Delays in processing incentives, such as the stamp-duty waiver and pension withdrawal, are delaying mortgage approvals for first-time Caymanian homebuyers, say realtors.
First-time Caymanian buyers purchasing properties priced up to $600,000 don’t have to pay stamp duty and can withdraw money from their pension plan to help cover closing costs. Some lenders also have lower deposit requirements for Caymanian buyers.
Yet while the existing incentives are well-meaning, some realtors say they delay mortgage approvals, which means first-time Caymanian buyers miss out on properties.
“For many first-time Caymanian buyers, purchasing a home involves navigating additional steps that non-resident or cash buyers do not face,” said Athena Nicole, a real estate broker and founder of MOD Realty.
Financing delays
When someone makes an offer to purchase property, they need to demonstrate they have the funds or pre-approval from a lender. For first-time Caymanians that offer is dependent on additional conditions, such as the stamp duty waiver, being met.
The pension withdrawal process is particularly time-consuming, said Mark Gaus, a sales associate at RE/MAX Cayman Islands. “A purchaser will apply to receive their pension withdrawal after they receive financing approval,” said Gaus.
“Financing approval is 30 to 45 days, if you are lucky, then an additional 60 days to receive your pension so that’s three months, if everything goes perfectly smooth,” said Gaus, who noted that “normally there are delays”.
Those delays make it harder for first-time Caymanian buyers to secure a property said Nicole. “In a competitive real estate market, time is often as critical as price, and delays – regardless of intent – can determine whether a first-time Caymanian buyer secures a home or loses it.”
In September, the Lands and Survey Department launched the Residential Property Price Index. The index’s figures demonstrate how Caymanian property prices have risen more quickly than wages over the last 15 years. One reason for the rising cost is a large influx of international buyers.
“In a seller’s market where demand outweighs supply,” said Amanda Bodden, president of the Cayman Islands Bankers Association, “especially where we have residents and foreign investors willing and able to pay cash versus obtaining financing, a first-time Caymanian’s offer may be less appealing to a seller. This is because their offer will likely include conditions such as financing, stamp duty waivers and pension withdrawal approvals which all take time to satisfy. An offer that is free of such conditions will be more appealing to a seller.”
Mortgages under the spotlight
Caymanians’ ability to buy property in their homeland is understandably a contentious topic, with new fixes frequently being proposed. Yet the experts the Compass spoke to said tweaking the processes mentioned above would make it easier for first-time Caymanian buyers to get on the housing ladder.
One area for improvement is mortgages. “The mortgage and pre-approval process can be tightened up and better streamlined,” said Gaus. “Banks in Cayman do not have a solid pre-approval process or confirmation as compared to banks in North America.
“Also, many banks in Cayman have to receive their final approvals from overseas, which takes additional time and is much less personal, meaning the decision-makers overseas do not know the borrower like their local loan officer may.”
Nicole agrees that the mortgage process could be improved. “Financial institutions [should] issue clearer, standardised pre-approval letters that provide sellers with confidence in a buyer’s ability to complete.”
Cayman-based mortgage providers can also be uncommunicative, said Nicole. “If a bank determines early on that a property does not meet its lending criteria or that an approval cannot be achieved within the contractual period, transparency at that stage would allow all parties to make informed decisions.”
Bodden doesn’t feel that the banks are to blame. “I can’t speak for all banks in regard to their turnaround time and internal processes, but I don’t believe a first-time Caymanian buyer takes longer to be approved for a mortgage than any other borrower. The pension and stamp duty approvals take time, but the banks have no involvement in those entirely separate approvals.
“What first-time Caymanian buyers can do, and should do, is speak to their bank early on in their home buying journey, the earlier the better,” said Bodden.
“Getting pre-approved or pre-qualified by their bank will help speed up the process when they have formally submitted an offer to purchase. In some cases the bank may be willing to confirm a client’s pre-approval status in writing, which may strengthen the offer.”
Pension companies and government
But the banks aren’t the only ones under the spotlight. “It would be helpful if pension withdrawals could be processed faster, and if stamp duty waivers could be issued prior to the first-time Caymanian buyer actually going under contract to buy a specific property – that would go a long way in assisting Caymanians with purchasing their first home,” said Bodden.
Gaus agrees. “The pension withdrawal process should be greatly improved, making the process much shorter, no more than 14 to 21 days.”
“Banks and corresponding government departments should adhere to realistic but firm timelines and communicate promptly when delays arise,” said Nicole. “Early disclosure of obstacles allows buyers and sellers to adjust expectations and reduce sales transactions that fail due to unmet expectations.”
Many property experts feel that the only long-term solution to Cayman’s housing problem is to build a greater quantity of affordable housing. Yet in the meantime, realtors and bankers believe that levelling the financing playing field for first-time Caymanian buyers would have some impact.
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I’d need 50k down- non refundable if people want to take 4 months of my time then change their mind.
Another way to help home buyers would be to increase the stock of available homes.
There are many homes in poor condition that need complete renovation before anyone could live there. They are also are impossible to finance.
The answer would be for someone to buy them, fix them up nicely and sell them.
Currently this isn’t economically viable due to the high stamp duty on the initial purchase, which takes most of the profit. So the houses remain unsold and decay further.
How to resolve this?
Change the law so that, providing the house is resold within, say, 12 months, the initial purchaser gets a refund of the stamp duty they paid. This would apply only to homes valued at under, say, $300,000, and sold to a Caymanian.
I suppose the delay or loss of commission is not involved in the realtors’ concerns.
Here’s an idea. Instead of allowing mortgage withdrawals or building so-called low-cost housing, the government should guarantee 20% of first-time Caymanian mortgages. Pension withdrawals are OK in the current environment, but risky in the long term when people age into retirement. Low-income housing built in one location is at risk of becoming an instant ghetto and stigmatizes purchasers. But banks need to reduce their risk by having a spread of 10-20% in equity, in case the purchaser becomes insolvent. The government can guarantee that risk for 20% of mortgages of up to 105% of property value, for up to 5 years, thus reducing the risk to the bank without taking on any significant financial obligation. Even if 10% of purchasers who qualify fail to make their mortgage payments, the maximum exposure to CIG is much less costly than building edifices to political egos or destroying the future pensions of Caymanians. I know it is over-simplification, but it would take $100m in mortgage defaults in the first five years, for the government to be liable for $10m spread over 5 years. to further reduce their risk, the government can put a cap on such a scheme, maybe on an annual basis. Home purchasers are hardly likely to pick up the properties and escape to Little Cayman. The benefits are many more Caymanian’s getting access to homes without any upfront spending by the government. How many first-time Caymanian home purchasers are there?