An honest appraisal of the Cayman marketplace

Review

In our last report we touted the overall excellence of the Cayman Islands Tourism and Real Estate Product within the Caribbean. Based on that we predicted continued clear and sunny skies for the first half of 2019. That has certainly been the case with strong growth in Economic indicators across the Board. The only caveat in Real Estate has been the continuing lack of supply which led to increased prices and a slowing of sales activity. 

General Economic Outlook

The 2018 and Q1 2019 figures for Cayman’s overall economic picture are extremely good. The Government report given by Hon. Roy McTaggart at the Cayman Chamber of Commerce Economic Outlook showed the following: GDP growth of 3.4% for 2018 with 3% for the last few years and projections of a gradual decrease to 2.0 over the next 4 years. Our Consumer Price index was 3.3% in 2018 and 4.5% for 2019 Q1, on the back of 10.6% Hotel & Restaurant growth and 8.1% in Construction. Unemployment was nearly halved from 2017 – 2018 with the Total and Caymanian jobless rate currently being 2.8% and 4.6% respectively. Government revenue for 2019 was $838M with a surplus of $169M. The 2019 Q1 operating budget is already showing a surplus of $215M, and over the last 5 years debt repayment totaled $180M.

Current Real Estate Outlook

The above is obviously good news for all markets which thrive in the presence of stability and conservative management. Real Estate is no different in general, but supply, demand and pricing also play a large role, and as mentioned above, a lack of supply has somewhat frustrated the market. YTD MLS Real Estate sales figures for 2019 (compared to 2018) show a12.5% decrease in # of transactions and a 9% increase in sales value. In fact, there were no sectors within the industry wherein the # transactions was up, although the number of Residential sales was even. 

Condos

The number of condominium transactions was down 13% due mainly to lack of supply, and the price increases couldn’t quite compensate as condo sales revenue was also down, but only by 2%. High tourist numbers notwithstanding, we are in the summer season when lower accommodation prices are the biggest draws. As a result, expectations for luxury condo sales during this period are not too high. On 7 Mile Beach, Developments like Agua and Seacreast condos are now under construction, but all sold out. Watermark has not yet begun but is 73% sold and scheduled to commence this Summer we understand from the Developer. The projected Hyatt Condo/Hotel for Pageant Beach is quoting 35% sold with projected commencement scheduled for Fall 2019. The Lacovia redevelopment will commence September 2020 and they are quoting 65% sold. And there are many others not on 7 Mile. In fact, the totals show over 1,000 projected new units somewhere in the pipeline. But the projected sales numbers can be misleading as these are often refundable reservation deposits which are subject to some natural fallout during the formal contract process. Plus, some developments which are being marketed may not have funding locked in yet, so some may never be built. If you have interest, talk to someone who is not representing the Developer to get a better feel for the likelihood of a certain project becoming a reality. We can help you there. The question to ask is, does the location match the style and price point of the project? If not, the odds are long.

Homes

For once the single-family home sector had the best results. The number of sales YTD was even with last year and the revenue from these sales was up 36%. This is unusual for Cayman in recent years and demonstrates that sales are finally happening more often in the Luxury Housing Market. We believe this is also a reflection of the much higher construction prices being quoted over the last year or so which is forcing many potential new home owners to take another look at buying an existing residence and making required changes. Since the recession, there are only a few top-level builders who are extremely busy which is partly responsible for the price increases. We suspect we will see a few more contractors ramping up to fill the void, which will eventually help with building costs. Meanwhile, inland homes east of George Town over US$500,000 are not moving as quickly as the rest of the market.

Land

The overall land sales picture for 2019 follows the general trends mentioned above ie # sales down 12% but the value of transactions is also down 6%. Let’s look at some different Planning Zones.Low Density properties are down 6.5% in number but are up 12.5% in value following the trend above in Luxury Housing which is likely for higher budget housing lots. Hotel/Tourism deals are down by about 80% but those that have sold are selling for 82% higher than previously, which is obviously a response to the height elevation increase due to recent up-zoning. Agricultural land sales have been few and far between, and those which have sold are down 86% over last year’s results. Sister Islands land transactions are down 33% in number and a similar 30% in value, so it looks like not much upward movement in prices there yet. However, there is more activity, so we expect our Year-End Report to be more favorable for the Sister Islands Market.

