To put the year in perspective, as of 9 December, 2010, there were a total of 409 property sales for the Cayman Islands, this year. This is 111 less sales than the same period, last year, where we had a total of 520 property sales. As a percentage, this is a 21 per cent drop in sales activity from 2009, which, by the way, was also a horrible year! On Seven Mile Beach, sales are down even more; by 35 per cent, this year.
If we compare 2010 to more of a normal year, like 2007, the percentages are even more scary. The overall real estate market is down 37 per cent from what could be considered an ordinary year. The Seven Mile Beach market is down an absolutely staggering 60 per cent. This is not a recession, it is a depression!
Putting these numbers into dollars, the average sales price in 2010 was US$499,289. With a total of 111 fewer sales compared to 2009, there was US$55,421,079 not generated in sales, this year. Needless to say, we could have used those funds rippling through our local economy, some of which would have been spent on goods and services. Using the lower 6 per cent stamp duty rate versus 7.5 per cent, government lost at least US$3,325,265 in revenue.
These numbers are sobering. They bluntly illustrate that private industry alone cannot turn this downward spiral around. All the marketing and advertising in the world is not going to get customers to buy if there is not a compelling reason for them to do so. They need to fear losing an opportunity more than they fear the weak economy. There are countless millions of dollars waiting on the sidelines for that “right time” to start investing again.
In an industry that is still falling off a cliff, with no clear upside ahead, we need to create that “right time” for customers to purchase, by being proactive and taking other measures to invigorate the market and economy. We need to stimulate the real estate industry. Normally, new development and infrastructure improvement would provide the stimulus, but it seems we cannot get any of the major projects (cruise ship port, cargo port, Shetty hospital, airport runway extension, deep water channel for mega yachts, etc.) to move ahead.
Projects that can help us, like the billion dollar Shetty hospital development as one example, would be an enormous kick start to our economy. Yet it is caught up in pathetic bureaucracy, even though they were ready to start building in the summer of 2010 if we could have got our act together.
Why has this critical development not been put on a fast track and already started, so it could help our economy with investment and jobs? This was announced in late 2009 and Dr. Shetty was anxious to start as soon as the legislation was put in place. Now, over a year later, it has taken so long and still the laws are not passed, that we may eventually lose it to another competing destination. Seems that we cannot help ourselves, even when we have some of the answers right in front of us.
The only other effective measure to stimulate real estate activity, used successfully in the past, has been to reduce stamp duty to 5 per cent across the board. On the surface, this decreases the revenue to government per transaction. However, it increases the total number of transactions, resulting in a net increase of stamp duty revenue, as well as building sales momentum that should carry the industry forward, ideally into a better economy.
2010 was a horrific year, period. But, it was also a worse year because the stamp duty on October 2009 went from 5 per cent to 7.5 per cent, during the slowest and weakest time of the year for real estate sales. This was a bad time to increase fees, as we completely lost any momentum that we had built up. The statistics speak for themselves.
One way to illustrate the impact of a reduction in stamp duty is to look at September 2009, the last month when stamp duty was at 5 per cent. There were 70 properties with sales that closed that month. In 2010, at 7.5 per cent, we have sold 40 properties representing a reduction of 43 per cent of properties sold, despite property values being even better, this year. Seventy properties selling at 5 per cent (350 per cent) brought in more stamp duty than 40 properties selling at 7.5 per cent (300 per cent).
We need to do something to show our customers that we are providing them with a limited time opportunity to purchase. Announce that we will reduce stamp duty for at least six months.
Then, possibly extend it for another six months and announce it will increase afterwards. Then, increase it to 6 per cent for six months and announce it will be increased after that. By giving these incentives to purchase, now, while rates are lower, we can slowly ratchet up the stamp duty and still get back to 7.5 per cent, but when we will be in a stronger and more resilient economy, which we should be into, by then.
The bottom line is we need to take action, now! But, how long have we been saying that – no, make that pleading.