The complaints nibble at the edges of their optimism, but the upbeat mood among real estate brokers remains firm, though things could be even better – and South Sound is still booming.
A growing U.S. economy has infused buyers with optimism, translating into abiding interest in homebuying, driving prices up more than 20 percent in the last year – itself a banner exercise in free-market economics.
No one has spotted any warning signs – inflation is low, pegged at 1.9 percent, unemployment is at 4.1 percent, matching the U.S. rate, and air arrivals are strong, setting an all-time record of 418,403 in 2017, and a January 2018 record of 39,185.
Those numbers, says Kim Lund, RE/MAX broker and co-owner, “should continue to increase in 2018,” largely due to “the influx of new tourism from hurricane-ravaged destinations.”
James Bovell, another RE/MAX broker/owner and head of the in-house “Bovell Team,” says tourism growth “may be due somewhat to visitors seeking alternatives to the Caribbean islands hit by last year’s hurricanes, but I believe that Cayman’s market is able to create such a positive experience for visitors that they will want to come back again, which bodes well for us both tourism-wise and for the real estate industry also.”
In late summer, of course, Hurricane Harvey wrecked Houston, followed by Irma, one of the two strongest storms ever recorded in the northern Atlantic, and Maria.
Hurricane Irma’s path qualified almost as a “Who’s Who” among tourist destinations: The storm-affected populations and infrastructure in Puerto Rico, the U.S. Virgin Islands, the British Virgin Islands; Antigua and Barbuda, Guadeloupe, Martinique, Saint Barthélemy, Saint Kitts and Nevis, Barbados, Saint Lucia, Saint Martin, Anguilla, Cuba, Haiti, Dominica, the Turks and Caicos Islands, the Dominican Republic and the Bahamas.
Two weeks later, Hurricane Maria, the deadliest storm of the 2017 Atlantic hurricane season, tore through Dominica, the Dominican Republic, Haiti, Puerto Rico, Guadaloupe, Martinique, St. Kitts and Nevis, and the U.S. Virgin Islands.
Sotheby’s International Realty owner and broker Sheena Conolly agrees with Lund’s observation, saying she sees the evidence in villa rentals as demand grows and people convert homes into villa properties.
“High-end villas are escalating in price,” she says. “People are purchasing them, then renting for investment purposes. The villa rentals are because of devastation from hurricanes, and we see more new homes being turned into villas.”
Bovell sees “an upswing all round, an upswing in prices, as well as volume of turnover.
“The greatest challenge the market faces currently is that choice and inventory has been declining; however, inventory is coming back in certain areas, which has been sorely needed.”
JC Calhoun, owner and broker at Caldwell-Banker, repeats his dictum from last year, saying South Sound is still booming because of myriad inland developments, like Davenport Development’s three Vela phases.
Buyers who were once able to find South Sound beachfront properties for under $1 million, cannot anymore. “There’s nothing available,” Calhoun says. “They had a good run in 2015-2017.”
Even if ablaze, he says, “South Sound is the second-best market in Cayman” pointing, like Lund and Conolly, to Seven Mile Beach.
“Tourism is up, and so is spending,” Calhoun says, boosting local incomes, supporting restaurants, liquor and grocery stores, hotels and guest houses, rental cars and a host of service industries – including real estate.
The “uptick of interest,” he says, comes largely from the U.S. and Canada “because they have some money” after a couple of hard years.
“We’re seeing an upswing in people from Canada and from Texas,” Conolly says, in a surprise reference to the U.S. state, “and from the traditional markets on the Eastern Seaboard,” meaning the New York and Washington, D.C., metropolitan areas.
Bovell agrees, but offers a surprise addition to the list of investors: Caymanians themselves.
“A huge variety of investors [are] looking to buy property in the Cayman Islands. Predominantly they are from the U.S. and Canada, but we have also seen an influx of European investors.
“In addition,” he says, “an increase in local participation has been the most surprising trend for the market most recently, including local residents [and] Caymanians.”
And that, says Calhoun, is “why Seven Mile Beach continues to be sky high. It’s taken off. Prices have risen between 25 percent and 30 percent in the last year, and last year it was already up 20 percent” from the year before … “and it’s still going up.”
Lund says Seven Mile Beach and South Sound are “two of the hottest markets” as sale prices of resort properties and residential real estate rise, as do “rental rates of hotel rooms and condominiums, both for tourism and long-term residents.”
Only two units are available on Seven Mile Beach under $1 million, Calhoun says. Between $1 million and $2 million, only 17 units are available, and most are Kimpton Seafire residences. Only six are not part of the Dart-owned development. Of those six, some are at the Villas of the Galleon, for example, where costs are $1.6 million. Lacovia units are priced at $1.8 million.
