All the optimism in the world cannot change reality. And the reality is that the real estate market has been bad, is still bad, and currently not improving. The statistics tell the story. Period.
in 2008, real estate sales activity was down 14 per cent over the prior year
in 2009, it was down 6 per cent
in 2010, it was down 20 per cent
in 2011, it appeared there was some hope and the market was up 6 per cent to date, in 2012, the market is down 10 per cent.
Comparing 2007, the year prior to the global financial crisis with today (as of 18 October, 2012), sales activity in the Cayman Islands real estate market is down 39 per cent. That is an incredible amount of lost revenue for government in stamp duty, as well as money that is not rippling through our economy and local businesses.
What’s worse is that pending sales – properties under contract and closing in the future – are down 48 per cent from 2007. These are very sobering numbers.
The real estate industry tends to be a barometer for future business. If sales are picking up, it is a sign of confidence, which bodes well for other businesses, our economy, and future investment.
We are not yet seeing that happen en masse, other than a few exceptions like WaterColours on Seven Mile Beach and Oceana in George Town, that have bucked the trend and are doing well in a bad market. At the very least, the success of these two projects may indicate we are getting closer to a tipping point of better market conditions.
However, we cannot just wait. As a country, we need to look at ways of turning this market around. One way is to bring more opportunities into our country to attract new residents, which ideally the Shetty Hospital/Medical Center and Cayman Enterprise City will help to facilitate. But, that is only a start and we still need more.
More demand needs to be created for property investment, in order to eat away at the vast oversupply in both properties for sale and rental. Importantly, we absolutely need to keep the residents that we already have. There are an estimated 8,000 residents on work permits, who have had them extended under a term limit exemption, but only until next year. This is approximately 15 per cent, or more, of our population that we cannot afford to lose.
So, not only do we need more new residents, we do not need a mass exodus either. That would be counter productive and devastating to our economy. Property values would plummet far more than the 20 to 25 per cent decrease that we have already had in values, over the last five years.
So, how will real estate sales activity improve in such a down market?
Not without help from both government and the private sector. Neither one can do it alone. While there are initial signs of that happening, right now, it is slow. Any benefits and broad economic recovery in the real estate market are probably still a year away, or possibly more, if decisive action is not taken and ready projects are not fast-tracked, immediately. The urgency to act is substantial.
Any money invested into the country’s infrastructure will eventually flow through to capital appreciation for our homes, condominiums and other properties. For example, the new roads to West Bay and East End, expanded public beach, and the other new public beach on Seven Mile Beach, all add intrinsic value to our real estate market and your property. As do the new buildings for government and schools, despite the cost and controversy.
If we could ever improve and expand our airport and runway to get more direct long haul flights and also build a cruise ship berthing facility, the increase in value and the resulting new business would be nothing short of enormous. These two improvements to our infrastructure alone, far outweigh anything else for increasing real estate value because they immeasurably smooth the process for enlarging demand, by making leaps in tourism and investment possible. Yet, nothing seems to get done about these two exceedingly critical facilities.
It is crucial to the value of your property, that Cayman continues to improve and be more desirable and sought-after by tourists, investors and other residents. Otherwise, there will be little demand. And without that demand, like the last few years, property values will stagnate and decrease, as they have been. Our competition, such as the Turks & Caicos, as one example, will eat our lunch. All these shovel ready projects need to get started, before this recession will finally abate. What are we waiting for?
We need to have people in power, both politically and privately, who understand this and can make it happen. Our property values are the lowest that they have been in a decade. However, without new demand, in another decade, they could be even lower.
2013 is an extremely critical year for the Cayman Islands. A smart business approach needs to be taken to keep our current residents here, focus on attracting more new residents, and get development and improvement to the country’s public and private infrastructure back on track, without the countless delays and politics.
There are many new projects that could get started by next year – two new hotels on Seven Mile Beach, three new condominium developments, new convention facilities, new housing developments – they are all ready to go. With the political will, this can happen, as the private sector is ready, whenever they can get the cooperation to proceed.
The impact to all of us living in Cayman is a more buoyant and better economy, better business conditions, and increasing property values. Wouldn’t that be a nice change?