Bad news for property market

The government’s Semi-Annual Economic Report 2011 contains mostly bad news for the real estate and construction sectors, describing the market as being the weakest in years. The few potential bright spots could be due to data skewed by a handful of major projects, such as those from Dart Realty (Cayman), but overall the information is not specific enough to make more than general observations.

Sheena Connolly, owner/broker of Cayman Islands Sotheby’s International Realty, said it is high time for the government to make public more detailed property statistics to provide for a more nuanced, and more useful, portrayal of market trends.

“I believe that one needs to break the real estate market down into different segments as each market segment will have a corresponding absorption rate for various reasons. It is critical to understand the makeup of the transactions in order to properly comprehend the figures and the actual business that the island has completed over the years, and to track trends effectively – this would also bring to bear focus on unique opportunities to tap into new markets that could be successful for the three Cayman Islands,” she said.

Stats show weakness

According to the report from the Economic & Statistics Office, “Construction indicators in the first six months of the year recorded one of its weakest performances in six years with building intentions trending downwards.”

The report is based on information compiled from a number of government sources, including the Cayman Islands Monetary Authority, Planning Department, and Lands & Survey Department.

Compared to the first six months of 2010, new and proposed projects have declined both in value and number.

“During the review period, strong pullback in both residential and non-residential sectors resulted in building permit values declining by 21.3 per cent to $99.5 million, the lowest level since 2005. This decline follows the 28.0 per cent fall recorded in the previous year,” according the report.

In the residential sector, building permit values declined by 17 per cent, to $70 million. Likewise, building permit values for non-residential permits dropped 29.1 per cent, to $26.1 million, mainly due to a 46.2 per cent drop in the value of commercial building permits.

However, according to the report, “The government category rose to $6.5 million on account of upgrading to the primary school infrastructure.”

“Correspondingly, building permit numbers fell by 34.1% from 549 in 2010 to 362. All categories, with the exception of government, contracted,” according to the report.

The value of project approvals, meanwhile, dropped by 44.8 per cent, “to its lowest level on record,” according to the report, which attributed the majority of the decline due to commercial projects, whose values plunged nearly 94 per cent, to $4.4 million from $71.9 million in 2010 (compared to $15.0 million in 2009). The number of project approvals also decreased from 436 to 387, with only the government and industrial categories showing increases.

Dart impact

The impact of Dart’s acquisition of properties formerly held by developer Stan Thomas is quite apparent.

The value of traded freehold properties increased nearly 146 per cent to a record $395.2 million, according to the report: “Property sales along the Seven Mile Beach accounted for a third of this figure.”

The number of property transactions in the first half of 2011 dropped by 3.9 per cent compared to the first half of 2010. “Nevertheless, this rate of decline is lower when compared to the activity in 2010 and 2009 when decreases of 13.8 per cent and 21.0 per cent respectively were recorded,” according to the report.

On the credit front, the news is mixed for real estate and construction. According to the report, combined borrowings by real estate agents, rental and leasing companies dropped 42.5 per cent to $223.7 million; meanwhile, borrowings for construction grew by 78.5 per cent to $332.9 million. The amount of domestic property loans grew by 1.7 per cent to $1.460 billion.

Call for more detail

Mrs. Connolly said the government should be producing more detailed reports to keep tabs on trends within the different facets of the real estate and property sector.

“Although the Lands & Survey has impressive software and systems, they could track the past sales records more comprehensively to provide detailed marketing research. For example, I would really like to see the profile type of the buyer and seller, along with several property categories, areas and styles, both commercial and residential, whether the purpose of the purchase is investment, primary home, vacation home, business, etc.,” she said.

“CIREBA does some of this and could also improve, but it needs to be more thoroughly completed by L&S (as they see the entire picture). It is valuable information for investors and government alike,” she said.

From her vantage point, Mrs. Connolly said she is seeing buyers take advantage of reduced prices from sellers, some who are motivated by necessity rather than profit, since the rental market is also soft.

“Thankfully, we are already experiencing a higher level of activity in 2011. It appears that some people have recognised that prices have dropped considerably and that now is a good time to buy. We are seeing signs from executives who are already established in Cayman, looking to move up the property ladder to capitalise on the down market,” she said, noting that interest rates have remained low.

“We are also experiencing pressure on some overseas vendors who really need to sell, and they are pricing more competitively than before to move the real estate asset,” she said. “Historically there was rarely the same urgency or financial need to sell, as the Cayman property could rent if needed. Times have changed.”

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