So, what’s happening in the real estate market and what factors are there that may have significant impact on it in the coming months or years?
Well, Coldwell Banker’s mid-year Market Report is now out in hard copy and on our website. There is not room to reprint it here, but in summary the last six months have continued the downward trend of prices and sales volume. However, just in the last month or two we have seen a marked increase in activity. Why? Well, there are several possibilities.
Listening to a number of recent purchasers it is obvious that Obama’s policies are scaring a lot of Americans. Fear of new higher taxes is driving money offshore, as it always has. But beyond that, many Americans fear the social and political changes that are being pushed by the Obama administration. There is fear of government control over areas that have traditionally been accepted as areas of personal decisions like healthcare, membership in unions and government ownership of banks and large corporations to name just a few. Generally this is creating a new American demand for offshore residences and this demand is being felt in Cayman right now. It was thought that the neutering of our private banking industry would make Cayman less attractive – and that was true for a while. But the perceived change in the American way of life is a more powerful stimulus and it is fuelling the Cayman market place.
The lower price levels that have now been reached for property here have also had a positive effect, as has the government stamp duty rate reduction and the CIREBA Purchaser’s Rebate, which are both due to expire on 30 September 2009.
Alan Greenspan’s comment that the bottom of the recession has been reached and the subsequent surge in stock prices have also been a positive influence. But besides the Obama factor and the lower prices we see the other factors as temporary influences which will not buck the negative world-wide trend for long.
The Obama factor is an unexpected benefit. However, in order for Cayman to continue to benefit, we have to ensure that we remain an attractive alternative. With the drive-by shooting of a magistrate’s house, Cayman’s crime rate has reached a new and extremely worrisome high; not only from the point of view of those who may come but also for those of us who are already here. The importance of the public and private sectors reversing this trend cannot be overstated. Simply put, it is a matter of life and death – physically, politically and economically.
Locally, a Perfect Storm is raging with the new government inheriting huge deficits and unfinished capital projects from the previous government, while at the same time revenues have been shrinking due to the world-wide recession. Government has turned to local banks for short-term help, which has been offered, only to be stymied by the UK Foreign Commonwealth Office which says: no new borrowing until your balance sheet is healthier. And all this with our present system not allowing the Leader of Government Business McKeeva Bush to require serious cuts on the expense side of the ledger within the civil service, and well-intentioned, but misguided individuals calling for a paradigm shift into direct taxation. Talk about a “Catch 22.”
The UK’s position, while very inconvenient, should not surprise anyone. While calling for fiscal responsibility is sensible, our debt ratios are lower than the UK’s own! One has to wonder if the real reason behind their refusal to allow us to borrow is to attempt to push Cayman into direct taxation. As a jurisdiction with no taxes we are pretty appealing to many people, as mentioned earlier, and as such a continuing embarrassment to the UK as a charter member of the “European High Tax Club.”
Mr Bush, to his credit, is committed to retaining our indirect tax model and is crafting a fiscal way forward centred on Private Funding Initiatives, whereby private companies partner with government to get stalled capital projects completed and needed ones started. He is also willing to sell off government-run businesses. Hopefully that doesn’t mean just the non-profitable ones, for which it may be impossible to find buyers.
The prospect of gambling has been raised again. A lottery plus casino gaming restricted to resort hotels seem to be the most likely and have been given conditional support by both the Chamber of Commerce and CIREBA just to name a few.
A permanent return of the stamp duty to levels between 6 – 7.5 per cent within the next 60 days has also been recommended by CIREBA. As well as a simplification of all rates of import duty and centralisation of the collection function. Recommendations toward the simplification of the registration and transfer process at Land Registry have also been made. We are hopeful Mr Bush will take on board and try to facilitate needed efficiencies in all areas of public service, as we believe the waste therein will continue to be a serious impediment to balancing any future budget.
It has been a contentious last few weeks, but even with all the challenges, I am feeling fairly optimistic about our future. I believe the actions taken by Minister Bush are, for the most part, well thought-out and necessary. If he continues to listen and work with the private sector, we will get through this and Cayman will emerge healthier for it.