Publication Date: 3 December 2014 | Coverage Period: 3 November – 2 December 2014
Morning Briefing
- OPEC holds production: oil crashes toward $55: The cartel’s late-November Vienna meeting delivered the outcome that markets had anticipated but hoped to avoid — Saudi Arabia led OPEC to maintain production targets, confirming that the current low-price environment reflects a deliberate strategic choice. WTI crude has since fallen to approximately $55 per barrel.
- T&T in severe fiscal crisis: With oil at $55 — well below the levels at which T&T’s national budget was prepared — the Persad-Bissessar government is confronting the most serious fiscal challenge in a generation. The Heritage and Stabilisation Fund is being drawn upon, and substantive budget revision is unavoidable.
- Caribbean holiday season arrivals strong: November tourist arrivals data confirms the Caribbean’s holiday season is in full swing, with Jamaica, Barbados, Antigua and other destinations reporting strong visitor numbers that are providing crucial economic relief across the non-energy economies.
- Jamaica IMF programme nearing second anniversary: The Extended Fund Facility approaches its second year with Jamaica’s fiscal reform record remaining solid; the government continues to meet programme benchmarks and is beginning to see tangible signs of investment confidence recovery.
- Dominican Republic closes record tourism year: The DR is on course to record its highest-ever annual visitor arrivals figure for 2014; Punta Cana and Santo Domingo property markets are ending the year in positive condition.
- Caribbean property insurers assessing 2014: Following a second consecutive quiet Atlantic hurricane season, Caribbean property insurers are reviewing their catastrophe risk pricing models; some relief on premium costs may be available at January 2015 renewals.
OPEC’s Production Decision: A Structural Shift for Caribbean Energy Economics
The OPEC meeting in Vienna on 27 November 2014 will be remembered as one of the most consequential decisions for Caribbean economic history in recent decades. Saudi Arabia, leading a majority of cartel members, chose to maintain existing production quotas rather than cut output to defend prices. The stated rationale — that OPEC would defend market share rather than price, and allow lower prices to test the viability of higher-cost US shale production — was not a surprise to market analysts who had read the signals coming from Riyadh throughout October and November. But its formal confirmation at Vienna removed any remaining hope that a swift OPEC correction would stabilise oil markets.
The market’s response was immediate and severe. WTI crude, which had been trading near $65 per barrel before the Vienna meeting, has now fallen to approximately $55. That represents a decline of nearly 49% from the June 2014 peak of $107 per barrel — one of the sharpest oil price corrections in recent history, compressed into just six months. For Trinidad & Tobago, this trajectory from $107 to $55 in six months is not merely an economic challenge but a fiscal and political crisis.
T&T’s Finance Ministry is now operating in emergency mode. The national budget for fiscal year 2014/2015, prepared on oil price assumptions that are now far above market reality, requires fundamental revision. The government’s revenue shortfall at $55 per barrel compared to budget assumptions is substantial — tens of billions of Trinidad and Tobago dollars are missing from the revenue picture that underpinned approved spending commitments. Capital projects across the infrastructure, education and health sectors are being deferred or cancelled. The construction sector, which had been one of the most vibrant components of T&T’s economy throughout the PP administration, is beginning to contract sharply.
For the property market, the December 2014 picture in T&T is one of significant stress. Residential transaction volumes are declining. Developers with projects at various stages of completion are reassessing their pre-sales targets and financing assumptions. The commercial leasing market, while not yet in freefall, is seeing energy companies and their service sector clients reviewing their space requirements in the context of corporate cost reduction programmes. The decade-long T&T property boom, driven by sustained high energy revenues, has ended. The question is not whether a correction will occur, but how deep and how prolonged it will be.
The Caribbean Holiday Season: Vital Revenue as Energy Storms Gather
For the Caribbean economies that are not dependent on energy revenues — Jamaica, Barbados, the Eastern Caribbean island states — December 2014 brings the vital revenues of the holiday tourism season at a time when the broader regional economic narrative is darkening. The ability of Caribbean tourism to generate growth and property market support independent of the oil price story is being demonstrated in real time, and it is a demonstration that Caribbean economic planners and property investors should take seriously.
Jamaica’s December is shaping up to be the best holiday month in several years. The north coast resorts from Montego Bay through Ocho Rios are reporting high occupancy rates, with the Christmas and New Year periods essentially fully booked at the major all-inclusive and boutique properties. Negril, which attracts a distinctive independent traveller demographic, is similarly strong. The combination of improved airlift, better product quality, and the cumulative effect of two years of tourism marketing investment is producing tangible results at the occupancy and rate levels that matter for hotel investors.
Barbados’s holiday season is following a similar positive pattern. The west coast’s most celebrated properties — Sandy Lane, Coral Reef Club, the Colony Club and others — are fully booked for Christmas through to Crop Over festival commitments next summer. Villa rental demand from British and European clients is strong, and rates are holding at or above prior year levels. For villa owners on the Platinum Coast, December 2014 is providing the income validation that supports their investment case despite the island’s broader economic challenges.
The Eastern Caribbean destinations — Antigua, St Lucia, St Kitts, Grenada — are also experiencing positive holiday season momentum. Antigua’s annual cycle of yachting season-into-holiday-season visitor flow is producing good results for its marina and beachfront property market. St Lucia’s romance and honeymoon positioning, which makes December a prime booking period for its boutique hotels, is delivering strong occupancy at the island’s premium properties.
