Upon examining sales as reported by CIREBA for the first quarter of 2013 versus the first quarter of last year, the total market has been relatively stable with volume in the high $60 million range.
Sales volume for condominiums for this quarter was relatively flat versus last year, while sales of residential property (not condominiums) was down 8 per cent versus the first quarter of last year.
However, once we include sales of unfinished developments such as The WaterColours, we continue to see increased sales of larger, high-end condominiums year over year. Where we have seen significant changes this quarter versus last year is in a doubling in sales of residential land, mostly in developed neighbourhoods (+104 per cent) and also in commercial and industrial property (+26 per cent), a good indicator of increased business and of a community putting down roots.
With indications of a more committed local community, it is also good to see such active participation in our general election process.
A message for our leaders
The 2013 general election is just days away, so I thought I would give a quick overview of some of the most pressing concerns, both relating to real estate and the wider economy as a whole, on which I believe our potential new leaders ought to be focussing their energies in part.
Cayman’s strengths that give its residents one of the highest standards of living in the world are of course its vibrant economy, coupled with its safe and secure environment and professional level of service we have to offer across the industries. To ensure that these attributes remain and prosper I believe there are various crucial issues that our new leaders need to take into account and address once they form their new government.
Creating a motivated workforce
I believe it is government’s responsibility to work towards ensuring that each and every young Caymanian understands the value of hard work and competition and is willing to start their career at the very bottom of the organisational ladder if needed. This is not just an issue facing the Cayman Islands, but a worldwide phenomenon seen amongst the youth.
Youth should embrace and be encouraged to work in all types of industry, from tourism and hospitality to construction and trades such as carpentry and mechanics. The number of people around the world graduating with degrees that cannot find jobs is overwhelming. There are abundant opportunities for young Caymanians in tourism as this industry has historically required a large percentage of employees on work permits. With new hotels in the works and the additional construction that is due to come on line over the coming years could supply large numbers of jobs and opportunities within our local community.
Programs such as apprenticeships within existing firms to encourage young people in this way would be beneficial. Government should look at ways to incentivise employers to take on young people, using creative methods that don’t add to government expenses, such as immigration concessions on work permits or other fee reductions that would stimulate activity versus hinder it.
Young people should also be taught the basics of a good work ethic, and that includes the avoidance of job hopping for a few more dollars but rewards based on job performance and hard work relative to international standards and what is expected of Cayman by our international business partners and clients. Employers do not look kindly on resumés that show a considerable amount of job changing, i.e. more frequently than every couple of years. Employers want employees for the long haul, they want dedication and loyalty from staff and youngsters ought to have that instilled in them at the very beginning of their career.
Airport expansion and port development
Projects such as the redevelopment of both the old Hyatt property and the old Marriott property, under new branding, are well underway. These hotels will add hundreds of rooms and undoubtedly attract new types of visitors. Another project, the new Health City Cayman Islands will open next year with a 140-bed hospital complex that will likely be full to capacity with medical tourists enjoying the benefits of vastly discounted medical costs.
While the hotel and residential aspects of this development will be taken care of by the private sector, the pressure on Cayman’s Owen Roberts International Airport will be enormous, so I would expect our would-be politicians to make infrastructure development an absolute priority. Developing the airport so it meets high international standards, ensuring we have adequate airlift to transport the medical tourists and expanding the airport runway to encourage more long haul flights for a wider audience of tourism are some of the areas the government needs to consider as a priority. These should take the form of joint ventures with private participation, as this is the only way for government to fund these projects going forward.
Developing a fully functioning cruise terminal that caters to the super-sized cruise ships is also an absolute must and should be top of any politician’s list, for without it our cruise product will surely contract, some of which we have already seen. We have one of the best reasons for cruise tourism to come to Cayman – “safety”, which is the No. 1 concern for a traveller when going abroad. This is one of those competitive advantages that Cayman has over the rest of the world, which should be actively utilised, but we must work hard to maintain and protect.
Public awareness campaign
The government needs to invest in a PR campaign that highlights the beauty of the Cayman Islands to all concerned – local residents, Caymanians and overseas investors alike. Why do I use the term “beauty”? Because it can be interpreted in many ways – the physical beauty that attracts our tourists, the beauty of doing business in a professional and secure environment and the beauty of buying property in a jurisdiction that has no property tax.
Highlighting these benefits is paramount so that we can all be on the same page when it comes to promoting this great country of ours and highlighting the three pillars of our community, financial services, tourism, and real estate development/construction.
The question of property tax
I am against the introduction of a recurring property tax. I believe the fact that Cayman has thus far avoided such a tax has created a unique selling point for the island, a clear competitive advantage when the size of your market is as small as ours and especially when foreign investors choose Cayman as they feel they are being overtaxed in their own jurisdictions.
I believe that an annual property tax would hurt both the most vulnerable and the more well-off purchasers alike, in a number of ways. Introducing a fluctuating cost into the market would cause great difficulties to purchasers who only have the means to cover their mortgage, without the additional concern of finding extra funds to cover an annual tax. This along with the current cost of living is excessive.
At the other end of the scale, those high net worth individuals who wish to own property here would be turned away by unpredictable ongoing costs. This is why the one-time only stamp duty on purchasing property is so appealing to many, particularly overseas investors who are heavily taxed in their own jurisdictions and are looking for more stability.
Helping Caymanians with affordable housing
One area where I believe government could better utilise their funds and help more Caymanians is to get out of the business of building low cost housing. Rather than building houses, which is open to mismanagement, why not leave
this up to the private sector, like Frank Hall Homes and others.
Instead of paying to build houses at a large investment on government’s part, why not spend this money on financing assistance which could go towards helping hundreds more people for the same investment. Perhaps a suggestion would be to allocate these funds towards a first time buyer allowance or guaranteeing the closing costs associated with purchasing property.
Alleviating the additional burden of closing costs on property deals
One issue I often face in the real estate business, that is not necessarily one for leaders of government, but perhaps more for our leaders in the financial banking industry, is that of overcoming the high costs of closing on property deals. When buying property in Cayman, the costs associated with closing the deal, above the cost of the property itself, can be daunting and often a deterrent in one’s decision to purchase. If you add up the 5 per cent to 20 per cent down payment, 7.5 per cent stamp duty, 1 per cent legal, 1 per cent bank commitment and 1 per cent stamp duty fees on the loan, plus insurance costs (should the loan be greater than 80 per cent of the total value of the property), not to mention life insurance for the purchaser, this adds up to a large amount of cash to be found.
I wonder therefore if there is a way for the government to assist banks to roll some of these fees into the loan itself, spreading the payment over time. Then government could also assist by guaranteeing this portion of the loan, with funding coming from exiting the business of building low cost housing, as I suggested previously. I believe making the initial fees not quite such a huge hurdle would considerably incentivise the low and mid ranges of the market, which is where the bulk of the transactions are.
As a long-time resident and fully qualified voter, here are a few more questions that I would like to ask our political leaders:
When and how is government going to take responsibility for the out of control expenditure and contract its size while increasing its revenue in the coming years?
How is government going to deal with its massive pension liabilities?
Why doesn’t government think about keeping students at school until 5pm when parents have finished work? Why can’t youngsters enjoy sports, music and arts and crafts after school during these extra hours? This would enrich their minds and bodies and keep them off the streets and idle until their working parents come home.
How is government going to create an educated, experienced and motivated local workforce that meets the needs of the business community, across all industries?
I’m sure you, like me, have many more questions you would like to ask government. If you have any issues that you’d like me to discuss in my Compass column, please don’t hesitate to write to me.