The first six months of this year have almost closed, so I thought it would be a good point in time to reflect on how the market has progressed in 2018 so far, while at the same time offering readers a glimpse into what’s moving and shaking the real estate industry in the months ahead.
Seven Mile Beach owners time to be cautious
One message that I would like to send to Seven Mile Beach owners going to market at this time is for them to be cautious. Just because the last sale in a particular development moved the market extensively, it doesn’t mean that the next sale will move the market to the same degree. We could well see a plateau in the market when it comes to sales prices, so vendors who are committed to selling need to be price-conscious. There have certainly been a degree of unusual transactions and step-ups recently that have caused significant changes in the market, but this does not mean the trend will continue indefinitely.
The upswing in the market has been driven by a number of factors, including the lack of inventory, the increase in numbers of people looking to Cayman as an investment or as their holiday home. Other factors within the local market are due to the numbers of people relocating due to independent means or by the fact that they can operate anywhere in the world, and thirdly the increase in staff expansion as Cayman’s economy continues to grow.
Obviously, with this kind of appreciation and influx of people, developers are outputting things in motion to try and satisfy the projected growth, moving forward. Current developments taking off include the construction of new strip malls and retail plazas, expansion by Dart into commercial, residential and hospitality real estate sectors, along with future plans for developments on Seven Mile Beach, one, in particular, that may come online that will see an incredible upgrade in offerings, ranging in price from $5 to $20 million-plus.
In addition, there are currently at least three redevelopment projects being discussed for existing Seven Mile Beach condominiums. Again, I would add some words of warning here. Owners should be trepidatious when it comes to the redevelopment process for a number of reasons. The first is that the law as it relates to the 75 per cent majority rule (whereby Strata entities can make decisions for the entire development based upon a 75 per cent majority of the owners).
The second is that there are tax implications if an owner receives a substantial payout regarding the upgrade in their unit and is then obliged to pay capital gains tax elsewhere. The third aspect one should consider when buying into the dream of upgrading your Seven Mile Beach condo is that the entire process takes a long while, so you need to ensure that the market will be long and strong – from the sale all the way to the completion of the transaction.
The fourth and final point I would like to make on the issue is the importance of considering structured finance when it comes to joint ventures of this nature because there has been an instance when an original owner’s unit could not be released by the lender until their debt was cleared off the sale of the developers inventory, as the facility and joint venture was over the whole project.
Absorption rates are another topic to consider and the questions need to be asked as to just how many multi-million dollar properties can be absorbed by the market annually.
A word on Beneficial Ownership public registry
The Cayman Islands derives much of its revenue from being a tax neutral environment and generates sufficient revenue to be pretty much self-sufficient financially, without the need for financial support from Britain. The UK’s demand that Cayman instigates a public registry of beneficial ownership by 2020 will undoubtedly impact Cayman’s financial services industry to its detriment and will almost certainly damage this important pillar of Cayman’s overall economy. The knock-on effect will be felt throughout all other industries, including the real estate industry. Please read my full article on this important subject in the latest edition of Cayman Financial Review.