The financial crisis has affected everybody, even the ultra wealthy. “In the past recessions, the high-end properties would still be selling, albeit slower,” says Kim Lund, owner/broker at Re/Max. “This time, even the billionaires were scared off purchasing and investing.”
Julian Cunningham, a London associate with Knight Frank, a global network that sells second homes to international buyers, agrees, but he also believes that the changes brought by the crisis could to some extent help revive Cayman’s high-end real estate market.
“Through the economic downturn people are more conservative with the way they express their wealth and express their money. The flashiness of cash is perhaps not so attractive to people anymore,” he says. “That outward display of wealth is not quite the same as it was two or three years ago and as a result of that, those regions that were not known for that way of living are able to emerge stronger than those that were built on it.”
Cunningham adds that buying behaviours on the whole have changed in the high-end market. While before the financial crisis buyers were more adventurous and wanted to learn about the more obscure locations they could invest in to discover the “new Grand Cayman” or the “new Barbados”, the market has “gone very much back to the basics”.
Buyers now want to have good transport connectivity and a level of infrastructure in terms of restaurants, cafes and bars that already exists and is not just promised for the future.
“That is the big difference between Cayman and some of the more peripheral islands,” says Cunningham.
High-net-worth clients, who have assets of $100 million or more, have been cautious over the past few years, he finds. Cunningham says they took the time to take stock of what is really delivering value to them, either financially or from a lifestyle perspective, and disposed of the assets that don’t. This phase is now coming to an end and buyers are more cash rich and have regained some confidence in the market, he says.
The high-end market in Grand Cayman is surprisingly diverse and can be found across the island.
Generally, the most expensive properties are along the Seven Mile Beach corridor and are comprised of Seven Mile Beach condominiums and North Sound/waterway development residences, says Lund, naming the currently under construction WaterColours condominiums as well as Water’s Edge and the Ritz-Carlton as examples.
But there are some exceptions, such as resort and residential homes at the Ritz-Carlton and pockets of high-priced homes on waterfront locations dotted in various locations along the coastline, like South Sound, Prospect Point, Frank Sound and around the coastline all the way to Cayman Kai.
What makes residential homes on waterfront locations around the island like Vista Del Mar and Salt Creek high end are a combination of parameters, including the location, size of the lot and home, the quality of construction and the quality of finishes, fixtures and furnishings, says Lund.
Beachfront high-end condominiums often sell for the same price as much larger residential villas because of their higher underlying premium land value. When ranking the factors that add value to a property, the location is followed by the size of the lot and acreage, the size of the house and the quality of the finishes, says Lund.
Also very important is the quality of construction, which sets Cayman apart from other Caribbean locations, according to Sophie Miles, a broker with IRG, the agency that partners with Knight Frank in Cayman.
Even before Hurricane Ivan, construction standards for high-end properties were relatively high, something that has been reinforced since.
“Now you have a whole coastline of hurricane-proof homes and there is a lot of value in that,” she says.
Lund sees a consistency in the construction quality across the island, which means there is not much of a difference between a $1-$2 million property and a $10 million property in this regard.
The quality of the finishes, from limestone floors, exotic granite or other stones windowsills and countertops to systems and furnishings, is really what increases the value, he says.
Cunningham believes buyers like to have technology in their homes, whether they actually use it or not. “We now deal with young entrepreneurial Russians, who are more technology savvy and they do expect to see these levels of technology and intelligent homes, but that does not mean they would not install it,” he explains.
There is a point, where putting it in is actually a negative, because technology dates so fast, he cautions.
Miles in turn emphasises the difference between a dock or beach access, which is often simply a must, and technology, which is not, and can be upgraded and installed later.
The value of high-end properties in Cayman typically ranges from $2 million to $15 million, but there are occasional exceptions, such as Castillo Caribe in South Sound, listed for $59.5 million, and Casa Coyaba at Prospect Point, previously listed at $19 million, which will now be sold at the island’s first unreserved auction.
In terms of size, high-end beach-front condos range from 3,000 to 5,000 square feet, and high-end villas range from 10,000 to 15,000 square feet. Again, the larger Castillo Caribe, with 48,000 square feet and Casa Coyaba with 19,000 square feet are the exception.
In addition, there are a number of these ‘mega mansions’ in Cayman that have been constructed as a permanent residence and are not for sale, says Miles,
The ones that are for sale rarely serve as a primary residence for the buyers. More typically, these will be second, third or fourth residences that are a combination of vacation home and investment. Seven Mile Beach, Cayman Kai and the eastern side of Grand Cayman are the most prolific areas for this type of property, says Lund.
