An island in debt

With Cook Island tourism in tatters, small operators are struggling to service the loans that funded a pre-Covid-19 development boom. With fears many locals could lose their businesses to wealthy foreign investors, the government is looking at all the options - including a deal with NZ’s Reserve Bank. Emmanuel Samoglou reports.

It took Louis Enoka and Minar Henderson nearly 15 years to build a humble two-bedroom holiday home on the northern coast of Rarotonga. Located metres from a section of beach with soft sand, the couple knew they were sitting on a lucrative piece of real estate that would cater to sun-hungry visitors.

Its completion was timed perfectly for them along with hundreds of other entrepreneurs to capitalise on what would become a high-growth boom phase for Cook Islands tourism, aided by the introduction of online booking agents such as Airbnb and

“I had a little bit of money, bought some bricks. Got a bit more money, bought some more bricks,” he says, describing how they built their first rental property.

Beginning in 2014, the Cook Islands began to see a major surge in visitor arrivals. Apart from the completion of a few multiple-unit properties and one large scale hotel, the extra demand for rooms was met almost entirely by holiday homes like Enoka and Henderson’s.

Many entered the property management game to cash in on the boom. Online listings were flooded with ultra-stylish homes, decked out with plunge pools, polished hardwood floors, and spacious, kitted-out kitchens. Demand during high season was strong.

Many borrowed heavily to fund long-term leases on properties, new builds, and costly renovations. Today, however, most of the properties are sitting empty.

The Covid-19 pandemic continues to spread. While the Cook Islands remains one of the few countries yet to record a single confirmed case, its tourism-dependent economy is one of the hardest hit.

ANZ bank estimates a 60 percent drop in nominal GDP for a three-month period through to the end of June, and there’s no firm date for the lifting of international border restrictions that would allow visitors to return.

Yet debts continue to accrue interest, with only a few weeks remaining on the grace periods offered by banks for loan payments.

With the prospect of financial predators on the lurk for a cheap property in paradise, the nation’s leaders are now looking at policy options to protect the investments of holiday home owners and avoid panic sales to foreign investors.


“Love a little paradise” is the quaint and contemporary slogan of the Cook Islands – the brainchild of the nation’s tourism marketers tasked with selling the destination to prospective travellers. Not only does it lend itself well to hashtags, but aptly describes a country devoid of hotel chains and big-name resorts. It may or may not have been part of some grand strategy, but the growth of holiday homes and the intimate experience they offer fit in perfectly.

There are currently 3,300 rooms available for bookings in the Cook Islands – just under half are located in holiday homes, the remainder in hotels and resorts. It’s an arrangement that has allowed the profits of tourism to flow directly to the local community, says Halatoa Fua, Chief Executive Officer of Cook Islands Tourism Marketing Corporation.

“The growth of holiday homes has contributed to the economic and social development of the Cook Islands in the last ten years,” he says.

In the last half-decade visitor arrivals grew by 37 percent, prompting a frenzy of holiday home construction across Rarotonga. Government statistics reveal a full-on building boom, with the last four years showing increases in the value of building approvals well above trend. Residential approvals, which the government believes are most likely for holiday houses rather than residences, dominated the increases.

Enoka and Henderson eventually borrowed against the value of their first unit, allowing them to develop several other properties which were all creating a healthy turnover up to the beginning of this year. A grand plan to retire in four to five years was looking possible. But that was before borders were shut and arrival numbers fell off a cliff.

Louis Enoka in his family garden: “There was zero cash flow overnight.”

Within days Enoka wrote to the bank, looking at alternative payment options for their mortgage. “There was zero cash flow overnight, just disappeared,” he says.

Over the course of building their business, Enoka says their debt was kept manageable, but knows of many owners who over-extended financially. They now have large debts to service – often at high interest rates when compared to those found in New Zealand – with no revenues for the foreseeable future.

Banks in the Cook Islands have offered beleaguered owners some options. On a case-by-case basis, loan repayments can be deferred for terms between three to six months depending on the institution. Yet interest will continue to accrue for many. Once the repayment holidays are over, many will find themselves owing even more money to the banks.

While acknowledging the prospect of banks being saddled with a significant number of non-performing loans, Cook Islands Minister of Finance Mark Brown says the measures don’t go far enough.

As finance minister for the past decade, Brown oversaw a consistently growing economy before the current crisis, which he says ranks among the worst since the country became a self-governing state over 50 years ago. Protecting the investments of the homeowners is an issue of economic sovereignty, he says.

“It was an economy that grew, but the benefits were being gained by Cook Islanders, rather than multinationals.”

Looking at the current predicament, he says: “We may have debt collateral being sold off only to people who can afford it, which may be more overseas owners coming into the country, which we don't want.”

Policy options for the government are limited. A stimulus package of $NZ61 million introduced by the government in the immediate aftermath of the shutdown, along with a further $NZ77 million in stimulus, will put further strain on the nation’s coffers. Talks with donors for rescue loans have already begun.

As for rescuing holiday home owners, Brown says one option the government is looking at is collaborating with the Reserve Bank of New Zealand. With no central bank of its own and an inability to print money or issue bonds, the government could potentially work with the central bank on the creation of a special purpose vehicle. Such an arrangement, he says, could provide a broad repayment holiday for owners for up to two years while still meeting the needs of the banks.

“The government is very keen to look at options as to how we can preserve that capital and how we can hibernate that debt, and put us into a holding pattern really while we see what happens around the rest of the world getting through this virus,” Brown says.

With positive developments in New Zealand towards eliminating the virus, Brown hopes the Cook Islands can tap into a geographic bubble where borders between the two countries are opened again. Last year, two-thirds of all visitors arrived from New Zealand, and a relaxation of border restrictions could provide the local industry with much-needed cash flow.

Yet a strong push for domestic travel within New Zealand could hinder efforts to bring Kiwis to the tropics.

In the meantime, Enoka is spending his ample free time with family and out in his gardens planting. “Anything that doesn't provide food, we don't need it.”

Whatever the future may hold, he says anything less than a return to at least 50 percent of the pre-pandemic arrivals numbers will mean their investments remain in jeopardy.

“Based on that we can survive, but that's all it is.”

* Made with the support of NZ on Air *

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