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2011 - Mid Year

MARKET REPORT
MID YEAR 2011 AND PROPERTY LISTINGS
AN HONEST APPRAISAL OF THE CAYMAN MARKETPLACE


Review
Our last report called for 'possible sporadic clearing skies if our Sellers continued to drop their prices and if our phantom projects get started'. Well, all things considered, I guess one out of two ain't bad. Our Sellers have been listening and lowering prices, and this has been reflected in some improvement in sales activity. But no Capital Projects have commenced.

General Outlook
Average marketing time is decreasing for both condo and residential properties, which is a good sign. Supply is still increasing - but slowly at about 2 listings/week. Overall the sales pace YTD is 4% lower than last year YTD, but that is mostly due to the drop in land sales. Both condo and home sales volume is up over last year YTD. Pending sales are down 32% though YTD, and that is not a good sign.

Residential
Surprisingly, the number of houses sold is up an impressive 42% YTD over last year. And the average sale price has been rising. That is not an indication of rising prices, just the fact that some higher priced inventory has finally been selling. It is worth a look and the owners are motivated.

Condos
Condo sales volume is also up, a more modest 6% YTD, but considering the year previous (we were down -6.5%) that is a significant change. Average condo prices are also up for the same reasons they are in the Residential Sector mentioned above. On South Church Street in George Town Oceana has begun construction with 8 presales. It is being built by McAlpine which in itself is a good recommendation. Call us for details on the development and current price and unit availability. In general though, the best deals around are still the resales and prices are now getting very attractive for some properties. Check the listings on the last page for units which have been significantly reduced.

Raw Land
Land sales are down 41% YTD, and this is the sector which has been the most active in the years previous. Why the change? Probably a number of factors. Firstly, financing is not easy right now, but it is hardest of all to finance raw land purchases. Secondly, everyone who has a job is working extremely hard. I don't know many who have either the money or the time to take on the building of a new home. Lastly, in uncertain times people tend to go with the 'Gold standard' of property investments which is land. The upturn in sales activity for homes and condos may indicate a higher level of confidence in the market place than we have been seeing.

Some very interesting parcels are now available on Sparky's Drive. In the individual lot category are 4 lots right across Sparkys Drive from Progressive. Their visibility is so good everyone wants to put unauthorized signs on them! These industrial zoned lots are priced from CI$255,000 - CI$345,000 depending on size. Beyond those there are larger parcels for sale with different zonings on Impulse Bay and the North Sound ranging from 4 acres to 13 acres, all owned by some very motivated Sellers. Call us for full details.

The Barefoot Beach site is heading for a sealed bid auction within 90 days. This is prime beachfront so anyone looking to buy without competing bidders would be wise to get their offer in soon.

Commercial/Industrial
The owner of the WCML Warehouses the best built warehouses in Cayman is willing to rent them as well as sell. The rent for a storm rated 2,873 sq. ft. unit is only CI$3,591/mo. And the retail/warehouse at 2,932 sq. ft. will rent for CI$3,665/mo. (gross rental). Call us for a walk through.

Sister Islands
Update from Little Cayman by Wes Dangerfield
If you read my piece in the last market report where I said that it was a good time to buy a condo in Little Cayman, and wondered if I was correct well with one condo sold and another under contract, it would appear so. If you missed out on these but are still interested in a condo on Little Cayman, contact me and I will be able to give you an update on what may be coming up on the market. As for raw land, more information requests have been coming in and some prices have come down so sales will soon follow. One specific parcel was just reduced from US$199,000 to US$187,000 and the owner has told me to sell it now! Come in and make an offer.

Update from Cayman Brac by Debby Jaeger
Cayman Brac continues to offer affordable prices compared to the rest of the Caribbean on everything from oceanfront homes and beach lots, to bluff land which includes acreage, inland lots and bluff edge lots with panoramic views. Based on US tax laws coming into effect in 2013, this is an excellent time for purchasers to seek safe haven investments for their retirement. It is easier than ever to get to the Brac for a vacation or just a long weekend as there are now weekly direct flights from Miami. Both marinas are still in the planning phase, and recently the island received new paved roads which gives a polished look to the north side of the island. With no traffic or crime, Cayman Brac is the ideal investment for the international buyer or the Grand Cayman investor looking to get away.

Projects
We really wish we could give you a substantive update concerning ALL of the proposed capital projects, however, much would be gossip and conjecture, and we try to leave that to the other reports. Every one of the projects has both support and opposition within the voting population which is a Politicians nightmare. Admittedly these are complicated deals, especially when substantial borrowing and environmental concerns are also involved. In fact, the Premier has just announced that due to the growth of the Public Sector debt (US$726 Million) there would be no more borrowing in 2011/2012 or 2012/2013. The only other alternatives are privately financed initiatives or public/private partnerships. In actuality, any initiative which involves the Private Sector is likely to be a better business model, have a more reasonable cost, and have a better chance of long term success.

This Just In! A Blockbuster Deal!
A multifaceted Public/Private Partnership deal between Dart and Government will solve a lot of problems, and all without debt guarantees or cash outlay by Government. A cash infusion of $200 Million over the next 2 years (and a projected $1.2 Billion over 20) will be part of the deal, which in general looks like this:

1. Dart gives Government 110 acres in Bodden Town for new solid waste disposal facility and will build Phase I. In return, Dart then will receive, close, cap and remediate the existing facility adjacent to Cayman International School (Mt. Trashmore). Costs for this are estimated at $32.5M for Mt. Trashmore and an additional $26.5M for Phase I of the new facility. Government also agrees to bring environmental tort reform relating to the existing landfill.

