Caribbean Property & Investment Review — Trinidad Carnival 2011, Japan Earthquake Shockwaves & Arab Spring Caribbean Impact

Publication Date: 3 April 2011  |  Coverage Period: 3 March–2 April 2011

Morning Briefing

• Trinidad Carnival delivered: Carnival 2011 on March 7–8 exceeded expectations; Port of Spain hotel revenues and short-term rental yields hit multi-year highs during the festival weekend.
• Japan earthquake, March 11: The magnitude-9.0 Tohoku earthquake and resulting tsunami devastated Japan’s north-eastern coastline; global financial markets sold off sharply, adding a new layer of uncertainty to Caribbean investor confidence.
• Arab Spring continues: Fighting in Libya persists; Brent crude sustains its premium above $110 per barrel with no resolution in sight, extending the fiscal windfall for T&T and the import cost pain for oil-dependent islands.
• Japan tourist impact emerging: Japan is a meaningful source of high-spending tourists for some Caribbean destinations; operators are monitoring forward booking cancellations from the Japanese market with concern.
• Caribbean spring market active: March property transactions across Barbados, DR and Cayman Islands are tracking ahead of 2010 levels as post-winter buyers formalise intentions.
• Jamaica PM Golding: PM Bruce Golding’s government navigates higher fuel import costs while defending tourism sector momentum as the key economic driver for 2011.

Trinidad Carnival 2011: Post-Festival Economic Assessment

Trinidad Carnival 2011 has come and gone, and by any measure it was a triumph — economically, culturally and in terms of international profile. The March 7–8 festival drew visitor numbers that T&T’s Tourism Development Company estimates at over 40,000 overseas arrivals specifically for Carnival, with average spend per visitor significantly above the island’s standard tourist profile. Hotels across Port of Spain reported 100% occupancy through the Carnival weekend, and many properties were able to command premium rates that will meaningfully improve their annual yield metrics. For landlords of well-located apartments in Woodbrook, St Clair and Newtown, the Carnival week produced rental income equivalent to several months of standard occupancy at normal rates.

The mas camp economy was equally buoyant. Leading bands such as Tribe, YUMA and Fantasy reported costume sales well above 2010 volumes, with international buyers accounting for an increasing share of premium costume registrations. The economic linkages run deep: fabric and embellishment suppliers, seamstresses, trucking operators, security firms and catering companies all report strong Carnival earnings. The music industry alone — anchored by soca releases timed for the Carnival season — generates recording, streaming and performance revenues that circulate through the creative sector for months before and after the festival.

For property investors, the post-Carnival period offers an interesting market dynamic. Some property owners who purchased short-term rental units specifically for the Carnival market are now weighing whether to hold for the next event cycle or list for sale in the spring market. This can create selective buying opportunities at prices that represent good value relative to the demonstrated rental yield potential. The continuing strength of T&T’s energy economy means that domestic demand for quality residential property in the Port of Spain corridor remains firm, providing a floor under valuations even when international buyer demand fluctuates.

Japan Earthquake: Caribbean Market Implications

The magnitude-9.0 earthquake that struck Japan’s Pacific coast on March 11, triggering a devastating tsunami and the Fukushima Daiichi nuclear crisis, sent shockwaves through global financial markets and added a significant new layer of geopolitical uncertainty to an already unsettled first quarter for international investors. The immediate market reaction saw equity indices fall sharply, the Japanese yen surge (before reversing), and risk appetite contract across asset classes. For Caribbean property markets, the direct economic linkages to Japan are limited but not negligible.

Japan is a meaningful source market for high-spending tourists in certain Caribbean destinations, most notably Hawaii’s competitors and some Eastern Caribbean islands that have worked to cultivate Japanese visitor arrivals through airline partnerships and promotional campaigns. Tour operators report a wave of cancellations from Japanese agents in the immediate aftermath of March 11, as Japanese consumers appropriately focused on domestic priorities and international travel fell off the agenda. The cancellation impact is expected to be most acute in the second quarter; by the summer season, Japanese travel is expected to begin recovering, though at levels below the pre-earthquake trend for the remainder of 2011.

The broader financial market impact of the earthquake on Caribbean property investment flows is more indirect but potentially more significant. Many Caribbean luxury property buyers are individuals whose wealth is invested in global equity and bond markets. A sustained period of market volatility reduces the ‘paper wealth’ that buyers draw upon to fund discretionary property acquisitions. Caribbean property agents report that the Japan earthquake contributed to a brief pause in buyer inquiry volumes during the second half of March, though activity appeared to be recovering by the end of the coverage period as markets stabilised and the immediate crisis phase subsided.

