Development: It is what it is

Of late there have been a lot of announcements and
pronouncements about real estate developments and the dismal state of the
market. Some people have experienced shock or anger at what has been written.
Some say “if you keep saying negative things that will only make things worse”.

Of late there have been a lot of announcements and
pronouncements about real estate developments and the dismal state of the
market. Some people have experienced shock or anger at what has been written.
Some say “if you keep saying negative things that will only make things worse”.

This is how I see it: firstly, most of the time the market
is neither as good nor as bad as it is made out to be. The media, instead of
reporting, is now all about sales and so is often prone to exaggeration (I
think they call it “tabloid journalism”). Secondly, I am a proponent of the
free market system. In the free market, market forces like supply and demand
determine its direction.

Markets cannot always be good (or bad). Markets are
cyclical. Ups and downs are to be expected and it is best to recognise that
when it happens, rather than ignore it or try to cover it up. It is the
ignoring or covering up that is likely to exacerbate the problem.

We are in a downward part of the cycle for many reasons,
some of which are not of our own making. And until those elements are back in
line, we will struggle. Until our major trading partner, the US, determines if
it is going socialist or back to capitalism, we will struggle. Until world
governments are reduced to handling the few things they actually can handle, we
will struggle. And even after that (God willing), we will not see the expansion
of world economies that we had been used to recently, because that expansion
was a mirage based on values that weren’t real.

If the world is to return to economic health, the patient
has to start living a healthier economic lifestyle. That means spending will
have to be back in line with income, which, while a recipe for long term
security, is not going to provide short term prosperity.

Problems cannot be solved or defended against until they are
recognised. That’s why I feel covering it up is so dangerous. If you tell a lie
often enough, after a while you begin to actually believe your own stories.
That happens with crime all the time because no one wants to admit “out loud”
that it’s a problem. It also happens with developments that are slated for
inappropriate sites. Of all the potential developments, which are now admitting
they will not be going forward, some were trying to sell a five star product on
two star beach property. Those projects wouldn’t have made it during the best
of times. The fact that those projects are not going ahead is not a commentary
on the inability of Cayman to support such a product. Rather, it is a
commentary on the poor choices made by individual developers to match product
with location.

But that is not the only reason developments fail. Some are
not well enough funded, some are badly timed and even those with all the other
factors covered can be scuttled by a weak economy such as we are experiencing
now. It is not an embarrassment for Cayman, but rather a validation of
traditional economic principals.

Even with all this negative publicity it still astonishes me
how few potential property sellers seem to get it. Here we are in the fall of
2010 – several years into a significant recession and many property owners are
shocked to get a CMA, which shows their house is worth less than they thought
it was – or than it used to be. Why on earth would it be worth more?

Then I am told that their appraisal shows a higher value.
Well of course it does. Appraisals rely on historical information only. Since
there have been few recent sales, appraisers have to go back farther for their
comparables. The farther back they go, the better the market was, the higher
the sales prices were, and the more inaccurate their reports are.

If you read my mid year market report (found on
www.caymanislandsrealty.com) the local prognosis was reasonably positive. There
are things happening in Cayman that will put us in position to make great
strides in terms of tourism in the coming years. And in the meanwhile, once
these projects are actually started, Cayman businesses will benefit greatly
from the spin-off income.

As a result there will be more money available to be
spent locally, which will help all our businesses – including real estate. But
we won’t feel that for months yet, and even when we do, it will not turn our
market completely around.

It doesn’t do anyone any good to get good news if it is not
accurate. That can only lead to bad decisions (based on bad information). The
fact is, prices are down and customers are buying only the best deals out
there. If your property is a great deal it will sell. That is one of the
reasons we instituted our Coldwell Banker 7½ per cent buyers cash rebate
programme. It allows us to further highlight the best deals out there.

Our real
estate market is not dead – or dying, but it is not strong either. It is what it
is and we all have to accept that and make our decisions based only on what is
– not what we wish it was.

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