The Cayman Islands is a successful and well-known offshore financial center, as well as a popular tourism hot spot, but economic growth in recent years has been driven by an entirely different industry: construction.
The industry expanded by 7.9 percent in 2016 and 7.2 percent in 2017 and, according to the latest available data, it grew 8.5 percent in the first quarter of 2018 – more than twice as fast as the economy as a whole.
Despite occasional warnings of a slowdown, construction activity continues unabated, a trend that is not only reflected in statistics but can be seen all across Grand Cayman.
Even as the Esterley Tibbetts highway extension and pedestrian overpasses at Camana Bay near completion, hotel, commercial and residential developments are taking shape all the way from West Bay to East End.
The Cayman Compass has counted almost 40 planned or active residential property developments alone.
Most of the activity is concentrated in the Seven Mile Beach and South Sound areas where the last few remaining beachfront parcels are being picked up to create new hotels and condominium complexes.
Lack of supply
Much of the boom is due to an increase in demand and a diminishing stock of residential properties for sale.
In mid-2018, the number of properties listed on the CIREBA multiple listing system was down 7 percent. The brokerage association’s listing system used to show more than 2,500 properties for sale not so long ago.
But as real estate agents Property Cayman told clients in an advisory in early January, currently there are only 1,077 properties available for purchase. More than 500 of these are land parcels for sale and only 290 are apartments and 238 are homes.
Cayman realtors Coldwell Banker noted in their mid-year market review of 2018 strong demand for residential properties but a lack of supply that meant 4 percent fewer sales when compared to the “very strong” previous year.
The combination of demand and lack of supply naturally had an effect on prices. The average property sale price in the first half of last year was US$680,000, about 4.5 percent higher than in 2017. And despite lower numbers, the value of all properties listed shot up 29 percent to US$1.85 billion.
“But while prices have still been rising over the past six months, they are not rising as quickly now, and in some sectors the gross sales volume is actually down slightly,” the report based on CIREBA data said.
Higher prices, in addition to low housing stock, may have been responsible for some of the slowdown in the market. Average house prices stayed flat compared to the previous year, but sales were up both in number (18 percent) and in dollar volume (19 percent).
Condominiums, on the other hand, have been fetching ever higher prices, although the number of transactions is declining, largely due to supply constraints in the sought-after Seven Mile Beach corridor, the Coldwell Banker report noted.
Developers have jumped onto this trend by buying up the remaining parcels in the Seven Mile corridor for new construction. Given the cost of land in this area, the vast majority are high-end or luxury developments, typically ranging in price from $1.5 million to $5 million per unit.
The WaterMark, just South of Seven Mile public beach, is at the top end of this market after the land for the development between Avalon and Harbour Heights was purchased for more than US$55 million.
There are at least four new developments, along the popular beachfront, with several more stretching down to George Town and the ever-more-densely-populated South Sound area. Aside from the most popular direct beachfront properties, however, new developments are not confined to the luxury segment and target a broader base of potential buyers at different price points.
Cayman’s growing population is another factor that explains the construction boom in the residential market.
Following the financial crisis in 2008, the number of residents dropped briefly to 53,000 people. But it has recovered since and according to estimates reached about 65,000 last year.
Developers expect this trend to continue.
Matthew Wight, managing director of NCB Group, says, “In our opinion, the population is set to continue to grow over the next five to 10 years, potentially [by] up to 10,000 people.”
This would result in a housing shortage based on current levels of available inventory on the island.
Most projects in Cayman, he said, will not commence without having adequate pre-sales and market confidence. The noticeably larger number of projects therefore reflects the current market situation of low supply and high demand.
If one considers that on average each residence is home to three people, a population growth of 10,000 new residents would mean that more than 3,000 new residences will be required.
“Of the 40 projects coming online, it’s highly doubtful that we’ll get anywhere near the 3,000 plus homes needed,” Mr. Wight said. “Our developments average between 20 to 30 homes, so we’re going to actually need a lot more than the 40 projects to accommodate this expected growth in population if the other projects consist of similar numbers.”
