Based on past experience, when the Cayman Islands have had stay-over tourism that is continuing to pick up and major projects starting, our real estate market has improved and eventually prospered. We seem to be entering that upward trend of our real estate market cycle currently.
While the recession is not over for our real estate industry, there are some signs of improvement being seen. However, statistically, for the first three months of 2012, sales activity fell off about 15 per cent over the first quarter of 2011 and was actually at the lowest level, in the last four years.
While that statistic does not sound like an improving market, it is only one quarter over about four previous quarters of slow improvement. There are further signs that this may be an anomaly in a market that is starting to improve, while still hitting some stops and starts along the way, as it heals from a severe recession.
What is encouraging is that there appears to be a shift in the attitude of the American visitors and investors. This is a fair-sized part of our real estate sales. The fact that stay-over tourism, which represents a significant piece of our demand, has continued to improve every month for 18 months in a row, other than January 2012 which was down by 95 visitors, bodes well for real estate activity going forward.
Although the volume of actual closed sales is down for the first quarter, there seems to be more offers being presented, than in the past. Many of these offers are unrealistically low, considering market prices are already down about 20 per cent to 25 per cent on average. The same customers who would previously look, and not make an offer, are starting to lose their fear of investing. In the last three years, they would not even make an offer.
New development will have a major positive impact on investor’s attitudes and confidence. We are no longer at a standstill, as we have been over the last few years. Projects like the redevelopment of the closed Marriott Courtyard Hotel, the Narayana Cayman University Medical Center, Cayman Enterprise City, WaterColours Residences on Seven Mile Beach, Caribbean Plaza on West Bay Road, and others, will positively improve our infrastructure and investment appeal.
While these large developments will have a huge positive impact on our real estate market and economy, the ancillary development that will support these developments will also be enormous. Most of this will be small, local developers and business people that will be able to prosper from this groundswell of new development, creating countless local jobs and opportunities. This is a rising wave that will lift all boats.
We are finally seeing offers being made on other large parcels of land, principally to acquire them for future development. This type of activity was very rare over the last three years, as no one was anxious to land bank property with future prospects so unclear. This is a definite sign of confidence and really foreshadows more development activity picking up in the not too distant future.
If I had to project how our real estate market will fair over the next 5 years, my projection would be as follows:
Slow first half of 2012 and improving real estate activity and sales for the second half, but without much impact to real estate prices.
In 2013, I would estimate that we will have our best winter season of sales, since the start of the recession in late 2008 and this will start putting upward pressure on capital appreciation.
By 2014, with some of the developments completing or well on their way to completion, this should be our best year of this decade and we should start to see capital appreciation throughout our real estate market.
In 2015, with a larger and growing population base to support the new developments and a new hotel opening (redeveloped Marriott Courtyard), supporting more tourism and demand, real estate sales should be stronger than the year before.
By 2016 and 2017, with both a better world economy and strong local economy, our real estate cycle should be peaking or close to it, with this being our two best years for real estate sales, within the last 10 years.
There is absolutely no question that the economic momentum that we are currently experiencing, albeit just starting, as well as the gradual improvement within the USA economy, is going to have a huge impact to real estate sales and values over the next five years. It will be great to see everyone doing more business and experiencing less economic pain, in the not too distant future.