2. Dart will extend the By-Pass North to Batabano Road from its current terminus at Raleigh Quay and create at least 1 more connector to West Bay Road. In return, Dart will then own the existing West Bay Road North from the Marriott Courtyard leading to the closure of that road section.

3. Dart will redevelop the Marriott Courtyard into a 4/5 Star new beachfront property with more rooms, conference facility etc. They will also commence construction on their first 'for sale' residential phase at Camana Bay in the fall of 2011.

4. Dart will also give Government 25 acres on the By Pass as well as 70 acres of land in Barkers for inclusion in the National Park, and 150 acres of land in the Central Mangrove Wetlands. Dart receives 70 acres of land near Salt Creek.

5. Dart will provide $18M of funding for community projects, and will receive rezoning of certain land holdings including 40 acres of Mangrove Buffer at Camana Bay.

6. Dart will pay no import duties or development fees in relation to its Camana Bay, Starfish Point, and West Bay properties up to $44M ($54M if landfill remediation costs exceed projections). Once this limit is reached Dart will receive 50% abatement on duty and development fees for a further 15 years.

7. Dart will get a 50% rebate on Hotel (Tourism) Taxes for 10 years for any it develops or acquires and renovates over the next 30 years.

8. Dart will receive Government assistance for Permitting through various Government Boards and Agencies, excluding the Immigration Board.

This deal will certainly help jump start our economy. It will create a projected 500 - 600 direct jobs plus many others via spinoffs, and generate additional government revenue. With the expansion of Cayman, over the years the infrastructure has not kept pace. And in current economic circumstances borrowing to do so is not possible. This type of deal was one of the only solutions, and we are pleased that such a deal is being done with Dart and not some unknown Foreign Company. With Dart you know the agreed projects will be completed to a high standard, and without any 'back handers'. You can argue whether some aspects of the plan are really necessary (like the West Bay Cruise Ship dock, the value some of the land parcels Government has received, or even the West Bay Road closure itself). However, every transaction involves both 'gettin and givin'. Without both, deals just don't happen. We think there is a good measure of both in this deal and much of the deal involves issues that are crucial. All in all we give it a 'thumbs up'.

Cruise Ship Tings
The fourth in a line of potential George Town Port contractors has been identified. A Memorandum of Understanding has been signed with the China Harbour Engineering Company (a Chinese Government owned entity) to provide financing and technical designs. Contracts are hoped to be signed in November for the design, construction and operation of a George Town cruise ship facility. In July the Spotts jetty is targeted to be renovated & expanded, and later a cruise ship pier in West Bay.

Oil Refinery ?
Another Ministerial Memorandum has been signed for a proposed 'environmentally sensitive' oil refinery which would provide cheaper petroleum products to Cayman. An environmental Impact Study is underway but not completed. The refinery would be located on about 13 acres of land at Impulse Bay near the terminus of Sparkys Drive. The refinery would initially have a 6,000 bbl/day capacity (current island usage is 3,400bbl/day) with the potential to produce 12,000bbl/day.

The Shetty Hospital
This is not a Government project, but Government has been heavily involved in it since day one. It looks like the Shetty Group has finally gotten all the issues worked out so that they can go forward. The Naraya Hrudaylaya (Shetty) Hospital is well on its way to a late 2011 start and completion of Phase I is scheduled for mid 2013. Phase I will be 100,000 sq. ft. and include 140 beds. Initial drawings are completed and the architects have already been chosen (but not announced formally). The last hurdles are our Legislative Assembly passing a Human Tissue/Organ Donor Law, finalizing the Hospital location within the next 60 days, and ensuring the airport expansion will handle the volume of patients eventually coming in for treatment with accompanying family members. Our present facility is already handling nearly twice the capacity for which it was designed, so even without the new hospital it is overburdened. The expansion of the airport facility and extension of the runway are crucial cogs in the continued development of Cayman not to mention this new Hospital Project.

Economics and Politics
With regard to bringing politics into our economic report, it used to be that economics shaped politics and so there was never a need to discuss politics in a report which was focused on economics. However, that is no longer the case. Now Politics shapes economics and if the economy is faltering then politics is fair game. Misguided political and social agendas are at the root of the world's economic troubles. To ignore that, under the auspices of political correctness, means furthering the problem. Until the US, and most of the rest of the world Cayman included - get their spending under control, balance their budgets, and keep their government from trying to redistribute income through taxes and entitlements (free stuff in exchange for votes), our world economy will be as shaky as our currencies are becoming. Although they did not originate the concept, the Obama Administration is making overspending and entitlements an art form. What businessman has confidence in investing somewhere where the basic rules of business don't apply? None; It's too risky! That's why so many people with money are standing on the sidelines now and not spending.

Progress
At the beginning of this report we noted the increased market activity in the first half of 2011. While we do not necessarily see that as a permanent trend, the realistic attitude of our sellers together with the accurate market analysis provided by our agents has led to a 47% increase in business for this firm YTD. It just goes to show that even in a slow market, if the Seller and Realtor work together, properties can be sold. Give us a call, we need more good properties to sell, and we can assure you of an honest and professional effort.

Forecast
Cayman's economy is normally tied to the US. In view of the continuing problems there, we cannot expect to be doing appreciably better here. However, if our Government focuses on ways to improve our own environment while keeping our balance sheet healthy, we have a chance to improve our situation ourselves. These new local initiatives will have a substantial effect on business activity in Cayman but not until the end of the year. Besides the fact that there are so many questions still to be answered with regard to the US and world economies, this is also our slow season. So we expect cloudy skies with the occasional sunny day until the last quarter, and then as the Dart deal and possibly others commence we should start to see the sun breaking through.