New building continues despite real estate slumps

Real estate in the Cayman Islands has been experiencing a difficult time over the past two years. A global recession and shrinking population together with internal factors such as the threat of a property tax and the need for an immigration reform led to “a serious slump” in the property market, Jeremy Hurst, chairman of the Cayman Islands Real Estate Brokers Association noted.

The CIREBA market review for 2010 concluded that “it won’t surprise many that the real estate market in the Cayman Islands suffered seriously during 2010”.

Evidence of this evaluation can be taken from the Lands and Survey statistics for all land transfers. Compared to 2009 the total value of land transfers fell by 22.6 per cent and 44.95 per cent between the peak year 2008 and 2010.

At the same time the number of land transfers declined by nearly a third from the total two years ago.

Yet, despite a large stock of available properties and a demand that has been hit by more than 5,000 work permit holders leaving the islands since 2008, developments of residential real estate continue unabatedly.

As it takes approximately two years for a development to complete from start to finish, developments lag behind the market by a couple of years, says Re/Max owner and broker Kim Lund.

“For example, when the global financial crisis hit in September 2008, local projects would have already been funded and had presales, allowing them to start construction as the market was turning downwards,” he explains. “We are seeing a lot of these nearing an end to their construction and finishing up, so the pace of new development should now slow for a few years.”

He adds that on the whole considerably fewer developments were started during the past two years compared to the previous two years, as a result of a 20 per cent reduction in demand.

The developments that were started within the last year are “generally well priced, offering good value”, they are “built to higher specifications and quality and often being built by established developers with a solid track record and pool of customers”, says Lund.

One example for this is Oceana, a development next to Eden Rock. After having completed and sold the properties of the SeaView close-by, the developers, Bronte Development Ltd., are set to build 15 new luxury sea front apartments close to down town George Town.

ReMax’s Michael Joseph, who together with James Butterworth of Coldwell Banker is the exclusive listing agent of Oceana properties believes the demand that exists already for the property is due to the design and quality of the properties coupled with the prime location. The condominiums are going to offer something new and different in terms of luxury, while at the same time providing privacy, he suggests. Therefore the development would not be as exposed to the difficult market conditions.

Joseph says that because of the quality of Oceana, demand will outstrip supply.

“Even in a good economy, I would be very pleased with the high level of activity. The development team has established a following for their boutique high-end projects and this has resulted in more than half the apartments being purchased prior to the launch of the development.”

In the affordable homes part of the real estate market developers are also progressing with new developments, although market demand has slowed down. Tony Connolly of Frank Hall Homes Ltd, a developing firm that targets buyers such as young professionals with properties in the $185,000 to $250,000 range, says that while the company “does not foresee to move as fast as previously”, Frank Hall Homes’ reputation and track record would allow the company to move ahead with developments in West Bay and Savannah.

Another advantage of starting a development in a time of economic decline is that there is less competition from other developers who are reluctant to take the risk of building in such a market, Lund points out.

“As in any free market economy, the strong survive and adapt to market conditions, good and bad,” he says.

Dart Realty’s plans also call for additional residential, commercial and resort development in the immediate future, says Managing Director Jim Lammers.

At the official ground-breaking ceremony for the next Camana Bay town centre office block on Wednesday 19 January, 2011, he explained the reasons for Dart pressing ahead even in difficult and uncertain economic times.

He notes that the Cayman Islands government “has worked very hard to create a climate that is supportive of economic development”. The national characteristics of the Cayman Islands in terms of work ethic, integrity, ingenuity and great resourcefulness suggest that the Cayman Islands will be able to overcome the economic decline and are indicative of continued growth and prosperity, Lammers says. These attributes in combination with Cayman’s natural assets and sophisticated business infrastructure give Cayman significant competitive advantages over other jurisdictions.

In addition, external factors such as the state of the world economy will improve over time, Lammers argues.

Camana Bay’s sales director John Hillman also believes that a high quality product that offers something different from the rest of the market, such as Camana Bay’s planned residential development, will sell well in a more difficult market environment.

“I truly believe that what we are selling here is entirely unique in the Cayman Islands,” he says. “We’ve had a tremendous response to our initial designs, partly because prospective buyers can easily imagine the quality of the homes from seeing the Town Centre that already exists. We also have a diversity of products and price points for the buyer to choose from; from one bed studio apartments to town homes and individual cottages, all of which will provide value for money,” Hillman adds.

Like Lammers the CIREBA market review sees some positive signs. Hurst mentions the house price decline of asking and sales prices, which ultimately represent discounts and extra value for buyers of between 10 and 25 per cent.

Demand is already showing some signs of improvement in the overseas buyer’s market, says Lund, highlighting specifically the Seven Mile Beach and Cayman Kai resort markets.

“However, this could also be explained as a seasonal trend, as we are now in our best selling period, which is the winter season,” he cautions. “This particular market segment was so beaten down that it has quite a bit of upside, once the predominantly American market starts investing in Cayman real estate again. I expect this market to lead the real estate industry out of this market downturn over the next few years.”

Compared to the overseas buyer’s market the residential market has been fairly resilient during the last two years, says Lund, but warns that when real estate prices and interest rates start to increase again, the local market to start to lag behind, in particular if there is no consistent recovery of the population growth.

Still Lund believes, by the end of 2011 sales volume should be up by 20 per cent overall.

“The largest percentage of this gain would be in the second half of this year, as construction activity starts to pick up, the US economy continues to recover and confidence builds, and new projects like the Shetty Hospital are announced,” he says.

“Considering how beaten down our market was in 2010, it is not much of a stretch for us to improve by 20 per cent. We are at the tipping point between the downturn and recovery. I believe 2011 will be the year that the Cayman real estate market tips towards a slow recovery.”