The real state of the real estate market

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Some of this is the fault of the media which in recent times has become much more of a sales tool than an objective source of information. But I think some of it is also the result of focusing on short term trends rather than taking a longer term view. In this hi-tech age of instant information, we can be provided with percentage fluctuations of just about everything on a seemingly hourly basis. Trends are just not accurately predictable based on a short time frame. Arguably quarterly is the shortest meaningful increment. And I’d surely rather hear bad news four times a year rather than 52 times! The problem with current media coverage is that it dissolves everything into sound bites – the real estate market here – anywhere for that matter – is more complicated than that.

When discussing the Cayman real estate market not only should we differentiate between the different sectors (houses, land, condos, commercial) we should also differentiate between the local and tourist market. Further, we should also differentiate between influences which are local and thereby might be adjustable and others which are international and as such will not be affected by local changes. Only once you have done all that will you have a true picture of the Cayman Market which will therefore allow you to make intelligent investment decisions. Our Market Report does just that every six months ( and we will recap that for you below.

We are constantly asked: “Should I sell now or hold? Should I buy now or wait?” Those questions can only be properly answered in the context of the personal situation of the person who is asking, in conjunction with good market research. As for the market research, here’s what the data tells us:

The local market is continuing to soften. Home prices came down significantly last year and so sales were pretty good. Most of those discounted properties are now gone and as we are seeing fewer motivated sellers, we are seeing fewer motivated buyers. (Funny how that happens!) The condo market is the largest in terms of demand, but sadly it is significantly over-supplied. Only the best priced units are selling. Lower priced land sales are still active as buyers are finding contractors willing to build smaller homes for less than you can buy them for. Commercial lease rates are falling as businesses contract.

With regard to the foreign market it is more a case of lack of demand than over-supply in the residential sectors. Prices have come down – but not enough to generate real excitement. Land sales are somewhat better as it is an intermediate step for most which does not involve a commitment to build. Commercial properties are the best buys around, but economic insecurity has investors looking more than buying – even at properties with a 10 per cent ROI, which at today’s interest rates should be in great demand.

The one common factor in both markets is that they are largely price driven. That is why we recently instituted the Coldwell Banker 7.5 per cent Buyers Cash Rebate programme. It highlights the best deals and gives buyers who are interested but on the fence, another reason to buy.

Factors influencing the local market
Costs – The cost of doing business have risen here noticeably over the past two years. To avoid direct taxation, fees were raised in most areas. There is lots of competition for business within the financial industry. Fewer firms here means fewer staff and less demand for both residential and commercial properties. Those fees must be reconsidered in light of our competition. The need to increase the fees comes from a governmental bureaucracy which is too big and too expensive. Were that properly addressed we could easily be more than competitive again.

Immigration – While the “seven year rollover” is now old news and the new staff working here have accepted that as part of the deal, there is no doubt that security of tenure has a significant influence on whether an employee rents or buys. One obvious solution would be to reduce the mandatory interruption of tenure period to something which allows an employee to also continue to maintain a residence here (perhaps 30-90 days).

Capital projects – Funds are now available for several very significant capital projects by government, and there are others planned in the private sector. Most notable of the government projects are the new cruise terminal, the new commercial port, the North Sound yacht channel and the airport extension. Cayman needs to diversify and look to different tourism markets. The airport and runway extension is vital to that effort and should bear immediate fruit. The biggest private sector venture is the East End medical centre. Any of these projects alone would stimulate our small economy, but together, the effect of the spin-off income will be huge. Add to that the future business each of these projects will attract and we have good reason to expect a surge for local business interests starting sometime next year.

Factors influencing the foreign market
World economy & politics – There is no doubt that Americans are worried about their future. Even if they have the money, they are not spending. Without American tourism and investment, there is no way we will see the highs we experienced just a few years ago. Most of the world is in the same economic boat. It is refreshing to see Europe taking a very conservative stance and leading the charge to cut expenses and balance budgets. More recently, the conservatives in the US are rallying and are expected to make great gains in the November elections which will possibly allow the US to follow suit. It is exactly this type of activity which the investor needs to see before he will feel comfortable investing again.

In summary then, the long-term prospects here are inextricably tied to the fortunes of the USA, and that is a battle still in the balance. We also have our own issues which need to be addressed. But we have a lot to look forward to in terms of exciting developments which will have a significant impact on our economy. Cayman is still a great place to live and work and these new projects will only improve our position there. Another year of belt tightening should help bring the budget more into balance. The US? Just lately heading in the right direction – but ask me after the November elections. We see reasons to be cautiously optimistic about the future of Cayman.