“Record sales prices are being realized almost everywhere,” Lund says, “whether in residential or resort real estate.” In 2015, Villas of the Galleon prices ranged between US$500,000 and US$600,000. Now, he says, “they are over US$1 million.”
“Avalon was at US$1.6 to US$1.7 million in 2015 and now they are over US$2.5 million.
“This story is being repeated up and down the beach, over the last few years, with new sales price records for almost every sale at each condominium or residential development,” the RE/MAX co-owner/broker says.
Between $2 million and $3 million, Calhoun says, nine units are available, seven at the Kimpton. Priced between $4 million and $5 million are 12 units, half at the Kimpton. Ranging from $5 million to $6 million are seven condos in WaterColours.
As a matter of record, Lund recently sold Cayman’s highest-priced condominium – at US$13 million – in the 35-unit, six-story Seven Mile Beach Water’s Edge development.
The Cayman Islands Real Estate Brokers’ Association lists 11 residential homes that have sold for more than US$5 million, and another 12 priced still higher.
Calhoun explains that as market forces drive prices, owners seek to cash in: “We’ve had almost no new supply, so prices are going up, and while more people are willing to sell, it’s only at those higher prices.”
Resales by owners comprise the bulk of the market activity, far ahead of sales by original developers – apart from the Kimpton. Conolly says, however, new product is in the pipeline, but will take some time.
Bovell points to “the new Seacrest development on Seven Mile Beach [as] a good example of new inventory coming online and quickly becoming absorbed. Each of these 20 condominiums has been sold, which is unsurprising because they fulfilled a need in the Seven Mile Beach market for three-bed high end condos for under US$2 million.”
The 10-story luxury beachfront Aqua, near Queen’s Court Plaza and Seven Mile Shops, is largely sold, but will not open until 2020. Other properties include seafront developments toward West Bay, expansions in Camana Bay and Britannia, and condos still being built in South Sound.
“Along the Seven Mile Beach corridor, you will find resort condominium development on the beachside and residential development inland, across West Bay Road from Seven Mile Beach,” Lund says, echoed by Conolly, who points to Crystal Harbour, Governors Harbour and Careenage, suggesting canalfront properties will prove to be popular.
“Canalfront homes under US$3 million will become increasingly more attractive, as the cost of land and build increases,” Bovell says.
Lund says, “South Sound has been experiencing a building boom of residential properties, predominantly condominiums. Some of the developments are being built in phases, but continue to sell well, and new development continues.”
Bovell also names Aqua, “in which each unit uniquely takes up a single floor. Fifty percent of these condominiums have already been sold.”
“Stone Island,” he says, “fulfils another market requirement for brand-new homes in a secluded and upmarket location at the Yacht Club across from Seven Mile Beach.
”The fact that 35 percent of these homes have already been sold from the first phase of the development tells us that this, too, is meeting a requirement of the market.”
Calhoun tells clients, however, that new product is unlikely to reduce costs, and they should not wait: “More supply is not going to be at lower prices. It’s all going to be at those higher prices.”
All the brokers acknowledge that developers will eventually run out of land and Seven Mile Beach and South Sound beachfront property will grow scarce, forcing them to move east, starting with Grand Harbour, then Old Prospect, then Spotts.
“It’s difficult to say when we will see that trend start,” Lund says, “but at the current rate of construction, it may only be a few years away.”
Calhoun says as South Sound traffic saturates the area’s two-lane blacktop, prolonging commutes to schools and offices, developers will “move on out,” compelling government improvements to the road network past Hurley’s Roundabout.
“The road system needs to facilitate more traffic before a lot of new larger-scale development can occur east of that area,” Lund says.
Conolly – ever the optimist – says Grand Harbour “is already doing extremely well,” and that success will push further development.
Tacitly agreeing, Lund says now is a good time to buy land, “to bank some property for future development,” but offers a caution.
“It will likely be more than a couple of years, and more likely about five years plus, as there is still a fair amount of land available in South Sound. Prices vary in Spotts/Prospect according to location and size of parcels, so [it’s] not easy to describe pricing unless you are talking about a particular parcel.”
Bovell agrees: “Development sites located further east out to Red Bay have also been active although further east is still quite slow.”
Calhoun sees an eastward move looming in the mid-term: “There are people willing to buy a little farther out – in Rum Point, in East End. There is a trend in that direction,” often driven by the simple cost of bank funding.
“Land is starting to go up – in Spotts across from the beach and in Old Prospect and in Pedro,” he says, naming – instead of beachfront – seafront-panorama “view lots,” in less-crowded areas appealing to older residents and “people who work,” commuting daily to George Town.
Others, he says, “are buying along the West Bay seafront between West Bay Public Beach and Dolphin Discovery,” a 1.5 mile stretch where property sells for as little as $100,000.
