Delayed reopening effects on real estate

Since last week’s press briefing by the Cayman Islands government with respect to the community spread of COVID-19 in our islands and the unexpected, and some say sudden announcement that we “are pausing…our reopening plan for the rest of the year” as stated by the Premier Wayne Panton, there has been a substantial reaction, both positive and negative, from people both on island and overseas.

As I have received numerous emails and phone calls from owners, potential buyers and concerned parties, I thought I’d delve into some of my initial thoughts on how this new development will impact the Cayman Islands real estate market.

Immediate reactions

As like any other country in the world, the people of the Cayman Islands have had different reactions to this news. Many people were relieved to hear that the borders will remain closed with concerns about the young, who cannot currently receive vaccinations, the elderly and those immune compromised. On the other hand, many people were shocked and disappointed especially as most of the world is learning to live with COVID-19 and have opened up. Regardless of what side of the fence people are on, reactions have been vocal and passionate.

Impacts immediately felt

Within hours of this announcement, businesses around the Cayman Islands were feeling the effects especially those in the tourism industry and those businesses who directly benefit from visitors to our islands.

American Airlines announced it has “made the decision to once again delay the start of their scheduled service to and from the Cayman Islands until mid-December,” “a Caymanian-owned property in East End has lost some CI $8 million in reservations cancelled for November and December [and]…Cayman Luxury Villas has lost some $2 million in deposits for January and February alone.”[i]

Hotels and restaurants have lost thousands of bookings including many larger groups, private planes have cancelled coming in and some restaurants are even closing their doors including Rum Point who announced they “will be closing for an extended period due to the continuing bleak outlook for the hospitality industry in the Cayman Islands.”

In fact, you could argue that the announcement on September 14th was like a rock being thrown into a still pond that has had ripple effects that impact almost every business in the Cayman Islands.

The perception

Many people have voiced their frustrations that the government is shifting things. We have been very fortunate in the Cayman Islands to live in a COVID-free bubble, but it is naïve to think that we are immune to a pandemic which has reach every corner of the globe.

Thousands of people were planning trips to the Cayman Islands. Many to come on vacation, some to stay at their vacation homes and others with the specific intent to purchase property. By “changing our minds” about re-opening when the rest of the world is re-opening is sending mixed messages not only to those planning to visit but to those companies such as airlines and hotels which plan for guests months in advance.

With this latest announcement, everything has come to a halt, and it will take months for these larger companies specifically airlines and hotels needing to staff up to get up and running again.

Many people from the US have been planning getaways over the Thanksgiving holiday, probably more than before given that many people stayed closed to home last Thanksgiving. As the biggest travel weekend of the year in the US, many US travelers plan their vacations months in advance. In 2019, prior to the pandemic, we had more than 31,000 air travel visitors from the US in the month of November. Now that Cayman has closed their borders, once again, these travellers are planning to visit somewhere else.

Even if Cayman decides to open their borders before January 2022, many of these people will have made alternative plans and some won’t trust that the Cayman Islands won’t, once again, decide to close its borders at a moment’s notice.

People are also planning now for Christmas and New Year’s. They don’t want to be without a place to stay and right now Cayman is unavailable. They will plan to visit somewhere else. From November 2019 to January 2020, Cayman had more than 135,500 air travel visitors. That is a huge lost that we felt in 2020 and will once again feel this high season.

I was told today that one family of a group of 50 families that comes to Cayman every year for Spring Break has decided to go elsewhere for next Spring Break as they are unhappy about the lack of clarity on opening up and the constant changing of the date. This group spends a week each year in Cayman and each family rents a condo for the week. Last year they stayed at Coral Stone, The Ritz-Carlton and Beachcomber. The impacts of this decision are going to be long term and painful.

The confusion

On September 21st the Cayman Islands government issued new regulations with respect to the control of COVID-19. It states that a fully vaccinated “tourist visitor or other visitor” may enter the country but states that they must quarantine for 7 days if the vaccination certificate can be securely verified and ten days if the vaccination certificate cannot be securely verified.” These regulations are in force until November 22, 2021, or until such other date as Cabinet may specify by notice or in any other official means of communication.

Unfortunately, fully vaccinated travelers do not want to quarantine for 7-10 days and many do not have the time off to do this before beginning a holiday. With so many other destinations accepting fully vaccinated travelers and requiring no quarantine we will continue to lose visitors and thus potential investors. Additionally, airlines will not add flights, if they even can at this date, given the length of these quarantine times even for fully vaccinated travelers.

Once they leave can we get them back?

That is the big question. When someone cancels their plans to come to Cayman because our borders are closed, they pick somewhere else to go. The minute they go somewhere else they will be wooed to their shores from an investment perspective. If we don’t let these higher income visitors who travel during high season come to Cayman, they will go somewhere else and invest somewhere else.

As I’ve discussed in several articles, I see this scenario as very similar to 2017 when the Cayman Islands saw a large influx of visitors due to the hurricanes that decimated much of the Caribbean. They couldn’t visit their usual place, came to Cayman, many for the first time, fell in love with our country and became repeat visitors with many seeing the tremendous value in Cayman Island real estate and became buyers for a second home or investment property. Since then, until March of 2020 tourism and real estate was booming. The big question now will be once they leave can we get them back?

The perception

One topic that has come up numerous times is the perception people have of the Cayman Islands both today and into the future. Right now, every person and every business are being controlled by our government. A country is often perceived by how its government acts and right now we can be looked at as being paranoid and insecure. When an investor investigates Cayman in the future the actions that we’ve taken recently undoubtedly will come into consideration.

The impact on the real estate market in the Cayman Islands

I have spoken to numerous fellow brokers as well as many agents in my office and other offices throughout the island about the impact this new border closure will have on the Cayman Islands real estate market. Overall, the buyers, sellers and developers feel very uncertain about where we are, what the next steps are and what the future holds.

