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2020 - Special April Edition

MARKET REPORT – SPECIAL MID APRIL 2020 EDITION

The last half of 2019 was strong and provided a continued positive outlook in Cayman. The development activity on Grand Cayman was as active as it has ever been. Rising prices continued, but sales slowed somewhat as a result of that, plus the increasing supply of Residential Real Estate inventory. The latter half of 2019 showed a decline in # of sales by 4.5%. and dollar volume by 14%. In fact, decreases occurred in all Residential sectors except single family homes, but we must remember that this was only relative to 2018 which was a boom year. In other words, everybody was busy which was good for business overall in Cayman. And some of the more outlying areas of Grand Cayman showed increasing activity as did the Sister Islands. The first month or two of 2020 was a continuation of 2019 ie. strong tourism figures with local businesses doing well. Presales of Luxury Condos on 7 Mile continued apace with WaterMark up to 70%, and Hyatt at 40% SOLD.

The information above is a snapshot of how the market has looked over the last half of 2019 into 2020 YTD compared to the year before. But all that changed recently in the blink of an eye. The Coronavirus or COVID-19 which originated in Wuhan, China is making its way around the globe being transmitted person to person.

It has taken a while for many countries to come to grips with the seriousness of the situation which has allowed the virus to spread more easily. In this social media age, we are often bombarded with erroneous information as social media gives every person a voice, regardless of whether or not they have anything accurate or helpful to say. But, the one thing we can be sure of is that wherever Coronavirus COVID-19 has penetrated, it gets worse before it gets better.

Having said that, some places will fare better than others. As expected, the hardest hit areas are the cities – the largest population centers with the most homeless, and more questionable sanitary conditions. The more permissive the society, the more likely the transmission, due to lack of discipline. Less dense and more remote, close knit communities, which have a culture of concern for their neighbor and a respect for discipline and the rule of law, will do relatively better. Island countries like Cayman are a great example. An excellent March 25th Forbes article covers what has been done here

Physically, the island nature of Cayman could be a mixed blessing. It is more difficult for the virus to get here, but once it does our medical resources are limited. So, prevention is by far the best cure in places like Cayman. We were perhaps slightly slow to close our borders and to enforce quarantine and self-isolation orders at the point of entry. But this is Monday morning quarterbacking, and having said that, we were still much faster and more decisive than most other countries. Throughout March and April lock downs and hard and soft curfews have been used alternately in relation to virus spread and the cooperation of the local populace.

The virus should be containable here and we are hoping for the appearance of new cases not to last past the end of April. Of course, this is a unique situation, so it is really hard to say with certainty. And with a good result so much dependent on self-discipline (which is often in short supply these days), it is difficult to predict.

Due to the aggressive battle against the virus, most businesses will show very little sales activity, at least in March and April and perhaps longer, which will put a big dent in the local economy. We don't know how long we will be affected, mainly because our main trading partners are not handling the virus as well as we are, and border openings may not happen as soon as we would hope.

With regard to Economics, most Cayman companies have had a very good run over the past 3 years and those that have, will simply be looking at a significantly lower P & L than they have been used to for the first half of 2020. Those companies will just have to plan for a less attractive set of Financials for this year. But the key will be hourly employees, those living paycheck to paycheck. With so many businesses closed or forced to cut back, they will have a tough time making ends meet. That becomes significant once we get past a month. That’s when mortgage payments, rent, utilities, etc. all come into play. But leeway is being given by most of those institutions to allow people to get back on their feet. Many landlords and employers have been postponing or forgiving rents and continuing to pay non-working employees. And Government is aware of the issues of foreign workers, many of whom now have no income, so flights home are being arranged once every few weeks. But we understand that "Repatriation Fees" which were collected by all employers ostensibly to ensure their employees could afford to return home, and then turned over to Government, cannot be used for these purposes. That is very bad form!

