New development points to long-term opportunities

The Lund Report

Recent news about activity in our real estate industry is not the most encouraging. While the new supply of properties coming onto the market seems to have levelled off, demand still remains weak and continues to influence the market dynamics.  

Fewer real estate sales are taking place, this year, compared to last year. Currently, the sales activity within our real estate industry is lower by approximately 16 per cent, according to the CIREBA MLS statistics. The weak demand continues to hold prices down and they remain at their current, depressed levels, albeit not really dropping much more, at this stage. 

The weakest market for real estate sales is the island-wide condominium segment, where sales activity is off by 34 per cent, year to date. The strongest segment has been land sales. This particular market is up by 17 per cent and may be foreshadowing a future improvement in the construction industry, for building new homes and other types of new development. 

The big projects and development that will improve demand is building slowly. While there may be some marginal impact felt from these projects in the latter half of this year, it will more likely be 2013 and 2014 before any noticeable impact is felt. However, make no mistake, the groundwork is already laid and the improvement in demand will have to occur, if only to support the oncoming new development. 

For anyone with access to cash or financing, there are some interesting trends developing that will pay off over time. Below are some ideas to consider that should play out, over the next few years: 

Britannia – This sleeping giant is starting to finally awaken. Values for the residences at Britannia have been beaten down more than the rest of the market. This was due to a combination of weak real estate demand and the unknown situation with the old Hyatt hotel, a cornerstone of the development. 
There is now activity with the old hotel and most of the contents have been removed, to allow for the next step.  

Although, there is not yet a definite indication of what the next step will be, the owners of the property are actively looking at various options to improve this site and the overall property, which will remove a huge degradation to the values at Britannia.
Another consideration is the neighbour, next door. Camana Bay continues to build and expand. Directly beside the Britannia property and golf course is land owned by Camana Bay.  

At some stage, this 42 acres will be developed, closely linking the properties. It is in both neighbour’s interests to make sure the adjoining property enhances both developments, so there should be even more upside, once Camana Bay expands onto this property and improves it.  

Follow the new roads – Whenever there is a major infrastructure improvement and better access, property values normally benefit. One of these areas to benefit from better access will be West Bay.  

If you look at where the road is going, land around that area will go up in demand and value, especially since it is already beaten down in price by the recession. Demand will take time to build, but it will happen, especially as developers seize the opportunity and further improve the area with residences and conveniences. A similar opportunity will take place for the eastern districts, especially in light of the new hospital and medical facility starting construction, this year.  

Opening up West Bay and the eastern districts with new roads can only be positive for real estate values in those areas. 

Multi-family properties – These properties are at all time lows, in terms of occupancy and therefore, the resultant sales prices. If there was ever a beaten down segment of our real estate market, this is one of them.  

The recession and rollover has decimated the returns for most of these properties, which traditionally sell for a capitalisation rate based on their return on investment.
While it can be difficult to determine the best time to invest in this type of real estate, the new development and anticipated increase in our population to support this development, may be a good signal that the timing is improving.  

Buying a multi-family property, based on current weak net revenues, can allow you to secure a lucrative long term investment with a steady income stream, while buying it at a huge discount to its true replacement value.  

It takes a lot of vision and intestinal fortitude to take a step forward in this current market, especially when most are holding back. However, if you look objectively at all the development that is only now just starting, this may be a good time to realise some long term opportunities and revenue streams, at a discount. 

Camana Bay town centre

New development on Grand Cayman points to long term opportunities.