Caribbean Property & Investment Review — July 2012

Publication Date: 3 July 2012  |  Coverage Period: 3 June – 2 July 2012

Morning Briefing

• President Danilo Medina is inaugurated in Santo Domingo and begins assembling his administration, with early Cabinet appointments and policy statements emphasising continuity of the DR’s pro-investment economic framework and commitment to tourism development.
• The Caribbean summer tourism season is underway with North American arrivals performing strongly, while European visitor numbers to destinations with high UK and continental European dependency remain under pressure from ongoing Eurozone anxiety.
• Jamaica reaches a milestone in its IMF programme negotiations, with government officials confirming that technical discussions are complete and a formal programme agreement is being prepared for Board approval.
• The Eurozone crisis shows no signs of resolution as Spain formally requests a bank recapitalisation bailout from European partners and political uncertainty in Greece persists despite June’s election producing a pro-bailout government.
• The Atlantic hurricane season’s early weeks have been relatively quiet, though meteorologists are monitoring developing activity in the eastern Atlantic that could intensify as the season reaches its climatological peak in August and September.
• CBI programme applications for St Kitts and Nevis and Dominica continue at strong levels, with developers of approved qualifying properties reporting healthy sales activity even through the traditionally quieter summer months.

Dominican Republic: The Medina Administration Begins

Danilo Medina has taken the oath of office as President of the Dominican Republic and is moving quickly to establish his administration’s priorities. His Cabinet appointments have signalled a blend of technocratic continuity — with several experienced figures from the previous administration retained in key economic roles — and personal loyalty, as is conventional in Dominican political transitions. The investment community has been watching the appointments to the Tourism, Finance, and Public Works ministries with particular attention, as these portfolios most directly shape the environment for Caribbean property and hospitality investment.

The new president’s inaugural address and early policy statements have broadly reassured the investment community. Medina has emphasised education, social investment, and the continuation of the infrastructure development programme that has transformed the country’s connectivity and resort capacity over the past decade. His government’s approach to foreign direct investment in the tourism sector appears set to maintain the broadly welcoming framework that characterised the Fernández era, though investors will be watching for the specific details of any regulatory or fiscal changes that the new administration introduces.

The DR’s property market enters the summer with the positive momentum of a strong spring season. Punta Cana’s luxury villa and branded residence market has seen a number of significant transactions in recent months, and the north coast is continuing to attract developer interest for boutique resort and residential projects. The city of Las Terrenas on the Samaná Peninsula is emerging as a genuine alternative destination for international buyers seeking a more bohemian and culturally rich Caribbean experience than the all-inclusive resort corridor provides.

Caribbean Summer: North American Strength, European Softness

The Caribbean summer tourism season is performing in a pattern that has become familiar over the past two years: strong demand from North American source markets, softer performance from European origin countries. US and Canadian travellers are showing continued appetite for Caribbean summer holidays, drawn by competitive pricing during the shoulder season, the region’s reliable sunshine, and the ease and value of Caribbean destinations relative to longer-haul alternatives. Several major Caribbean resort markets — including Jamaica, the DR, and the Turks and Caicos — are reporting June hotel occupancy above prior-year levels for this North American cohort.

The European picture is more challenging. The resurgence of acute Eurozone stress in May and June — driven by Spain’s banking crisis and the ongoing Greek political uncertainty — has further suppressed European consumer confidence. For British travellers, the weakness of the pound against the US dollar and the ongoing domestic austerity environment are constraining the holiday budgets of middle-income households. Caribbean destinations that have invested in building their North American market share are proving more resilient than those with heavier European concentration.

The property investment market reflects these patterns. European buyers of Caribbean real estate have been notably absent from the market during the first half of 2012, with the Eurozone anxiety keeping many potential purchasers on the sidelines. North American buyers, particularly in markets priced in US dollars and with well-established legal and title infrastructure, have been the dominant force in transactional activity. The summer months traditionally see some slowdown in buyer activity as holidays intervene, but the underlying pipeline of serious enquiries is being maintained by agents across the region.

Jamaica: IMF Programme Approaches Conclusion

The Portia Simpson Miller government’s engagement with the International Monetary Fund is reaching what officials describe as its final technical stages, with a formal programme agreement expected to be presented to the IMF Board in the coming months. The Extended Fund Facility being negotiated will provide Jamaica with access to external financing while committing the government to a multi-year programme of fiscal adjustment, including primary surplus targets, public sector reform, and improvements to tax collection efficiency.

