Caribbean property values are down significantly since the beginning of the global recession, and Michael McGrath of BCQS International doesn’t expect that to improve anytime soon. However, he does see promise in the hotel/tourism sector.
“Without going into too much detail, generally our values throughout the region have seen falls in value of circa, say, 20-30 per cent since late 2007-2008,” said McGrath, who is head of valuations for BCQS.
McGrath recently returned to the Cayman Islands after an eight-month hiatus. In addition to his experience in the Caribbean property market, McGrath has held senior positions at Jones Lang LaSalle in London and Queensland, Australia.
The condo and upper-end markets have been hit the hardest during the worldwide economic downturn, with the local and lower-end markets being less affected, he said. Overall, however, the property market has been characterised by a dearth of sales.
Headquartered in Cayman, BCQS also has offices in Bahamas, Barbados, Brazil, British Virgin Islands, Guyana, Jamaica, St Lucia, Trinidad and Tobago, and Turks and Caicos.
“The general theme across our offices is that there is still uncertainty with the marketplace and we think that is likely to continue in the short term,” said McGrath, adding that the “short term” is roughly the next 12 to 24 months.
Room for growth
On an optimistic note, McGrath said the average daily rates for Caribbean hotels have been on the rise, as well as average occupancy rates. That has been accompanied by an increase in stay-over tourism numbers throughout the region. Taken together, that bodes well for development of new hotel/resort properties.
“The main factors that face this market sector are the difficulties in obtaining finance, and also the high energy costs that we see throughout the region,” McGrath said.
For years, the developer of The Ritz-Carlton, Grand Cayman, (which was placed in receivership earlier this year) has argued that high utility bills were a major impediment to the hotel’s success.
Even more so than banks’ reticence to lend, a primary obstacle to new development is investors’ lack of confidence, McGrath said. “Regionally, we rely on investment from North America, also obviously the UK and Europe as well. Developers are still struggling to obtain financing, that’s for sure, but in saying that, also there’s a real lack of confidence to start breaking ground, if you like,” he said.
Uncertainty is not just a problem in Cayman or the Caribbean, but throughout the world, McGrath said. In addition to long-running problems in North America and Europe, there’s also been recent negative news out of Asia, as well as fresh turmoil in Greece. Then bad news popped up stemming from JPMorgan Chase’s multibillion dollar trading losses.
“When things start to cool down a little, a negative story appears,” McGrath said.
With the global financial crisis still fresh in people’s minds, it will take time before they feel comfortable reinvesting their money in property, stocks or other assets.
“A lot of people have been burned, again not just locally and regionally, but worldwide property markets have really suffered,” he said. “A lot of people do have negative equity in their properties at present at well, which is a real concern.”
That being said, McGrath added that he does think it is a good time for people to purchase property if they can afford it, given the prevailing low prices.
Shovels in the ground
While the Cayman economy is largely at the mercy of global forces, the Islands are so small that one or a handful of major projects can have a significant impact on the local property market.
McGrath was optimistic about the effect of the Dart Group’s developments, including the ForCayman Investment Alliance with government, involving the closure of a section of West Bay Road, extension of the Esterley Tibbetts Highway and renovation of the former Courtyard by Marriott.
“I think we’re fortunate of course to have Dart Enterprises based here locally,” he said. “I also know that they are looking at other projects throughout the region as well. I think it’s very positive what they’re doing with the government at the moment, that’s for sure. Those kind of large-scale developments do help the local economy to no end.”
While Dart has earned a reputation of following through on its plans, perhaps people have adopted more of a wait-and-see attitude regarding other groups’ proposals, such as Dr. Devi Shetty’s medical tourism hospital, Cayman Enterprise City’s Savannah campus, cruise berthing in George Town and the Owen Roberts International Airport expansion.
“People really need to see hard evidence of these projects happening, instead of just reading things in the paper,” McGrath said. “I think the Caribbean has a bit of a reputation for that as well, where a lot of large projects are spoken about which never actually get out of the ground, so I think people are wise enough here to know if something is happening, or they may actually wait until maybe final approvals or actually breaking ground.”
He added, “Again they are positive things for the Islands as well that people are prepared to actually even consider undertaking those large projects.”
Importance of data
One area where Cayman has an advantage over other Caribbean jurisdictions is in the quality and availability of recent property data, McGrath said. The Lands and Survey Department’s online services offer instant access to information about parcel ownership, sales prices, zoning, etc. – all the information a valuer needs to create a valuation report.
“Other areas throughout the Caribbean unfortunately don’t have access to online databases like this, so they rely heavily on real estate agents and developers in obtaining information,” he said. “They can physically go down to the relevant government office, which is obviously very time consuming, to find out the correct details of a sale, but again we are very fortunate to have such a strong database.”
Even with the online tools, it is a difficult time to assess property values accurately, due to a lack of recent property sales by which to compare. Several years ago, when prices were higher, there were more sales. Now that prices have depreciated, there are fewer sales.
“Due to the reduced number of transactions in the current marketplace, obtaining relevant up-to-date data is somewhat limited,” he said. “Valuation professionals who are analysing historical evidence to value, without making appropriate adjustments for current market and economic conditions, will most likely report a grossly overstated opinion of value.”