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New Year

Review

In our last report we mentioned an increase in activity and a generally positive vibe for Cayman. But we said the future was difficult to predict until the US Election results were known. The US was in another election cycle where neither candidate was very appealing mostly for behavioral reasons. In fact, it was as much an election about who you wouldn’t vote for as who you really wanted. Well those results are in with Donald Trump now President-Elect Trump. It was a hotly contested election and the losing faction is having a very hard time accepting the result. This is disappointing as the US Electoral process has worked well for over 200 years. The media, which notably backed the loser, is only exacerbating the situation making a smooth transition of power much more difficult. Ignoring Trump’s personality issues for a moment, much of his platform has wide support eg: replacing Obamacare, cleaning up corruption and inefficiency in the US Government and generally reducing its size and increasingly direct control over American citizens, improving the US Military and the infrastructure, controlling illegal immigration, killing the Iran nuclear deal, restructuring the tax code and trade agreements. If Trump’s team can accomplish these policy goals, the American economy will benefit, and in turn will spread prosperity to Cayman. Both Obama and Clinton promised to target Cayman as a Tax Haven, so their defeat can only be considered positive for us here in our view.

 

General Outlook

About one year ago we began to see increased activity in our Real Estate Market. Finally, after about 7 years of recession interest began to increase and people began to buy again. Initially transactions were hamstrung as mortgages were difficult to get due to low appraisals. As prices began to rise due to small supply and increasing demand, the mortgage situation worsened as the appraisers ignored the increasing interest levels and shrinking supply and continued to rely only on lower historical sales data. As a result many willing and able buyers were prevented from entering the market. Thankfully we have now had a full year of rising prices in at least a few market sectors, so appraisals are starting to reflect the market strength we have been seeing for a full year.

 

The activity noted in the last report continued and at this writing Cayman’s overall Real Estate sales figures YTD are about even with last year. But the restaurants are busy and the roads are jammed. There is lots of activity and a feeling of optimism and prosperity in the air. Tourism during Thanksgiving and even after has been strong. Supply is down about 6% and marketing time is also down which means more sales activity and rising prices. But while we are moving in the right direction overall, the different market sectors each tell their own story.

 

Condos

The activity in the Condo Market has slowed but only due to a serious lack of supply – especially in 7 Mile Beach units under US$2.0M. In fact supply is down 21% over last year and there wasn’t much supply then. Condo sales are down in number by 5% and down in total value by 12%. That doesn’t mean prices are falling, rather it means that the number of last years Watercolours sales have not skewed the market this year. A very few Watercolours units are still left from the Developer, otherwise there are only a unit here and a unit there available for purchase – aside from the Kimpton’s Inventory.

 

Single Family Homes

This Residential Market Sector has been much more active this year than last. The # of sales is up 18% and the value of those sales is up 25%! Those are huge advances and indicate a more residentially oriented buying pool than previously. Crystal Harbour still leads the way as the most active and desired subdivision. Our comments below on land sales are worth noting in terms of how they relate to home sales.

 

Multi Family

With interest rates still on the floor as of this writing, customers are still looking for income property. But similar to the condo situation, supply is scarce. Supply is down 18% YTD and as a result the # of sales are off by 25%. Even so, the value of sales made is up 5% so prices in this sector are rising.

 

Land

Let’s talk about land next as it relates quite closely to the Residential Sectors. The number of Low Density Residential land sales are up considerably as is the value of those sales. The demand for single family houses and house lots has increased dramatically and the supply is trying to keep up, and while growing, still cannot. There is more demand than supply which means higher prices to come in this sector. Lots in Crystal Harbour, for example are selling rapidly, as is the case in The Shores, (but not quite as quickly). It is hard to envision the supply of Residential lots increasing rapidly due to the expense and bureaucracy facing developers in the Residential Sub-division process. But as prices rise, subdivision development will become attractive once again.

