The only way is up

THE LUND REPORT

The worldwide financial collapse of last year was one of three September events, this decade, which have had a huge impact on the real estate market in the Cayman Islands.

The first September event to have an enormous impact on our real estate market, happened on the 11th day of September, 2001. The terrorist attacks that took place on that day, in the USA, had far reaching repercussions and a harmful effect on our real estate market, which took a couple years to overcome.

After that, in 2004, as our market was ultimately on its way to recovery, with real estate activity starting to boom, we experienced another tragic September event caused by Hurricane Ivan. This occurred on September 11th and 12th, 2004. Again, our real estate market was forced to retrench and rebuild, creating a pause with limited activity, for up to a year, while we worked through our recovery process.

Finally, this last September, we once more were flattened with another strike to our real estate market, this time on a global proportion. As profound as it may seem, there is a silver lining to all these September catastrophes. Our real estate market has not had a chance to realise the rampant capital appreciation that other markets experienced, this decade.

The benefit of having a relatively flat real estate market, during this decade, is two fold. We have not had to endure a massive unwinding of real estate values and the associated hardship that accompanies this loss of value. Additionally, we are currently poised and due for some steady appreciation, with property values that are fair, or quite possibly even behind the curve, when we come out the other side of this down cycle.

Indeed, over the last five years, residential homes have only increased in value by $56,408, which represents an increase of just 8 per cent. Condominiums have increased in value by $52,499 overall, in the last five years and this is a 10 per cent increase. These figures group all homes in one category and all condominiums in another, without differentiating between resort and residential properties. As a comparison, over a five year period this decade, Dade County in Florida, increased 151 per cent in property values before their collapse.

In terms of Cayman Islands real estate activity, the number of properties sold from September 1st of last year, up to now (March 11, 2009) is 256. Compared to the identical period, one year prior, the number of sold listings was 348. It would appear that the current recession has been responsible for an approximately 26 per cent decrease in property sales, to date. Yet, in general, sales prices have held up.

The start of this year has been slightly more dismal for our real estate market. From January 1st, 2009 up to now, we are off about 29% in sold listings, compared to the same time period, a year earlier. At the start of 2008, we had sold 125 properties, versus this year, where sales over the comparable period are only 89 sold listings.

While the local residential market is still somewhat more buoyant and active, investors and purchasers from overseas are not yet ready to buy. This overseas group would primarily be comprised of the tourists who generally buy resort properties, predominantly on Seven Mile Beach. About 80 per cent of these tourists are from the US.

When you look at September 2008 up to now, compared to a year ago, the difference in sold listings is down 61 per cent for the condominium market along Seven Mile Beach. That is a huge difference for the same period, only one year apart.

Yet, these tourists and investors who are not buying are still looking at resort property. They are even able to find what they want and admit the value seems good. You can see how much they want to buy the property. However, they end up leaving Cayman without being able to make a decision to buy. They are afraid to spend their money.

Fear and greed drives most cyclical markets, especially stocks and real estate. Right now, fear is the overwhelming factor holding back our real estate market. Until that abates, we are frozen. A year from now, this picture could be the complete opposite.

You can almost cut the pent up demand with a knife, it is so thick and prevalent. Between this demand and the inflation that is very likely ahead, property values will make a comeback and quickly catch up to real value. You will want to be in the market before this happens. Do not look too much longer for a bottom, that very likely, is already there. 

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