What about our business specifically? Real Estate in Cayman has been on an incredible 4 year run with supply steadily being absorbed, and prices rising year after year. Tourist arrivals have also broken records month after month well into 2019. Investor confidence has been super strong. However, as prices have risen we have seen a slowing, first of sales volume, and then of sales price increases. But the listing prices of properties new to the market, were still pushing the envelope; until now. The sales process has stalled with the advent of Corona. The absence of visitors has been rough on Real Estate Sales as March and April are two of our best sales months. Further, the closing of local businesses has put the brakes on our local market. Most people are hunkering down and doing what is necessary while not being able to plan much for the future. Development projects are quiet and we all wait for the "all clear" which will not come at least until April has come and gone. Cayman's Real Estate Market is significantly supported by our visitors who are not likely to reappear in the near term. And as mentioned above, our foreign neighbors are worse off than we are.

Right now many people are worried, mainly because we were facing an unseen enemy. Plus the world is full of market watchers and investors looking for quick profits. The bulk of investing is now done by Funds using computers which are programmed to buy anything that is being heavily promoted by the media, and sell at any slight sign of economic weakness or inconsistency, or again, negative media reports. The stock market has become an adult video game played with real money. So, of course, the Coronavirus has had a negative effect. As opposed to the stock market players, people who do well in Real Estate do not buy for a quick profit. They buy because their investment is safe in the short term, and a profit over the long term is the norm. What is important to remember is that this virus contagion will not last more than a few months at the most. This is a lot shorter than the damage done and problems caused by Hurricane Ivan or the 2008 recession, both of which we were already able to weather during this young Century.

While the chances of getting the virus vary due to the activity of the recipient and their surroundings, the mortality rate thus far is quite low. Don’t be misled by the figures on the news which compare the # of confirmed cases to the # of deaths. Due to the lack of test kits and the logistical inability of testing the whole population, there are obviously many more cases of Coronavirus everywhere that have not been tested or counted. So, while there is no cure for it as yet, the good news is that the overwhelming percentage of the persons who got it, are fighting it off and getting well. Obviously every death is sad, and the odds are not as good in the “at risk” segment of the population, but as one of those myself, I see no need to panic.

With regard to specific market sectors, as we have no baseline to use, it is impossible for us to provide our normal figures for market direction. I can say that a transaction on 7 Mile Beach which was being negotiated just as the COVID-19 virus began to expand in the West, eventually went to contract at a price 7% below what we estimate it otherwise would have sold for, but still others are closing without reductions. As the days go by and more people are affected over a longer period, we will likely see some more instances of Sellers needing to sell, but that is much more likely for inland properties, many of which have been purchased by the local market.

Although we are a British Overseas Territory, and have no doubt inherited some of the Euro-flak aimed at Britain over Brexit, our economy is much more affected by what happens to our closest and largest trading partner, the USA. Thanks to Russia, China and Saudi Arabia the US is in as much an economic battle as a medical one. The longer the bulk of their economy is shut down, the harder it will be to restart due to fewer players in vital sectors like oil and gas. We all need to be hoping and praying that the US is able to get the virus under control soon, because the more their economy suffers, the more ours will as well. President Trump is now fighting a two-front war and if he can keep the American economy warm until COVID-19 is under control we will all be ok, but considering his opposition in Congress and more so the media that is by no means guaranteed.

If we had to guess, right now we would expect local Cayman businesses to begin to reopen in May sometime, and the borders being gradually opened in late June or early July. This Coronavirus will gradually die out and as soon as there is a vaccine it will be just a memory, and that will all likely happen sometime this year. The sooner that happens, the higher the market will rebound (unless the US elects a Socialist in November). The stock market will take off again, and small attractive locations like the Cayman Islands will return to a strong Sellers Market, complete with rising prices. So, if you are looking for something stable to buy which will be more valuable tomorrow than it is today, you might consider looking at Real Estate in the Cayman Islands.