In mid-December, Conolly and Lund set a US$12.5 million sales record for the 10,155 square foot, seven-bedroom Coconut Walk beachfront residence in West Bay, between Cemetery Beach and Boggy Sand Road.
Conolly specializes in high-end family homes, and sees “a pickup in values,” pointing to the other end of Grand Cayman, and a recent $3 million residential sale in Cayman Kai.
Bovell observes that, like Seven Mile Beach and South Sound, both Cayman Kai and Rum Point have suffered declining inventory, but points to the new Rum Point Club “with condos available in a wider price range.”
“This development has been particularly welcomed because there haven’t been any new developments in this location for some years,” he says, but notes the perhaps predictable outcome: “They have already sold over 50 percent of inventory.”
More modestly, Conolly speaks of values in Savannah, Bodden Town and East End, where beachfront remains available for as little as $500,000, and “you can still find good affordable properties and you can still do well on a budget.”
In East End, says Lund, Health City Cayman Islands is driving property values. In January, the High Rock hospital opened the first of two “Parrot Ridge” apartment blocks, comprising 59 one-, two-, and three-bedroom units, and 20,000 square feet of ground-level commercial space. A nearby hotel and shopping center are planned, as are expansions to the hospital itself.
“They already have had market impact, as the hospital is very well respected and the fact that Cayman can boast of three hospitals is a huge positive,” Lund says.
Both he and Calhoun agree that Cayman’s medical infrastructure is critical for overseas home buyers – “and we have that here,” Lund says. “As the Shetty [Health City] hospital site continues to expand, their volume of business will also expand and that will provide more local jobs and money flowing through our economy. Their ongoing development is providing a good, positive impact.”
In August, government will break ground on East End’s 10-acre long-term residential mental-health facility, investing between $10 million and $15 million, bringing roads, utilities, services and even employment to the district.
“All they need for the Eastern Districts is another good road to provide efficient and faster access and then more development will soon follow,” Lund says. “It is a pristine area of Grand Cayman, so in time, it will be discovered and more attention will be paid to that area.”
Health City development is largely commercial, a sector traditionally smaller than residential, though growing quickly – not just in East End, but, more significantly, back toward George Town where the 650-acre Dart Real Estate-owned, mixed-use Camana Bay is rapidly expanding, potentially drawing activity away from downtown.
“A lot of small companies have moved there. The staffs are happy, and it’s a good-quality environment,” Conolly says.
However, both Conolly and Lund wonder if an alternative business district might work both ways, at last galvanizing the decades-old debate: George Town revitalization.
“This could be a great opportunity,” she says, pointing to legal firm HSM’s purchase of the old Butterfield Bank Building.
Lund speculates that downtown cruise berthing might be that opportunity: “As cruise-ship tourism increases, downtown seems to be transitioning more to a cruise-tourism location, less focused on commercial activity than on retail and restaurants and small offices.
“With the new berthing facility, this transition could gain momentum as cruise passengers stay longer in town,” supporting “a surge in retail, restaurants, and commercial enterprises targeting that cruise business, over time as it expands.”
Ever-hopeful, Lund tentatively prescribes government incentives, encouraging developers to “transition” George Town “into a residential area.”
“If 10-story residences were developed with gorgeous views of the cruise ships, sea and George Town, then the whole area could be revitalized over the next 10 years – or longer – into a vibrant town that is alive during the day and evening with lots of restaurants, shops and residences.”
That vision is nonetheless shadowed by Dart planners as “The Rise” bridges the Esterley Tibbetts Highway and its counterpart bridges West Bay Road near Royal Palms.
Ambitious plans call for residential and commercial development extending from Camana Bay’s central Paseo, across the two platforms, terminating at a proposed five-star Dart-owned beachfront hotel at its newly acquired Royal Palms Beach Resort. Meanwhile, the company prepares expansion to the immediate north.
“Commercial development is mostly focused in the Camana Bay area,” Lund says, “and it is difficult for other locations now to compete with them within a mile or two of this area. Commercial activity is slowly transitioning out of George Town to Camana Bay and Regatta,” the 127,000 square foot, six-high-rise Dart-owned office park near Governors Square.
Bovell offers one addendum: “The commercial aspect of the real estate industry is somewhat closed off with, really, only two major players driving the market: Dart and the Flowers family, who are expanding Cricket Square.
“There are other, smaller commercial developments that appear to be absorbed by the market, although there is still a good supply of class B commercial property available.”
Clarence Flowers’s Orchid Development broke ground in 2016 on the six-story, $20 million, 130,000 square feet Cricket Square phase six, scheduled to open later this year with anchor tenant KPMG, and joined by Conyers Dill & Pearman.
In a larger sense, Dart’s commercial activity looks set to boost the entire community.
