates still at zero: The Federal Reserve’s near-zero interest rate policy continues, maintaining the supportive backdrop for Caribbean cross-border real estate investment and mortgage financing.

Summer Peak: Caribbean Tourism and Real Estate in Full Season

July finds the Caribbean in the heart of its summer tourism season, and early data suggests the optimistic forecasts made earlier in the year are being borne out. Jamaica’s north coast resorts report strong occupancy through June and into July; the Dominican Republic’s all-inclusive hotels are operating at or near capacity; and Barbados’s boutique hotels and villa rental market are experiencing solid performance. The Caribbean Tourism Organisation’s mid-year assessment, due in late July, is expected to confirm a year of positive tourism momentum.

For real estate investors, sustained tourism performance is the most important single validation of underlying property values in leisure-focused markets. Hotel yields, villa rental returns and the broader confidence of developers bringing new hospitality product to market all depend on consistent occupancy and rate performance. The summer of 2014, building on an encouraging 2013, is providing this validation across most Caribbean markets. The exceptions tend to be individual destinations dealing with specific political or security challenges rather than market-wide forces.

Beyond the established tourism markets, Caribbean island communities that have historically been off the main tourism circuit are beginning to attract attention from adventure and eco-tourism operators. This is creating early-stage real estate interest in destinations that, five years ago, barely appeared on international investors’ radar. The gradual improvement in inter-island air connectivity is enabling this diffusion of tourism interest beyond the traditional big destinations, with implications for property development opportunities across the wider archipelago.

Guyana: Oil Exploration Promise Without Yet a Discovery

Among the Caribbean basin’s emerging economic stories, perhaps none carries more long-term potential than the ongoing offshore oil exploration being conducted in Guyana’s Stabroek Block by ExxonMobil in partnership with Hess Corporation and CNOOC. The geological surveys and exploration drilling programme have been generating significant interest in the international energy press, and Guyana’s government has been laying the regulatory groundwork for what it hopes will eventually be a major petroleum sector. As of mid-2014, however, no commercial oil discovery has been confirmed, and Guyana’s economy remains firmly anchored in its traditional sectors of gold, sugar, rice and bauxite.

The exploration promise is nonetheless having a discernible effect on Guyana’s economic atmosphere. Georgetown, the capital, is seeing increased activity from international consultants, energy sector professionals and service companies positioning themselves for what many believe will eventually be a significant discovery. Hotel occupancy in Georgetown has been running at higher levels than the city’s limited tourism base alone would justify, driven by this business travel from the energy sector. The commercial real estate market — modest by regional standards — is showing some signs of activity above what the existing economy would generate.

For Caribbean regional investors watching Guyana, the question is not whether oil will eventually be found — the geological evidence is considered promising — but when and in what quantities. A major discovery would fundamentally transform Guyana’s economic trajectory, its property market, and its geopolitical significance within the region. For now, investors with an appetite for early-positioning risk are beginning to explore Guyana’s nascent real estate market. For the more cautious, the story remains one to monitor rather than act upon.

Short-Term Rentals: Airbnb Begins Caribbean Disruption

The emergence of Airbnb and similar short-term rental platforms is beginning to register as a meaningful trend in Caribbean real estate circles. In Jamaica, a small but growing number of villa and apartment owners in areas like Montego Bay, Negril and the Blue Mountains are listing properties on Airbnb, finding that direct bookings from international travellers can generate yields meaningfully higher than traditional long-term rental agreements. In Barbados, the platform is gaining traction among Platinum Coast villa owners who have historically relied on specialist Caribbean villa rental agencies.

The implications for the Caribbean property investment thesis are potentially significant. If short-term rental platforms continue to expand, properties in tourist-accessible locations that previously required professional hotel management to achieve competitive hospitality yields may become viable investment propositions for smaller-scale individual investors. The barrier to entry for participating in the Caribbean tourism economy as an accommodation provider is potentially much lower with platform-enabled direct booking than with traditional villa rental models.

The established Caribbean hospitality sector is watching these developments with a mixture of curiosity and concern. All-inclusive hotels and traditional villa rental agencies operate within regulated frameworks — health and safety standards, tax obligations, employment law requirements — that the nascent sharing economy platforms largely sidestep in their early stages. Regulatory responses to the short-term rental phenomenon are beginning to be discussed in Jamaica and Barbados, though formal policy responses remain some way off. For now, the platforms are operating in a largely unregulated space, to the advantage of early-adopting property owners.

