This analysis covers general trends and issues likely to affect our market. Those of you who follow my writings will know I have detailed information on the “state of the market” in our 2011 Year End Market Report, which came out in late December. You can read it online at www.coldwellbankercayman.com or pick up a hard copy at our offices on West Bay Road across from the Avalon condos.
In a nutshell though, without all the supporting data and statistics, we are expecting 2012 to be much like 2011 in terms of real estate activity and pricing. While 2011 broke no records, it was certainly an improvement over 2010 and 2009. For that we must be thankful. And yet there is nothing in terms of international economic circumstances that would lead us to believe there will be an increase in dollars flowing into Cayman in the short term. In fact, just the opposite. Internationally most investors are “keeping their powder dry” as they wait for either the US elections or the fate of the euro and some of the European governments and banks. Neither situation is one in which people can invest with confidence.
This being an election year in the US, a lot of money will be spent there both to “prime the pump” by the Democrats to attempt to portray the US Economy as improving under their leadership, as well as the huge sums to be spent by both parties on behalf of their candidates. But that is just temporary and not likely to trickle down to Cayman – unless Rupert Murdoch or George Soros decides to buy a condo here.
Of course, people of different political persuasions may have a different take on this, but my opinion is that if Obama gets back in we are all in big trouble. The engine of capitalism, which has fuelled the US and Cayman for all these years, will be damaged beyond repair. If a conservative slate gets elected, then belt tightening will occur, which is not normally conducive to improved markets. However, the prospect of real economic reform and a return to free market capitalism, less government interference and lower taxes will coax the fence sitters to begin to invest again and that will get us all going. Europe is in a similar hole but most of those countries are farther into socialism so that will take longer to reverse, and those decisions will be made on a country-by-country basis. Some may not have the political or social will to get it done.
The most important international connections for Cayman are America and Britain. We have mentioned what to expect from the US but what about the UK?
Well, our biggest influence from the UK is likely to be pressure from the UK government about our finances. While our finances do need to be carefully monitored, like most socialist leaning economies the UK seems mainly interested in pushing us toward direct taxation instead of insisting that we cut our bureaucracy to help balance our budget (why would one bureaucracy try to limit another?). Continued pressure from the UK in this direction could eventually lead to new taxes like property tax, which would have a devastating effect on the real estate sector and a net negative effect on the Cayman balance sheet, although Premier Bush has steadfastly opposed this.
If we are to see any positive movement in our local markets in the short term, it will have to come from local events. It appears that the Shetty Hospital and Cayman Enterprise City will finally get off the ground by mid 2012. These two projects will get international attention and that, together with the spinoff income that will begin to flow, and our current low prices, should mean the real estate market should begin to show some signs of new life. Add to those, other projects like the West Bay Road bypass extension, which is now signed and begun, the airport runway extension and the cruise ship port and we would see a major increase in local business activity which would positively affect the real estate industry and many others.
Based on Premier Bush’s recent remarks it appears the cruise ship port is firming up with the Chinese Harbour Group, which will have to buy and employ locally, Cayman Airways will begin flights to Panama and Dallas this year and the airport runway will be extended to the West as opposed to the East due to the huge cost differential.
Many of us, myself included, have been critical of the lack of progress being made on these capital projects. However, we were reminded by the Premier himself in his remarks at Fidelity’s excellent Cayman Business Outlook, that these things take time, especially in a democracy with extensive bureaucracy where not everyone is in favour of a particular direction. And while he did admit mistakes (few complicated transactions are without surprises and setbacks), he reminded us of what we have been able to accomplish in Cayman over the past 40 years and that his vision had not changed nor had his work ethic. He said it is crucial that we do these projects within our means. He’s right; it is now painfully obvious what happens to countries which don’t.
The wild card in terms of an improved economy being dependent on local events, is crime. Hardly a week now goes by without another incident. We know a lot of non-budgeted money is being spent on this and that the government is very concerned about this issue. We also know this problem has developed over a number of years and so cannot be solved overnight. However, if there is any one issue which is capable of destroying our economy and our country it is this one. We can’t afford to have a lot of patience about this. The general populace must start to take an active role in identifying the bad guys. Without community involvement the police cannot win this battle and we all lose in the long run. Once the public does its part, if the problem still exists we will know where to point the finger.
Speaking of elections, we will have one here in early 2013 as well. I am sure Premier Bush would like to get all the projects started and showing a positive effect on our economy before then. However, the important thing is to put things in place which are for the long-term benefit of our Islands. Based on what he has to work with, I think Mr. Bush is generally on the right track on the development issues, but we will probably not begin to see significant benefits of this until late 2012 at the earliest. With regard to the crime and social issues, I’m not so sure.