Buyers

From the top end of the market to the lower end, it appears that we are in jeopardy of losing buyers. One broker stated he has lost between 5 to 10 buyers due to this announcement. Another stated that he had 2 clients coming in October but can no longer come down and that a previous client has already purchased a property in another Caribbean location. Other agents have lost clients to purchases in Turks and Caicos and the Dominican Republic and multiple deals amounting to over $5 million. Another agent lost an $11 million deal due to the changes in the quarantine requirements as well as the uncertainty about our opening date.

Speaking of the Turks and Caicos specifically, James Edition published a story on September 20th which stated the property market is booming with unprecedented sales in the 3rd quarter “driven by the closure of The Cayman Islands to tourism.”[ii] “Investors and purchasers previously drawn to The Cayman Islands now see Turks and Caicos properties offering greater value across prime locations. What’s more, there’s more capacity to expand. For example, JEM Worldwide – also operating Cayman’s Reef Divers – bought the East Bay Resort in South Caicos, representing a significant investment in the outer Islands.”[iii]

The border closure doesn’t just impact foreign investors but local buyers as well. There is a domino effect in this decision. Many people may have lost their jobs or look at reduced wages for the unseeable future. These potential buyers have now put the brakes on buying including many first-time home buyers as the future seems very uncertain now.

Under Contract

Several agents commented that some properties that are already under contract are likely to fall through with this news and I know of at least 1 buyer who has pulled out as a direct result of the border closure.

Sellers

Some investors and second property owners will probably sell but it’s too early to really gauge how much of an impact we will see. People are frustrated, angry and disappointed. Some existing clients have already listed their properties and are relocating to other parts of the Caribbean and Europe because they are extremely upset at our government’s decisions.

Many people looking to sell may hold off believing that real estate values will decrease.

 Development

Some developers who were just about to break ground or are in the planning phases on multi-million-dollar projects are putting on the breaks until there is a clear path to re-opening. This creates a domino effect that slows work for suppliers, vendors, contractors, labourers and more.

People who were planning to build their own homes are also uncertain and many are pausing until a clear path forward is revealed.

Commercial

Commercial buyers are also putting the brakes on acquiring office space. With budgets in the millions, many of these buyers are waiting to see what happens before making any type of serious real estate financial commitment.

Investment property owners

For the last year and a half investment property owners have been seriously impacted by our closed borders. As outlined in a previous article, there are substantial costs associated with owning a property in the Cayman Islands especially when those owners aren’t seeing any substantial revenues.

Many of these owners have been waiting patiently and eagerly anticipating our borders opening this high season to recoup some of these loses. Unfortunately, this isn’t going to happen and many of those owners, who were on the fence about selling, as outlined in a previous article, may now look to sell, and invest somewhere else where they can generate revenue.

In closing

While much of the world was initially impressed on how the Cayman Islands handled the pandemic and supported us with our initial border closures, that feeling has shifted. Property owners, investors, and visitors are disenfranchised.

As much of the world learned to live with COVID, we, in the Cayman Islands, have been very fortunate to live in a COVID-free world and are now experiencing what almost everyone else has been for the last year and a half. As you could imagine how you felt when you were first going through this, we are going through this now and it takes time.

Much of the world has gone back to normal and countries have opened their borders to vaccinated travellers including the US, Canada, and the UK. People in these countries, and almost the rest of the world, live with COVID-19 in their communities. Yes, there may be certain restrictions such as event capacities or having to wear a mask at the grocery store, but life in these countries has gotten back to normal.

We have been told for months that Cayman is prepared for the inevitable community spread of COVID-19 and that Cayman is medically ready to reopen and that one of our biggest benefits is the health services we offer. “Our local healthcare infrastructure has been strengthened throughout the past 18 months to ensure that facilities and programmes are ready for any potential surge in the virus,” stated Health Minister Sabrina Turner.

Right now, it is our understanding based on the Premier’s statement I noted above that we are “pausing the re-opening for the rest of the year.” This gives no indication as to when we plan to welcome back visitors without quarantine restrictions. People cannot plan vacations or plan to visit our islands with the hopes of buying property.

An ongoing poll on the Cayman Compass website asking people if they support the government’s decision to delay the reopening of the border shows that 78% (10,262 people) do not agree with the delayed opening.

On Thursday, September 16th the Cayman Islands Chamber of Commerce Executive Committee met with the Premier and the Minister of Tourism to deliver views of the Chamber membership and highlight concerns around the status of the halted reopening plan. They plan to meet regularly with the goal of setting a firm date for the country’s reopening so the local and international community can feel adequately prepared.

Unless something drastic happens, we need to pick a date and stick to it. We need to do that quickly and we need to re-establish a faith in people coming to visit that we won’t change our minds. We’ve definitely lost visitors, property investors, and we will lose current property owners who plan to sell. The question is how much of an impact will this have on our industry and overall economy. The answer. Only time will tell.

I remain optimistic that the Cayman Islands real estate market will not only survive this state of uncertainty but will thrive. Yes, we will lose some buyers and some current homeowners will leave, but what makes Cayman so special will continue as I’ve outlined in earlier articles. New people will come, fall in love, and decide to make Cayman their first or second home or purchase an investment property.

On a personal note, I would like to let our international investors and the visitors to our shores know that the people of the Cayman Islands do appreciate them. We are a victim of our own success. Due to our success in managing COVID it has resulted in us being risk adverse, conservative and cautious in our opening strategy. We look forward to welcoming you back to experience Caymankind.

[i] Cayman Marl Road, September 19, 2021

[ii] James Edition, September 20, 2021

[iii] James Edition, September 20, 2021