April 2013 Market Update


April 2013 Market Newsletter

Statistics Overview – drilling down the statistics

Readers of our regular monthly updates have suggested that we change the format of how we present our information to you. So, in our April newsletter we are pleased to present a more in depth analysis of statistics that now includes not only the average price of house sales but also the median, to give a fuller picture for readers.

Focussing this month on condos along the Seven Mile Beach corridor, the charts below show the number of units sold and the median and average sale price for both two bed and less and two bed plus den and greater condos from the beginning of 2008 to the end of the second quarter 2012, a particularly challenging time for property values. While the number of sales of two bed or less condos has remained fairly static the price has fallen significantly during this period.   

With regard to higher priced properties, the good news is that the volume of transactions for two bed plus den and greater is growing and prices are climbing back up.  It should be noted that the 2012 figures do not include the 12 WaterColours units that sold, which will eventually significantly drive up the average price as these luxurious properties begin at the 3 million dollar mark. Even though the market was tough, 2008 still showed some sales of several 3 and 4 million dollar condos – Water’s Edge, Mandalay – and we expect that once the WaterColours units are included as these are done retroactively once the units are handed over to the new owners, the average price will exceed that of 2008.

Market analysis at the RICS Conference
The RICS Conference held in February put the spotlight on many important issues facing the construction and real estate industry today.
• Public/Private Partnerships (PPPs)
Usually relegated to infrastructure projects such as water, power, sewage, transportation projects, the audience heard that PPPs can expand to cover education, affordable housing or medical projects as well. PPPs usually feature long-term concessions for the private sector, risk transfer for Governments and value-for-money for Governments. But the Cayman Government is restricted in how and when it can use a PPP because it is now governed by the Framework for Fiscal Responsibility (FFR) which severely restricts such projects because the Government would need to borrow to fund such projects and has little liquidity or room for additional debt.

• Market Outlook
A panel of experts gave their view on the market outlook. Simon Watson from Charterland said SMB has an aging inventory, and that values of sales increased in 2010 and 2012 (although he did not look at 2011 as he believed Dart sales skewed prices), and that inland prices were still decreasing but not by much. He saw a fragile recovery. Burns Conolly from the Burns Conolly Group said speculative investing had reduced, and that there was an increase in “value engineering work” squeezing every last dollar out of a project. Mark McIntyre, head of CIBC said the ‘Build it and they will purchase’ mentality was long gone. Projects had to be pretty much pre-sold otherwise the banks were not interested in financing. Gina Berry (Higgs & Johnson) said lawyers were still in a ‘wait and see’ mode but Burns said that many projects had not yet made it to the lawyers’ desk so it was more positive than they thought. 

My view is that the market place is recovering. The activity is already there, but some transactions show up retroactively. The reason that some of the attorneys may not be seeing the activity is due to the fact that there are more firms now undertaking property work and therefore the work has been spread around. So each firm may not be seeing the same level of work as before. Also, much of the work in previous years was likely related to property loans for a local market. This local market has been the most affected (as we have said in previous articles). The upturn we are seeing is from overseas buyers for high-end properties and these buyers have not required loans.

How to help first-time buyers
As we approach the May election, I have some thoughts on how I would like to see Cayman’s new leaders help the local market. In particular, I would like the Government to consider the cost associated with the whole system for giving and tracking allowances given to first time Caymanian buyers. I suggest a more straightforward method of simply giving every Caymanian an allotment towards Stamp Duty for a first time purchase. If a single buyer, they use this allotment and if a couple, they could combine this allotment towards the same property. There should also be no restrictions, ceilings or obligations, such as having to live in the property, or a restriction of the value or type of the property, which are currently in place. Regardless of whether their first time purchase is land, a house, a condominium or even investment property, every Caymanian should have the same opportunity, whatever their financial means.  The time wasted on approving, calculating and following up, etc. is costly.  Most importantly, this system would allow the government to make an estimate of the number of first time buyers each year and budget for the expense accordingly. Let’s give our first-time buyers some incentive and help them get on the road to property ownership without the restrictions currently associated with their purchase.

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