The financial crisis has hit the Cayman economy hard. One area that has been indirectly affected by the slowing economic activity is the rental market. Rather than suffering from the ability or willingness of consumers to pay for certain products and services, rental prices have been largely impacted by the population decline in the Cayman Islands.
A comparison of the number of work permit holders and rental prices over time shows that for the most part both have moved in tandem. Work permit numbers and actual rental prices, as determined by the Economics and Statistics Office in its consumer price index, have fallen steadily since the second quarter of 2008.
The correlation is not a surprise given that a decline among work permit holders, who are much more likely to rent, from more than 26,500 in 2008 to less than 20,000 today will directly translate into a sizeable number of empty properties. The slowing demand dictates that rental prices would have to fall, and actual rental prices did in fact decline by 22 per cent since the second quarter 2008.
Slight price increase this year
What is surprising is a slight increase in rental prices in the first quarter of this year to a level that was maintained in the second quarter, at a time when the number of work permit holders, and thus demand, continued to decline.
IRG real estate broker/owner Jeremy Hurst is sceptical that the latest increase will mean the beginning of an upward trend. He thinks it represents more likely the bottoming of the drop in rental rates.
“There is a point at which landlords are not prepared to drop their rents anymore and some landlords would rather wait to get the price they want than to rent at any price,” he said. “I suspect parts of the market have got to that point.”
IRG agent Samantha Payne is also surprised by the statistics showing a slight increase in rental prices during the last two quarters. “In my experience, rental prices have been steady and I agree they are no longer dropping, so may have reached their lowest, but I have not seen an increase,” she said.
One explanation for the net increase, according to Mr. Hurst, could be an influx of certain types of professionals such as accountants and lawyers in the first part of the year, replacing workers who would opt for cheaper rental properties.
High-end demand
“Demand has been quite strong for the higher-end properties and demand is strong for modern and beach front properties,” confirmed Ms Payne. “But there are still a lot of properties that have been empty now for several months.”
Overall she says landlords have become much more flexible with regard to rental terms, accepting shorter leases and the inclusion of break options. “Tenants do have a lot of negotiating power as there are still a vast amount of empty properties, but more so in areas off of Seven Mile Beach. Anything along West Bay Road still tends to go reasonably quickly,” she said.
In the face of declining rental income, however, landlords are slow to make additional investments into their properties and may be reluctant to make sometimes necessary improvements, she added.
For the rental market to recover, Cayman will need to see the start of new development projects, Mr. Hurst believes.
“If we can break ground with any of the major projects lined up, including the Dr Shetty Hospital, the Enterprise City, the port and airport, this will have a very positive effect on the health of the rental market, increasing demand especially at the one- to two-bed CI$1,000 to CI$2,500 level where there is still a significant surplus,” he said.
“In the long term this could also lead to an increase in rental rates and the development of new inventory in this sector, which in turn will create new jobs for the small- to medium-sized contractor, where they are much needed.”
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We should not be too quick to assume either a substantial population decline, or that rental rates are too strictly linked to any such fluctuations.
Relying on work permit stats as an indicator of the population is prone to significant error. The fact is that numerous persons on work permits have left, but also many are still here butnow have a different immigration status.
A true understanding of the correlation between work permit and population numbers can only be achieved if there is an understanding of how many persons have graduated to or otherwise find themselves in other categories. These include:
1. Permanent Residents
2. Permanent Residents with the Right to Work
3. Persons Working by Operation of Law with pending appeals.
4. Persons with Residency and Employment Rights certificates.
5. Persons who hold Cayman Islands Passports or who have been Naturalised as BOT Citizens, but no longer have current PR or a work permit.
6. Persons with special leave to remain but no other express permission.
7. Named Dependants
8. Overstayers.
9. Persons who have been granted the Right to be Caymanian, or obtained such designation by entitlemet.
It may also be helpful, if possible, to seek to establish how many of each of the following categories of permission are granted each year – going back as far as 2008 (if possible).
1, RERC’s (Spouse of Caymanian)
2. RERC’s (Based on Residence)
3. RERC’s (Spouse and Dependants).
4. Right to be Caymanian (based on Marriage).
5. Right to be Caymanian (based on Residence).
There are other issues in play – including whether or not a substantial overbuild took place in the excitement of the post Ivan construction boom, and persons sharing accomodation to save money in difficult economic times.
The amont of electricity consumed, and eggs imported, are probably more reliable indicators of whether the population is growing or shrinking, and to what extent, than blind reference to vacant units and numbers of work permit holders.
Making the incorrect assumptions based on partial data is pontentially very damaging.
At lease we agree there are more high end earners coming to Cayman, and that, overall, must be good.
This is no where near the bottom for the rental market. While some owners will not accept a lower rental rate than what they are accustomed to, many have no choice as there is a mortgage to be paid.
As expats continue to you leave, and make no mistake they are leaving, more and more units will be standing empty leaving many investor owners in dire straits indeed.
As for the status of the expats brought up by Striker, I would remind everyone that work permit numbers declined by something like 800 permits in the first half of the year. Those people didn’t marry Caymanians. They left.
Or did you see something like 800 weddings in the first half of the year? Some of you people are in a serious state of denial.
OldDiver – you make valid points and may be right, but neither of us yet have the data.
What I do know is that the Caymanian Status and Permanent Residency Board was (in recent times) dealing with about 50 applicants a week, and the majority are successful in their applications. 30 grants a week for 6 months will get you almost all the way to your headline-grabbing 800 figure.
If you add to that persons born overseas and coming here to join (formerly) expatriate parents and thus becomming Caymanian by entitlement, persons filing appeals and working on WOL stamps, and various other categories, you may even reach the conclusion that contrary to indications from work permit figures, the population may be stable, or even growing.
Why wouldn’t a landlord lower there rent in order to occupy their place. If you were asking for 2000 a month and your place sat empty for a month it would be the same as accepting 1800 for rent. Or if it sat for 2 months, it would be the same as accepting an offer for 1650.
We own a townhome in a resort area and had to lower our rental price in order to have it occupied. It sat for 4 months without a tenant. Now at least we have some money coming in to pay the mortgage!!!
I couldn’t agree more with OB – you might as well get something at the same value than get nothing and not know when you will get some income again. I have place on the island and did just that – now I have it tenanted with peace of mind! I have also still invested in updates into my unit. So if a landlord wants 1500 in income then there place better be updated to the standards that 1500CI demands. But everyone isn’t that smart are they!
Striker, you’re grasping at straws and inventing immigrants too.
The fact is that rollover policy is in place and expats have been told to leave. So far they are doing so in an orderly fashion. Be glad for small favors, and please stop sounding like a real estate agent.