Arab Spring: Sustained Oil Premium and Caribbean Fiscal Stress

The Libyan civil conflict that erupted in February 2011 shows no sign of rapid resolution, and the broader currents of the Arab Spring — encompassing political unrest in Bahrain, Syria, Yemen and Egypt — have combined to maintain a geopolitical risk premium in oil markets. Brent crude’s sustained position above $110 per barrel is now in its fifth consecutive week, and forward markets are not pricing in a significant retreat before the summer. For Trinidad & Tobago, this environment is fiscally transformative: mid-year revenue estimates are being revised substantially upward, and the Persad-Bissessar government has signalled that additional capital spending on housing, roads and utilities will be accelerated.

For Jamaica, the arithmetic is painful. The island imports approximately 50,000 barrels of petroleum products per day, and every $10 rise in the oil price adds roughly $180 million to the annual import bill — a significant burden for an economy already managing a large current account deficit and a heavy public debt load. PM Bruce Golding’s government is exploring energy diversification options, including accelerated development of Jamaica’s considerable wind and solar resources, but these are medium-term solutions that offer no relief in the current price environment. The near-term cost is borne by consumers through higher electricity tariffs and transport fuel prices, reducing discretionary spending capacity across the economy.

Caribbean Leaders This Month

Jamaica — PM Bruce Golding (JLP): Golding navigates a challenging external environment, absorbing higher oil import costs while defending Jamaica’s improving tourism narrative. His Carnival-period absence from the headlines is itself a sign of political stability — no crises, just the grind of fiscal management.

Trinidad & Tobago — PM Kamla Persad-Bissessar (PP): A post-Carnival glow and oil revenues running ahead of budget put Persad-Bissessar in an enviable position. Announcements of accelerated housing and infrastructure spending are likely in the coming weeks as the mid-year fiscal review is finalised.

Barbados — PM Freundel Stuart (DLP): Stuart’s spring budget preparation is coloured by higher oil import costs and the need to maintain fiscal discipline while supporting the construction sector that is still absorbing Tomas recovery work in some communities.

Dominican Republic — President Leonel Fernández (PLD): The DR’s tourist arrivals continue to impress, and Fernández is leveraging the country’s relative political stability as a marketing asset in a globally uncertain environment. Spring construction activity on the north coast is intense.

Cayman Islands — Premier McKeeva Bush: Bush’s administration reports solid spring property transaction volumes, with North American buyers showing sustained interest in Cayman residential and investment properties despite broader market volatility.

BVI — Premier Ralph O’Neal (VIP): BVI’s yacht charter and luxury villa market is performing well, with spring bookings above 2010 levels. The territory is also seeing interest from international financial services firms reviewing their Caribbean office footprints.

Turks & Caicos — Interim Administration: The territory, under UK direct rule following the 2009 governance crisis, is progressing toward restored self-government. Investors are monitoring the timeline for elections with a view to the policy clarity that will follow restored democratic governance.

Overall performer this month: Trinidad & Tobago leads again — the post-Carnival economic tailwind combined with elevated oil revenues creates the region’s most favourable investment environment for spring 2011.

Looking Ahead

The second quarter of 2011 brings the traditional Caribbean spring property season, as winter visitors who experienced the islands in January and February now look to finalise purchase decisions before returning to their home markets. Agents across Barbados, the Cayman Islands and the Dominican Republic report growing pipelines of qualified buyer inquiries.

Hurricane season begins on June 1, and NOAA’s preliminary assessments suggest 2011 could be above normal in activity. This prospect, combined with the fresh memory of Tomas and the ongoing Tomas reconstruction in some Eastern Caribbean communities, is prompting buyers to ask more detailed questions about building standards, elevation, drainage and insurance costs before committing to purchase.

The Japan earthquake’s broader economic implications for global growth and investor risk appetite will become clearer as second-quarter data emerges. A significant growth slowdown in Japan — the world’s third-largest economy — would have ripple effects through global trade and financial markets that could moderate the confidence levels sustaining Caribbean luxury property demand from international buyers.

The Caribbean Property & Investment Review is published on the first business day of each month. Edition 184 covers the period 3 March to 2 April 2011. All market data reflects conditions as at close of the coverage period. This publication is for informational purposes only and does not constitute investment advice.

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