What are investors looking for?
The permanent home clientele and vacation home clientele are both looking for many of the same features in terms of quality, explains Lund. However, there are some differences between the two.
The vacation home clientele generally wants a good beachfront location, where they can walk from their property into the sea without obstructions like ironshore, beach rock or turtle grass. They also tend to want more amenities and conveniences including restaurants, water sports or spas close by. “Also, they want the security of onsite management and the conveniences of daily maid service, laundry, etc,” Lund adds.
Buyers looking for a permanent home, in contrast, value privacy and view over the perfect beachfront. They are more prepared to compromise on locations in or near Seven Mile Beach and George Town, which they sometimes regard as busy and touristy, and will drive to conveniences, Lund says.
The most important factor in the buying decision, however, is price.
“The market is value-driven and buyers want to see properties priced correctly,” says Cunningham. Those properties that are priced correctly are selling across the board, adds Miles, emphasising that correct valuations are more important than ever.
“Prices have dropped a little bit, but we do call it a price correction, because if you do look at other locations in the Caribbean, the value really is there,” she says.
Rather than having a specific property in mind, buyers typically come with a budget and a set of characteristics that they would like their property to have, Lund says. Even if they are interested in a particular property, they will want to see a number of other properties as well, he adds.
In addition to getting the best price possible, buyers want to see comparable sales, the price development over the years and establish that they are in an area that is popular and has good resale potential, he says.
Associated costs and, in the case of a condominium, the health of the strata corporation are also issues that are considered by investors, who want to make sure that a property is in good condition so that there are no hidden costs, which could reduce the return on investment.
Marketing high-end properties
Sales techniques in the high-end market differ depending on whether real estate is marketed locally or internationally. Lund explains that there are some overlaps between the two — for example, when it comes to an agency’s website — though it is more important to the overseas market.
Building up a data list of clients and customers and regularly sending out updates and emails is as important as advertising in tourist publications that target potential investors with information on high-end vacation properties as soon as they step on the plane to Cayman, Lund says.
This is complemented by advertising in tourist magazines that can be found in hotels and condos and by TV commercials.
Building up a local network of attorneys, bank managers, hotel managers and others who come in contact with tourists or receive visitors who potentially could become investors is also important, adds Lund.
The local market, in contrast, is different because there is a lot more time to target potential buyers than just the one week that visitors tend to stay on averge in Cayman. Traditional marketing through newspapers and flyers as well as having local sign-ups about new developments or tried and tested methods, such as open houses come into play. Lund says he also builds a local network by attending social functions or business-after-hours events.
“A lot of it is who you know,” concurs Cunningham, referring to his agency’s international network and track record.
However, he adds that internationally, marketers also need to embrace new technologies. “There is a certain merit in newspaper advertising, but the web is now clearly changing the way we are targeting our buyers.”
The online versions of newspapers such as the New York Times or the Financial Times have opened up new ways of advertising because people are receiving news and information increasingly through iPads or iPhones.
As a result, agencies and property companies have to embrace that trend, for instance by offering their own iPhone applications, says Cunningham.
On a general level, public relations is also becoming more important, he says, and Miles adds that promoting Cayman is really key.
“I feel that my job is first and foremost promoting Cayman and then promoting a particular property,” she states.
The current market
According to Kim Lund there are a lot of properties on the market now, and there is a good choice available in almost any kind of property. Prices have fallen off on average by 15 per cent to 25 per cent and have bottomed out, he notes.
He predicts that “it will probably be a year or two before we see any serious price increases providing the economy does improve.” But there are a lot of properties that could come on the market once the economy recovers and the market picks up in activity.
Cunningham sees British and Indian buyers looking for high-end properties, as well as Russians, especially when it comes to the waterfront homes, and states that Knight Frank is aiming to diversify the nationalities that are looking at buying property in the Cayman Islands and to really market to them.
He anticipates Asian buyers — who generally want to be first in a market where fellow nationals have not yet invested — to take more interest in the Caribbean in the next five years.
“Cayman can be a good springboard into other areas and they can use the airlift,” he says. “I think this is a market to watch, one that is not here yet, but it is slowly making its way over.”
Locally, on 3 November the unreserved auction of Casa Coyaba, a 39-room beachfront estate at Prospect Point, will be a genuine test of the sentiment in the high-end market in Cayman.