“Camana Bay has been an enormous positive to our economy and a strong support to our tourism plant and residential base,” Lund says, making Cayman “a more enjoyable place to visit and live.
“The current expansion of Camana Bay and other nearby buildings that will develop in tandem will make Cayman more desirable, due to “additional choices of restaurants, shops, offices and eventually residences and tourism accommodations.”
“Imagine how many other Caribbean Islands would love to have this investment and diversification to their infrastructure,” he says.
In October, Dart Real Estate bought the 144-acre, 365-room Ritz-Carlton, Grand Cayman, sparking expectations of further development involving vacant Dart-owned land nearby.
Meanwhile Naul Bodden’s NCB Group plans the boutique Wellness Hotel near the Wharf Restaurant, itself purchased by Bodden in late 2016, while Hyatt Hotels Group will manage the 10-story, five-star, 456-room Grand Hyatt Hotel and Residences, opening in late 2020 on the old Pageant Beach site.
Hotel owners Howard Hospitality Group also plan a 42-room business hotel in the unfinished three-story property at the foot of Lawrence Boulevard, adjacent to Laguna Del Mar, itself down West Bay Road from the old Treasure Island Resort, remodeled and reopened by HHG in February 2017 as the 285-room Margaritaville Beach Resort
Bovell is chief sales agent for Pageant Beach condos, and says they “fill a gap, this time in the less-than-US$1 million condo market,” calling them “a welcome new opportunity for investors.”
Early plans call for an unnamed number of 700 square feet beachfront suites priced between US$595,000 and US$795,000. Larger, more-expensive villas will cost between US$1.6 million and US$1.8 million, and at least two, three-bedroom, 4,000 square feet penthouses are prospectively priced near $5 million.
Brokers expressed quiet worry for Bodden Town’s proposed Beach Bay Hotel, agreeing “it has gone quiet for the moment,” and Frank Sound’s 600-acre, US$1.1 billion Ironwood commercial, tourism and residential community – and proposed 18-hole Arnold Palmer-designed golf course.
In a Feb. 21 statement, however, Ironwood developer David Moffitt sought to reassure investors: “Since the [Sept. 29, 2016] passing of Mr. Arnold Palmer, Ironwood and the Palmer family have been working closely together to bring his Cayman golf course design and vision to life.
“We look forward to restarting work this summer on Arnold Palmer’s Cayman Club & Lodge, the resort that will be the anchor of Ironwood Cayman,” he said.
Finally, Cayman Enterprise City, after six years, still awaits groundbreaking – now projected for late 2018 – on its 50-acre Fairbanks Road site and 850,000-square-foot campus. More than 225 companies – including increasing numbers of technology-oriented companies such as blockchain, Fintech and crypto technology – have joined Cayman Enterprise City, working from a handful of designated offices in Breezy Castle, the Flagship Building, BritCay House and the old Hongkong and Shanghai Bank building.
Lund credited government as a vital development partner, “supporting. better infrastructure such as new roads, airport [improvements], long-haul jets opening new tourism gateways, [a] cruise-berthing facility and others.”
Cayman Airways’ four new 160-seat Boeing 737-8 Max aircraft will enter service next year, opening new nonstop routes to Los Angeles and Denver.
“These jets will make a huge difference,” Lund says, potentially opening the western US, helping “compete with Mexico and Hawaii as previously popular nonstop destinations for that area of the USA.”
As more air arrivals boost market activity, both Lund and Conolly predict strong population growth.
“This is very exciting over the next five years to 10 years,” Sotheby’s Conolly says, “There is a real sense of optimism, and I think there’s going to be strong values.”
In the next three years to four years, she expects not only improved infrastructure, but also an end to immigration uncertainties and a clearer path to residential growth.
“Expectations are that an average of about 2,000 to 2,500 new residents will arrive each year over the next 10 years,” Lund says. “About 2,000 per year arrived over the last 10 years. This influx of new residents provides a constant demand for more residential development to house this increasing population,” fuelling the increased spending on services suggested by Calhoun.
“If this increases to 2,500 per year over the next 10 years, that is 25,000 more residents here,” Lund says. “That is about a 40 percent increase in our population in 10 years, which is enormous, and would require a lot of new infrastructure, from more new roads to new tourism accommodations, etc. It is a very exciting growth trajectory and would, be a significant boost to the local economy.”
Bovell has the last word – and offers hope for the less affluent: “The greatest driving force behind the strong market in the residential sector is the increase in the number of people living in Cayman. Inland condos, residential homes, all are seeing a really active market.
“The challenge comes with older properties in locations where people can still purchase land and build new homes incorporating new designs and technologies. But as land gets absorbed, older properties will become more desirable as home buyers realise they can purchase older properties and renovate them how they like.”