T&T Property Market: Correction Arrives
The T&T property market’s correction is now underway. The indicators are becoming clearer with each passing month: residential listing periods are extending, asking prices are encountering buyer resistance, new development project launches are being quietly shelved, and the number of professionals and energy sector workers actively looking to exit or downsize their housing commitments is increasing. This is the natural and inevitable response of a property market whose fundamentals were built on energy revenues that have now dramatically contracted.
The correction’s depth and duration will depend primarily on how long oil prices remain at current levels. If the oil market finds its floor — as it eventually must, at the point where high-cost US shale production becomes economically unviable and begins to decline — and prices recover to the $70–$80 range, T&T’s property market could stabilise within twelve to eighteen months. If prices remain at $55 or below for two or more years, the correction would likely be more prolonged and potentially more severe, affecting not just high-end residential values but also the commercial market and the broader construction sector.
For T&T property investors with long-term horizons and the financial resilience to weather the correction, the current period is one of risk management rather than panic. The fundamental long-term case for property in a well-functioning Caribbean economy with substantial natural resource wealth remains intact; the cyclical adjustment now underway does not change the structural story. But the short-term pain is real, and investors should plan accordingly.
Jamaica: Reform Progress and Cautious Optimism
Jamaica’s economic picture, by contrast with T&T’s oil price crisis, is one of cautious improvement. The IMF Extended Fund Facility is approaching its second anniversary, and the track record of compliance — broadly on target through eight consecutive quarterly reviews — is beginning to translate into measurable improvements in Jamaica’s macroeconomic position. The sovereign credit rating agencies have been watching Jamaica’s reform performance closely; any upgrade or positive outlook revision would meaningfully reduce borrowing costs and support the investment environment.
The National Housing Trust is maintaining its delivery programme heading into year-end, with new housing completions and mortgage approvals in line with annual targets. The NHT’s role as the anchor of Jamaica’s affordable housing market remains as important as ever during the austerity period, providing homeownership access to the middle-income Jamaicans who constitute the core of the Trust’s contributor base.
Caribbean Leaders This Month
Jamaica — Holiday Season Champion: Record-matching north coast hotel occupancy and strong villa rental demand through December make Jamaica the Caribbean’s tourism property story of the month; IMF reform credibility continues to build.
Dominican Republic — Record Year Complete: 2014 will be confirmed as the DR’s best tourism year; Punta Cana luxury market closes the year in positive shape with active buyer pipelines carrying into 2015.
Barbados — Holiday Season Validation: West coast villa and boutique hotel market delivers strong December performance; British visitor loyalty to Barbados is providing the revenue base that helps sustain premium property values.
Trinidad & Tobago — Property Correction Underway: With oil at $55 and OPEC committed to maintaining production, T&T’s property market correction is now confirmed; the depth of the adjustment will depend on the duration of low oil prices.
Antigua — Holiday Season Active: English Harbour yacht charter market is strong through December; marina-adjacent villa rentals and hotel properties are achieving seasonal peak rates.
Grenada — CBI Programme Delivering: First cohort of passport approvals for qualifying resort buyers is advancing through the programme; Grenada’s CBI market is building a track record that should attract further developer interest in 2015.
St Lucia — Romance Market Peak: December is St Lucia’s premium honeymoon and anniversary travel month; boutique hotel occupancy at Jade Mountain, Ladera and Anse Chastanet is strong, supporting those properties’ premium valuations.
Cayman Islands — Year-End Stability: Grand Cayman’s financial services-anchored real estate market is closing 2014 in stable shape; the absence of energy sector exposure insulates the Cayman market from T&T’s difficulties.
Overall Caribbean Market Performer — December 2014: Jamaica. The combination of holiday season tourism outperformance, advancing IMF reform credibility, and growing international investment interest makes Jamaica the strongest overall property market story in the region as 2014 closes.
Looking Ahead
The oil market will remain the dominant macro variable for the Caribbean region into 2015. With OPEC having confirmed its market-share defence strategy, there is no immediate catalyst for a price recovery. US shale production must continue to feel the pressure of lower prices before any meaningful supply response emerges, and that process takes months rather than weeks. Caribbean economic planners and property investors should scenario-plan for oil remaining at or below $60 per barrel through at least the first half of 2015.
The Caribbean tourism season will continue to provide the most important counterweight to oil price gloom across most of the region. January through April represents the peak of Caribbean travel demand from North American and European markets, and the strength of this season’s performance will be a key determinant of 2015 property market confidence in leisure-focused destinations. Jamaica, Barbados, Antigua, St Lucia and other non-energy Caribbean economies have an opportunity to demonstrate that sustained tourism revenue can underpin property market stability independent of the energy price cycle.
Jamaica’s continuing IMF reform programme will receive its next quarterly review early in the new year. If compliance is maintained — as the track record strongly suggests it will be — Jamaica enters 2015 as arguably the Caribbean’s most compelling property investment case among the larger markets: an economy stabilising on a credible reform path, a tourism sector in multi-year recovery, and a property market that has been tested by austerity and is beginning to show early signs of renewed international investor interest.
The Caribbean Property & Investment Review is published monthly and covers real estate markets, investment trends and economic developments across the Caribbean region. Edition 140, December 2014.
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