Cayman Brac

While we don’t yet have sales data which shows rising prices, when you are in this business you just get a feel for the markets. And our feeling is that Cayman Brac has bottomed and is starting to awaken. We can feel the increase in interest, and increased interest leading to sales activity is needed to drive prices up. The Dart incursion into the Brac has peaked some new interest and there has been some serious interest in some larger properties of late. Several properties are potential Airbnb powerhouses.The first is a lovely South Shore Guest House with great views, a nice pool, a good design and a nearby beach parcel included (call EJ for info). The second is the newly listed 6 unit La Esperanza property which, with some new energy and marketing, has fantastic potential (call Antony for info).

Little Cayman – by Wes Dangerfield

As mentioned in our last report, there are still no condos available for sale and the house inventory is also limited. In fact, the total number of listings has decreased due to sales absorption. Many owners have decided to hold on until prices go up (which is beginning to happen). We have an expanding list of people looking for various types of properties right now, so if you are a seller who wants to push the pricing envelope a bit, now is the time to list. We will replenish our listings this summer and reconnect with those who have been looking to make a purchase when high season comes back around. If you have a property in Little Cayman and are considering selling, don’t hesitate to contact us so we can evaluate pricing and marketability, and introduce a buyer.

3-D Parcels

Interesting “volumetric legislation” was recently passed which allows for the separate Absolute Title ownership of the “air parcels” above the ground (and presumably the subterranean parcels). This varies from existing Strata ownership whereby the whole volume of a parcel is shared among owners who own a % of the whole with shared benefits, responsibilities and costs. While the condominium concept has existed in Cayman since the late 70’s and is common in the US and Canada, it has never been fully embraced by locals. One reason for that is many feel the maintenance costs charged by Stratas are higher than they would be if the homeowner handled the works themselves. That is unlikely to be the case especially when considering the maintenance requirements of increasingly vertical developments. Maintenance the costs will still be there with the only change being a Home Owners Association managing it instead of a Strata Board. The impetus for this new technique was really for Developers to try to save Stamp Duty for their potential purchasers. This is somewhat like the Land Stratas which permitted buyers to only pay Stamp Duty on land even though they were contracted to pay for what would be a finished improved property. That loophole was recently closed by Government as will this “air parcel” loophole by years end. The main lasting impact will be that for Developments built over underpasses (ie. Dart) the roadway will still be owned by Government while air parcels above can be wholly and separately owned. Although the height and depth for this volumetric legislation are theoretically limitless, the practical aspect will be limited by applicable Planning Regulations.

Tourism

The 2018 tourism figures are now in and overall we are looking at a new historical high of 2,384,000 visitors which is an 11% increase over 2017. Much of those numbers were cruise passengers, but the stayover visitor count of 463,000 is also a record and a much more important statistic for Cayman in that they spend about twice as much per day and stay about five times longer than cruise passengers. Total tourist spend was estimated at US$880M. For those of you who are living here or have visited over the past year or so this would explain the crowded roads, airport, restaurants, and downtown area. The most significantly increased arrivals are from the USA, Canada, Jamaica, Argentina, and Bermuda. Rosa Harris and her Tourism Department is obviously doing an extremely good job at marketing, however what is being sold is arguably the best product in the Caribbean. It would be good to remember that, because the quality of the product is actually the most important of these two factors.