 

Commercial

The commercial Market Sector in Cayman has lagged for quite some time. A combination of the recession, and the continuing traditional parking and traffic flow problems have not been kind to the values of George Town Commercial properties. Camana Bay has nearly supplanted George Town as Cayman’s Commercial center even considering the significant difference in rental rates. We estimate that for waterfront space Camana Bay tenants are paying about 35% more than for George Town space. Even after an allowance is made for the differences in the age of the properties, by comparison that is quite a significant differential. What ever happened to our Government’s “Rejuvenation of George Town” program?

 

Sister Islands  

The market in the Brac has been very challenging for quite some time. It has now turned in Grand Cayman and we expect that to shortly be the case in the Brac, making it a better time to either buy or sell in the Brac than it has been in some time. However, we don’t expect immediate price rises. Before that happens, showing activity has to pick up and that is what we are looking for this winter. That always leads to sales, and as soon as there are some sales happening at current market levels, that will lead to higher prices. But in order to take advantage of a market which has the capacity to rise, you have to be on the market. That is why having your property available to the public in the MLS is important. Anthony Khan has just joined our team on the Brac. Anthony knows the Brac well and will be available to provide information on our listings. The office number 948-2727 remains the same and Irene Scott-Thornton will also remain involved on the Brac.

 

The market in charming and sleepy Little Cayman seems to be waking up, almost on cue. About a year after Grand Cayman, sales activity on Little Cayman is rising. The recent sales by Coldwell Banker about to be registered for beachfront land on Bloody Bay at about US$2500/ft and a Condo in Conch Club at US$370,000. are precursors of a better season for Little Cayman in 2017.

 

New Development

The Kimpton Hotel has now opened to good reviews. The local populace got a close up early look at the property through a well conceived discounted soft opening in late November. Many have noted it had a much better feel than the Ritz. Truth be told a large percentage of the staff were apparently poached from the Ritz and many of the rest came from the now closed Beach Suites, so they have an experienced crew. Real Estate showings of the Kimpton Sale Suites continue but the prices are up there.

 

Cuba

The recent death of Cuban Dictator Fidel Castro has again raised the spectre of Cuba’s potential opening and how that might effect Cayman. Outgoing US President Obama made overtures to the Castros and relaxed travel sanctions from the US. That was not particularly well received especially by the Cuban Americans in Miami who migrated here in the 60’s after losing everything they had in Cuba to the brutal dictator. With a new administration coming to the US in January, we would be surprised to see more US concessions without Cuba being willing to make concessions of their own with regard to their totalitarian regime which will likely continue under Fidel’s brother Raul Castro. It will be interesting to see how the Cuban people respond to the power vacuum left with the passing of his charismatic brother. Two generations of Cubans have now known nothing but Communism and total governmental control. One wonders if enough of them understand what it would be like to live in freedom, or be willing to fight for it.

 

However, if, for some reason, Cuba were to continue to open up to the West, what could we expect? In terms of Tourism, Cuba is a major curiosity, and with some new accommodations having been constructed over the last 10 years, we would expect a lot of Americans would want to go there and check it out. As a result we will lose those visitors at least once which will have a negative effect on our own Tourism. However, the infrastructure for resort vacationers is just not there yet. Neither is the transportation infrastructure to allow visitors to easily access the physical beauty of the rest of what is a huge country. To give you some perspective, Cuba is a longer land mass then the entire state of Florida! Our guess is that you would not see a large percentage of return customers to Cuba – except perhaps those who could not afford to come to Cayman anyway.

 

Getting beyond Tourism, Europeans and Canadians have been doing business in Cuba for some time, but that has been in partnership with the Cuban Government or Cuban individuals. We are still hearing stories of investors losing their investments due to Government take overs and such. Fidel may now be dead, but this is a Communist Country with a totalitarian Government which does whatever it wants. There is no protection from the rule of law for investors. Lastly, even if you could own something in Cuba, would the title be any good? We really don’t know. There are likely Cuban families in Miami who will lay claim to their old property holdings perhaps in a World Court, once they have that opportunity.

 

The bottom line is that while Cuba is incredible in terms of its physical gifts, and one day it could become a Real Estate and Tourism gold mine, right now it lacks the infrastructure, title system, and freedoms to allow it to properly compete with existing Resort Destinations like Cayman.