It typically takes about one year to get a project to market and two to three years to complete.
Developers like NCB Group strive to have one or two projects ongoing at any time. But with heightened demand, Mr. Wight said, “we’ve increased this to two to three projects.”
To meet the demand of a growing population, residential developments must incorporate a variety of products at various price points that appeal to a wider audience of potential buyers.
“For example, Cypress Pointe North features one- and three-bedroom condos, three-bedroom semi-detached homes and four-bedroom villas,” Mr. Wight said.
“OLEA is a great example of a residential community that offers a diverse mix of residences and embraces the mixed-use concept, which ultimately creates a more dynamic and balanced neighborhood. This extends our reach to single professionals, couples or families.”
OLEA is the planned residential community of condominiums, townhomes and duplexes right next to Cayman International School that has always been part of the master plan of Camana Bay.
“With the Town Centre fully established and turning a decade old in 2017, the opportunity to partner with NCB Group on a new residential development came at an opportune time,” said Justin Howe, executive vice president, Real Estate Development & Operations, at DECCO | Dart Development.
“We will break ground on the first phase of OLEA in first quarter 2019, and homeowners are scheduled to move in by August 2020. Demand has been so strong that we are now pre-selling phase two.”
The development caters to a wide variety of local residents, from families to couples and single homeowners, and has also received interest from offshore buyers looking to own a second home at Camana Bay, Mr. Howe added.
Mike Ryan, who with business partner Dale Crighton is behind FIN, a 36-unit, five-story condominium in South Sound, says zoning changes, implemented a couple of years ago, are also causing much of the activity.
Modified zoning rules meant new projects could include up to 20 units per acre instead of 12, and go up to four stories instead of three.
The original zoning was outdated, dysfunctional and did not fit modern residential needs, Mr. Ryan said, but a slight, sensible modification opened the door for new development opportunities that had lain dormant in the popular residential area of the island.
While the new rules enabled greater density, making a project more economical, they also allowed developers to create product that suited the market. Rather than one- to two-bedroom rentals that the previous zoning regulations were geared toward, it enabled to developers to bring luxury residential properties to a market segment that still allowed Cayman professionals to engage.
“Seven Mile Beach in some ways is priced out for a lot of people, and in other ways it is too touristy and crowded,” Mr. Ryan said.
Because the land cost in South Sound is not quite as high as in the sought-after Seven Mile Beach segment, where land prices alone can exceed $1 million per unit, those savings can bring additional value and are also reflected in comparatively lower home prices.
Another trend on Seven Mile Beach, caused by zoning changes, is that buildings are getting higher. Currently, at least four 10-story buildings are in various stages of planning or construction.
With all the new residential properties coming online at the same time, there may be a danger of the market overheating. But developers are not overly worried that there will be too much supply in the near future.
“At the moment I am not terribly concerned with oversupply,” Mr. Ryan said. However, he noted with so many new properties, the ones that are not quality products will struggle because buyers will ask themselves if a property will still be attractive in different parts of the market cycle.
“Projects that are well thought out and well located, done by people with experience, they will do well,” he said, adding that demand in the next couple of years will continue to be strong. NCB’s Mr. Wight also continues to see strong demand, and has no concerns about oversupply.
“Currently, we’re still seeing a lot of interest at the mid- to high-end range for residential products. Several of our current developments are moving towards completion and they essentially are all but sold out.”
Plotting the ongoing and planned construction projects on a map, it becomes immediately clear that the vast majority of the current activity is taking place in the Seven Mile Beach corridor and the commuter-friendly South Sound district. But comparatively few developments are on the cards further east.
Given that many of the remaining parcels with beachfront or waterfront access on the western side of the islands have been picked up, it is a question when the action will see a shift to other parts of Grand Cayman.
Mr. Ryan believes “we are at a tipping point” because most buyers want to be on the water and there is still some very good waterfront land available in other parts of Grand Cayman.
“What it is going to take is one really good development to change the mindset,” he said. “Traditionally, a lot of beautiful houses and properties are in these areas. That was not by accident.”