For Jamaica’s property investment community, the IMF programme conclusion will be a significant milestone, even if the immediate economic impact of the adjustment measures is contractionary. The credibility signal that a formal IMF agreement provides — demonstrating that Jamaica is serious about addressing its debt sustainability challenge — is expected to gradually reduce the country’s sovereign risk premium and lower borrowing costs. This should, over time, create conditions for improved mortgage lending and private sector investment, including in the real estate sector.

In the near term, Jamaica’s north coast property market continues to be driven primarily by international buyers who are less directly affected by the domestic austerity environment than Jamaican households are. Tourism infrastructure investment — including hotel expansions and new resort developments — is continuing in the Montego Bay area, underpinned by the strength of the air access from the US and Canada and by the resilience of the Jamaica brand in North American travel markets.

Hurricane Season: Monitoring the Tropics

The Atlantic hurricane season’s first month has been relatively quiet, but the peak season is approaching. Climatologically, the most active period for Caribbean hurricane development runs from mid-August through the end of September, and the Caribbean property and tourism sectors are maintaining their heightened state of readiness. The 2012 seasonal outlook continues to indicate a near-normal to moderately active season, and the region is watching developments in the Atlantic with appropriate professional vigilance.

Caribbean Leaders This Month

Danilo Medina, President of the Dominican Republic: In his first month in office, Medina is establishing his administrative style as measured, consultative, and focused on results. His early engagement with the international investment community and with tourism stakeholders has been substantive and reassuring.

Portia Simpson Miller, Prime Minister of Jamaica: Simpson Miller’s government is in the final stages of what has been a lengthy but necessary IMF engagement process. The programme’s conclusion will mark a turning point in Jamaica’s fiscal credibility and will be welcomed by the investment community as a precondition for medium-term economic improvement.

Kamla Persad-Bissessar, Prime Minister of Trinidad and Tobago: Persad-Bissessar is monitoring global commodity price trends with the careful attention of a leader whose country’s fortunes are closely tied to energy market performance. T&T’s fiscal buffers provide valuable protection against global volatility, but the medium-term diversification imperative is growing more urgent.

Perry Christie, Prime Minister of the Bahamas: Christie’s new PLP government is settling in and addressing the priorities it identified during the election campaign, including the management of the large-scale Baha Mar resort development that will transform Nassau’s hotel capacity when it eventually opens.

Freundel Stuart, Prime Minister of Barbados: Stuart is managing a difficult summer as European visitor softness and fiscal pressure combine to create a challenging operating environment. The government is maintaining its commitment to fiscal discipline while seeking to support the tourism sector through targeted incentive measures.

Denzil Douglas, Prime Minister of St Kitts and Nevis: Douglas’s government is making important decisions about how to deploy the extraordinary revenues flowing from the CBI programme, balancing debt reduction, infrastructure investment, and social spending in a way that delivers the most durable long-term benefit for the island’s population.

Roosevelt Skerrit, Prime Minister of Dominica: Skerrit is overseeing continued growth in Dominica’s CBI programme, which is increasingly being seen as a compelling alternative for investors who find St Kitts’s price points challenging. The island’s natural credentials — it calls itself the Nature Isle of the Caribbean — are an asset in marketing its eco-tourism offering.

Looking Ahead

The Caribbean investment community enters July with measured confidence. The DR’s smooth political transition, Jamaica’s advancing IMF programme, T&T’s underlying economic strength, and the continued strength of the CBI sector all provide foundations for cautious optimism. The Eurozone’s persistent difficulties remain the principal external risk, but the Caribbean’s adaptation toward North American and emerging market relationships is progressively reducing the region’s exposure to European economic conditions.

The hurricane season’s peak period is approaching, and the industry will maintain its heightened preparedness through August and September. A quiet hurricane season would be a significant positive for Caribbean tourism and property insurance dynamics; a damaging season would create short-term challenges but would also, historically, be followed by strong recovery investment in the affected areas.

Jamaica’s IMF programme finalisation is expected to provide a positive market signal in the coming weeks. The property investment community will be watching the programme’s specific terms carefully, particularly any measures that affect the incentive structure for tourism and commercial real estate investment. The next edition will carry a comprehensive summer market assessment and will report on any significant developments in the hurricane season’s progress.

The Caribbean Property & Investment Review is published monthly for property professionals, investors, and stakeholders across the Caribbean basin. Edition 169 covers the period 3 June to 2 July 2012.

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