Caribbean Hotel Development: The Pipeline Assessed

The mid-year point provides an opportunity to assess the state of Caribbean hotel development activity. The pipeline is impressive by historical standards. In Jamaica, the Harmony Cove development in Trelawny — long in planning — continues to progress, representing one of the region’s most ambitious integrated resort projects. Along Jamaica’s north coast, several hotel renovation and expansion programmes are underway at existing properties. The investment is backed by a combination of local developer capital, international private equity, and development finance institution support.

In Barbados, development activity is more constrained by the island’s limited land availability and the fiscal uncertainty of the Stuart government, but the west coast continues to see boutique hotel and villa resort investment at the premium end of the market. The Bajan government has been working to streamline investment approvals processes in recognition that the island needs to compete more aggressively for the international capital that flows more easily to the Dominican Republic or St Kitts.

Throughout the Eastern Caribbean, CBI-linked resort developments continue to dominate the hotel investment pipeline. These projects, structured to meet citizenship programme qualifying requirements, are a distinctive feature of the region’s development landscape in 2014. They represent a form of investment that did not exist a decade ago and that has meaningfully increased the supply of new hospitality inventory in markets that would otherwise attract far less development capital.

Caribbean Leaders This Month

Jamaica — Tourism High Season Performer: North coast resort occupancy data through June confirms Jamaica is having its best summer tourism performance in several years, validating hospitality investment decisions made during the IMF reform period.

Dominican Republic — Construction Momentum: Building permits continue to be issued at record rates in Punta Cana and Santo Domingo; the construction sector is one of the DR’s strongest economic contributors through the first half of 2014.

Trinidad & Tobago — Energy Peak: With oil prices near $105 per barrel, T&T’s fiscal and economic environment is at its most favourable, supporting residential and commercial property demand across Port of Spain.

Grenada — CBI Real Estate Active: Qualifying resort developments are completing pre-sales phases and moving toward construction starts, confirming the commercial viability of CBI-driven development in this Eastern Caribbean market.

Guyana — Exploration Watch: While no discovery is confirmed, ExxonMobil’s continued drilling programme keeps Guyana on regional investors’ radar; Georgetown commercial real estate showing early signs of energy-sector-driven demand.

Barbados — Boutique Premium: The west coast boutique hotel market is performing well operationally despite the island’s fiscal challenges, with summer occupancy rates at premium properties holding up strongly.

Antigua — Sailing Season Dividend: The conclusion of Antigua Sailing Week and the broader yachting season has left a positive economic imprint on the island’s hospitality and marine services sectors, supporting short-term rental values in the English Harbour area.

St Kitts — CBI Stability: Despite the programme reform process, St Kitts qualifying real estate continues to transact; the regulatory clarity being introduced is beginning to be appreciated by sophisticated CBI investors as a quality signal.

Overall Caribbean Market Performer — July 2014: Jamaica. Strong summer tourism performance combined with continuing NHT housing activity and international investor enquiries into north coast hospitality assets gives Jamaica the most broadly positive property market story in the region this month.

Looking Ahead

The Atlantic hurricane season enters its most active statistical period through August and September. The 2014 season’s below-normal character, confirmed by NOAA’s mid-season update, reduces but does not eliminate the risk of a disruptive storm affecting Caribbean property markets. Investors and property owners in high-exposure coastal locations should ensure insurance arrangements are current and that they are not complacent about storm preparedness during what remains a statistically active window.

Global oil prices bear watching through the second half of 2014. Having touched near $107 per barrel in late June, some analysts are beginning to question whether this level is sustainable given rising US shale production and evolving global demand dynamics. For Trinidad & Tobago’s property market, the oil price trajectory over the coming months will be a key determinant of consumer and investor confidence. The country’s real estate market has benefited greatly from sustained high energy revenues; any meaningful correction would have downstream effects on the property sector.

The short-term rental trend is one to track closely over the coming months. Airbnb and similar platforms are in early stages of Caribbean market penetration, but the trajectory in more mature markets elsewhere suggests that penetration rates can grow rapidly once the platforms establish local trust and brand recognition. Caribbean property investors should be thinking now about how this trend might affect their existing assets — as both a potential revenue opportunity and a competitive force relative to traditional rental models.

The Caribbean Property & Investment Review is published monthly and covers real estate markets, investment trends and economic developments across the Caribbean region. Edition 145, July 2014.

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