Author: Avalene Connelly

The year 2020, to paraphrase a US president, will live in infamy. It will long be remembered as the year that the Covid-19 virus created worldwide havoc and changed the entire world. It upended lives, economies, ways of life and everyday routines such as socializing and working. While this pandemic is far from over, the US real estate and stock markets have exceeded pre- Covid highs – possibly due to the news that a vaccine could soon be available. 

Unfortunately, Trinidad & Tobago has not had a similar experience and the economy and the real estate market are still reeling from the effects of the pandemic. The Minister of Finance, Colm Imbert, in his 2021 Budget presentation, projected GDP to contract in real terms by 6.8% in 2020 although the IMF expects the decline to be 5.6% in 2020 while forecasting growth of 2.6% in 2021. 

The contraction in the economy, caused to a large extent by the measures taken to mitigate the spread of the virus, has resulted in a decrease in both the revenue of businesses as well as the salaries of many employees. Not surprisingly in the current dire economic circumstances, there have also been increases in unemployment and crime while inflation has remained subdued. As stated many times by us in the past, the real estate market in Trinidad & Tobago mirrors the national economy and as would be expected, all these factors are having an adverse effect on it. In addition, the pandemic has caused many companies to consider having employees work remotely which would therefore reduce the amount of office space needed. 

These two facts (reduced revenue and remote working) could result in an increase in the amount of vacant office space available which could possibly lead to a decline in rental rates. Yet, the new requirement of social distancing could lessen the impact of the reduction in office space required by companies going forward. 

As would be appreciated from all of the above, the short-term future of the real estate market remains cloudy. Due to the many different scenarios that could occur in the immediate future, three possible scenarios have been prepared and posted in a video entitled “Impact of COVID-19 on Commercial Real Estate” on the G. A. Farrell and Associates Limited Facebook page in an effort to assist stakeholders in visualizing them. 

Nevertheless, it must be borne in mind that investing in real estate is traditionally a long-term investment with somewhat low liquidity. Any decline in prices, therefore, takes some time before it is observed since prices usually lag behind macroeconomic changes. This is in contrast to other investments like stocks and bonds that can be traded in real-time, and so often suffer adversely due to irrational and emotional market sentiments. 

A problem, from a valuation standpoint, is the reliance on valuation reports on historic market evidence/sales to derive current opinions of the market values of properties. The issue is the relative scarcity/paucity of current sales transactions in sufficient numbers. Consequently, the reliability of the historic data is debatable at this time, and therefore, it is recommended that a higher than the customary degree of prudence be attached to current valuations. 

The contents of this newsletter do not constitute advice and should not be relied upon as such. It is published for educational purposes only without responsibility on the part of G. A. Farrell and Associates Limited, its directors, partners or employees.

Traditionally, the Tobago economy has been heavily dependent on tourism. Over the years, however, this has been changing as international arrivals to the island have decreased significantly. From 26,185 in 2014, total air arrivals, according to the Ministry of Tourism website, has dropped by 18% to 21,457 in 2019.

This drop, exacerbated by the Coronavirus impact, has had an adverse effect on the Tobago economy, and it was no surprise that, in the 2021 Tobago House of Assembly (THA) budget, it was revealed that the economy is predicted to decline in 2021 especially the “…tourism, manufacturing and financial sectors with moderate growth in the agriculture sector.” It was also revealed that the THA accounts for 44% of the total GDP on the island and it employs almost 66% of the total workforce.

Nevertheless, there are encouraging signs in the sector as Comfort Inn and Suites has a hotel under construction in Scarborough in a joint venture with Choice Hotels and local ownership – and partially funded through the THA Venture Capital Equity Fund Limited. According to the information provided, the hotel will showcase 74 guestrooms in the Shaw Park area. In addition, to increase international arrivals, the THA has negotiated a weekly flight from Canada with Sunwing Airlines.

The success of these measures will be severely tested by the ongoing Covid-19 pandemic which is forecasted to have a significant adverse effect on the tourism industry worldwide especially bearing in mind the current uncertainty in the airline industry. The future of the Tobago economy and by extension the real estate market in Tobago can therefore be expected to remain uncertain until a new global “normal” is established post-pandemic.

To get a feel for what is happening on the ground in Tobago, we sat down with well-known real estate agent Dawn Glaisher, owner of SeaJade Investments and Honorary Secretary and Director of the Association of Real Estate Agents. We asked her opinion on the following:

• What impact the COVID-19 pandemic has had so far on the drivers of the economy, the hotels, guesthouses, and restaurants on the island?
• How that has impacted property prices?

Ms. Glaisher began by saying that any assessment of the status of the real estate market
at this time must be set in the context of the global economic situation, and more immediately, of local conditions and variations on this theme.

According to the Central Bank of Trinidad and Tobago (CBTT) in its Monetary Policy Announcement in June 2020, “The macroeconomic policy environment across the globe can best be described as intense and uncertain, constrained for the most part by the fiscal space available to governments”.

The final phrase in bold is a clue I believe to what pertains to T&T given the global shrinkage of -5% more or less and given the fact that prior to the arrival of the coronavirus impact on T&T, the country was already in deep recession (the decline in oil and gas revenue, government borrowing to the tune of some $70 billion, and the $1.1 billion drawdown from the Heritage and Stabilisation Fund).

The Covid-19 crisis has hit our business communities hard, as it has done everywhere else in the world. Even the banks are now worrying about what happens next, given the fact that businesses are not able to open back fully or at all and rents are coming due this month.

Interest is due to be paid again from this month. Jobs are not there to go back to in many cases, so where are August salaries coming from?

The contents of this newsletter do not constitute advice and should not be relied upon as such. It is published for educational purposes only without responsibility on the part of G. A. Farrell and Associates Limited, its directors, partners or employees.