Population

Those who have been coming to, or living in, Cayman for a long time will have seen huge changes over the past 40 years. Since 1979, the resident population has grown from 16,000 to an estimated say 66,000 or 50,000+ more to use round numbers. With future development and the requisite expansion of services, our resident population has to increase to service that. While we have seen 4, 6 even as much as a 10% annual increase in resident population at times, the fact is that the average resident population increase over the past 5 years has been only 1.3% per year. It is clear the recent population growth cannot service current economic expansion. But the more important questions are: What rate of growth, both in terms of tourists as well as local residents, will allow Cayman to grow gracefully without the social problems which always come with unmanageable growth rates? And what part of that growth can come from local families as opposed to foreign labor? In the 70’s the foreign population was only 10% of the total population. Now it is about 50%. We will need both white and blue collar labour and much of it will, out of necessity, have to be foreign (probably 50%). How much more dilution of the Caymanian culture is good for Cayman? How long before Cayman no longer has much of a Caymanian identity? Going back to our comments earlier about the product being more important than the marketing, we had better keep this in mind.

Education / Labour

Much of the recent local discussion is centered around expansion with proposed new capital developments like the cruise/container port, or suggestions of “iconic” new ultra, high rise hotels. This expansion will include population growth which when including both visitors and locals will put tremendous added pressure on our infrastructure and service personnel. We question our ability to handle it based both on current infrastructure and current educational performance. Both are obviously lacking and in need of serious upgrading before we could gracefully deal with significant increases of either Residents or Tourists. We fervently hope that adjustments and improvements in basic education, and specific job training, are implemented, and make an impact, before we open the flood gates of development wider than we already have.

Special

From the late 70’s, year after year as Cayman has grown, we have added more tourists, more cars and more cruise ships. Eventually we will reach a point of diminishing returns when the infrastructure can no longer cope with the increases. We believe Cayman is closing in on that benchmark right now. In many ways we are victims of our own success, but also victims of no comprehensive Governmental policy on long term growth. One has only to try to drive somewhere and be jammed up at the roundabouts (which actually allow for better traffic flow) to realize that our roads are insufficient for our vehicular traffic. And it doesn’t take more than a few trips downtown to realize that the amount of people disgorged from the ships on a day with 4 to 8 cruise ships are more than either George Town or the merchants in it can handle. We are fooling ourselves, or only seeing with self-serving eyes, if we do not recognize those facts.

Both locals and tourists seek the same thing “a better quality of life” regardless of whether it is on an everyday or a vacation basis. What we should be focusing on is quality of life (and that is not necessarily synonymous with more money). For that reason, we believe a Public or Private scheduled busservicemust be instituted ASAP.  That is the simplest solution to our traffic congestion. All other solutions are either too costly, too far in the future, or too socially disruptive. That is also why we believe that a cap of 3 or 4 cruise ships a day should be imposed. It is hard to believe, seeing the hordes of people on the streets when more than 3 ships are in, that those passengers are having a good experience. Access to restaurant seats, beach lounges, bathrooms, and shopping counters must all be severely limited, which is no good for anyone. A bad experience does not lead to return visitors, so what are we gaining? Wouldn’t it be nice if cruise visitors and stay over visitors, as well as local residents were able to enjoy or even just drive through George Town during the week? That is not possible now.

What about the new port facility which is being promoted heavily by Government and may be subject to a referendum? Well, we certainly need an improved cargo facility. Whether we need berths for cruise ships depends on how many we accept (see above) and whether we want the new mega ships to stop here. Maybe with a ship limit imposed, berths will not be necessary. Certainly what the Environmental Impact Assessment tells us about possible impact to 7 Mile Beach should be an integral part of the decision, not to mention the overall costs. What we know is that cruise ships will want to stop here as long as Cayman is attractive, and that is what we need to maintain – one way or the other. 

Forecast

Our current Real Estate Market is extremely strong due to increasing demand in almost all sectors. There is a lot of supply in the pipeline, but due to increasing local bureaucracy and already crowded construction schedules, that inventory will not be online very quickly. However, the fact that it is coming is a good sign. The Government economic indicators are also very good and we see continued and increasing strong demand in Tourism. On the other side of the coin, regulators from high tax jurisdictions remain fixated on putting Cayman out of business, so there is always that cloud on the horizon. Perhaps we should let our Tourism marketing group loose on the acronym bureaubullies; maybe they can win them over. Meanwhile, the Real Estate forecast is for continued sunny skies for the remainder of 2019.

 (Stats from the CIREBA MLS database or Official Government Sources)