 

Local Elections & Local Issues

Cayman’s next election is scheduled for Wednesday, 24th May 2017. This will be the first election featuring the new smaller constituencies. There will be a lot more candidates running as Independents this time around so it will likely be tougher for either of the two existing parties to achieve a majority without creating a coalition with some independent members. Let us hope that the trend of getting better quality candidates elected (which began at the last election) continues, but we are not sure the new smaller constituencies concept is conducive to that result.

 

One of the problems we don’t hear much about is the size of Cayman’s Contingent Liabilities. It is true that the stand-alone operating budgets have finally shown a surplus lately as we climb out of the recession. However, the figures we don’t see are the Contingent Liabilities which include payments to the Statutory Authorities like Cayman Airways and retired Civil Service Pensions and Health Care. Health Care alone for retired Civil Servants is going to cost Cayman upwards of $1.2 Billion over the next 20 – 25 years and that figure is twice what it was just 10 years ago. It is increasing by about $60 Million year. That means we need to put away over $100 Million annually to pay for just that single liability. And this is at current inflation rates. Any rate increase makes the situation worse. Regardless of who runs the country going forward, our Government MUST address this situation not only by committing to paying both the debt and the contingent liabilities down annually, but also by making a conscious effort to significantly cut its own bureaucracy. In the 10 years from   2004 – 2014 the Civil Service has grown some 40%! And yet, in several Governmental Departments it now costs extra for “Expedited Service” which is the equivalent of what until recently, was standard timing. In that regard we are a microcosm of the US and that is not good news. Unfortunately, the topic of an inefficient and expensive bureaucracy is only addressed once every 4 years on the eve of an election, and then it’s back to “business as usual”.

 

Roadworks

The road widening East of George Town continues apace which should improve traffic flow from the King’s roundabout. It seems like that might just push the bottleneck further east, and possibly pile up by the Tomlinson circle, but you have to start somewhere. Road works continue along the Esterly Tibbetts Bypass between the Butterfield Circle and Camana Bay. Work also continues to reroute the Bypass further to the West of its present course through Camana Bay, by way of an underpass which has already been roughly completed. Although the new circle & lanes are in sight already, it is difficult to envision the big picture from the ground. You will be able to see the overall big picture on the Dart website sometime in January. The whole project is expected to be completed in May (in time for the election; surprise, surprise) but parts will open up before, some as early as late January.

 

Crime

Crime in Cayman is relatively low in comparison with most other jurisdictions. But it doesn’t mean we are crime free. What we have is generally drug related and there are a few hot spots of gang activity which gives rise to violent crimes and break-ins. Sadly we are seeing more of that again lately. We have a new Chief of Police Derek Patrick Byrne, who we hope will be pro-active and aggressive in dealing with the bad guys.

 

YMCA

Last call for Corporations to become Corporate Founders of the Cayman Islands YMCA. This is an opportunity to be forever recognized and linked to an organization which is already doing great work in the community and will only get larger and more productive. It is quite obvious we need more consistent positive influences for our youth.

 

Forecast

There are lots of difficult issues which have to be solved by both the US and UK and those nations are our biggest influences. While steps have been taken in the right direction in both countries recently, in order for those steps to bear their intended fruit, significant short term sacrifices will have to be made by those nations. With significant opposition to the new direction in both nations, one wonders if the political will and support exists to follow through. Globalization, Deficit Spending and Entitlements have become an accepted part of society over the past 15 years and bad habits are hard to break. If they (and we) can persevere, Cayman will be better off in the long run. But the temptation will be to try to make the omelet without breaking any eggs which, while sounding attractive, is impossible. Either way it goes, it will be a tough fight, and compromises will have to be made by The Right so neither philosophy will completely carry the day. There are significant numbers of businessmen in both nations who have been on the sidelines for a decade or more. These people are feeling more confident with the move to the Right and so they will now begin to spend which will benefit us here. That coupled with our own increasing economic activity should mean that our economy will continue to improve. From our vantage point right now, barring unforeseen world events, we forecast continued clearing and sunny economic skies for Cayman this winter.