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State of the Market

Tourism  –  At the 14th Annual Caribbean Hotel and Tourism Investment Conference held in Puerto Rico in May 2010, guest speakers reflected on the uncertainty facing investors in the Caribbean region in the near term. While tourism arrivals began to show signs of recovery in the fourth quarter of 2009 and the first quarter of 2010, it was forecast that the deep discounting of hotel room rates to maintain occupancy levels over the past eighteen months will require six to eight years to return to pre-recession room rates, adjusted for inflation. The general perception was that major investment in the region would not recover until 2011.

 

The recently released 2009 annual report by the Caribbean Development Bank (CDB) echoed similar analysis, noting that “economic recovery in 2010 is largely predicated on the timing, pace and magnitude of the incipient global recovery, with recovery in the Region expected to lag behind that of the major economies by a few quarters. In 2010, growth is expected to return to some of the global economies that contracted in 2009, but the recovery of regional economies is not likely to take hold before 2011.”

The recent turmoil in the Eurozone, based on concerns about some country’s ability to tackle sovereign debt, has rocked stock markets, underlining the fragile recovery in the economy that has been witnessed since the last quarter of 2009. In the Caribbean, an increasing number of receiverships at the start of 2010 for resort properties reflects the view that the property investment market is still stabilizing with banks unwilling to wait any longer for market conditions to improve. Many islands in the region are faced with partially completed projects that cannot source financing to complete the development as the financial models on which those projects were originally based, and financing advanced, no longer provide a positive return. These failed projects have dented the confidence of private investors who purchased villas and condominiums off-plan, only to see their dream homes never completed.

Bucking the trend in the British Virgin Islands is the development of Oil Nut Bay, one of the very few major developments in the Caribbean to commence in earnest after the economic meltdown gathered pace at the end of 2008. Victor International, the developer from Michigan, brings to the project a wealth of development experience and, most importantly, has not resorted to external financing to develop the project. As a result, investors looking at the project can be assured that the developer has a better ability than most to ride the bumps of the recession.

Commercial property investment has also been impacted by the recession, although the appetite for commercial land and prime buildings within the local market in the BVI remains strong. The new warehouse and commercial space developments at Fish Bay and Pockwood Pond have demonstrated that tenants are still seeking space. Relocating to sites out of town may not be an issue provided there is an offsetting benefit of adequate parking. With some of the larger international tenants scaling back expansion plans, demand for office space in central Road Town has eased for the first time in a number of years, and a number of spaces remain vacant. Lease up of smaller units will likely be achieved albeit over a longer period than has been possible in recent years.

The residential market remains slow with the total number of houses sold over $500,000 almost halving, from 28 houses sold in 2008 to 15 sold in 2009. The median sale value fell by 3% over this period, indicating that sale values generally held. However, it should be noted that many of the houses sold will have been through the landholding license process which means that the full impact of the recession may not show up in house price statistics for the BVI until later in 2010 and 2011.

The road ahead remains bumpy, but there is hope that some stability will return to the market by the end of the year. The BVI’s relatively small market concentrating on custom homes has fared better than many Caribbean islands where the focus has been on investment property and condominiums.  

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