Stamp duty and the new government

The end of stamp duty assignments

As of June 30th of this year, the stamp duty assignments deal comes to an end and it will not be extended. This change has both positive and negative ramifications on Cayman’s real estate market.

On the positive side, and as was mentioned at the latest government press conference, stamp duty fees collected by the government set a record in April and thus greatly offset revenues lost through other industries impacted by our closed borders, particularly tourism. The appeal of such a savings on stamp duty drove buyers to new developments, which undoubtedly impacted resale properties in the same price range. Now all sellers including new developments are on a level playing field.

On the other hand, reduced stamp duty on numerous new developments has allowed many buyers to purchase property who may not have been able to without this program with such savings. As an explanation with minimal stamp duty due for closing a buyer effectively increased their buying power in the marketplace.

So as an example, if you had $150,000 cash in hand for you to buy a property you would have to chop that into 2/3 for down payment and the 1/3 is effectively the stamp duty. So, with 20% down, in this equation, you could buy a property that’s $500,000 being that the deposit is $100,000. But, with limited stamp duty that $50,000 could go towards the down payment which meant they can buy a property at $750,000. By not having to pay the full stamp duty, someone who must put down 20% to purchase effectively increased their buying power by 50%.

After June 30th as buyers will no longer have this benefit of reduced stamp duty on linked contracts, we could well see developers working to be creative to keep momentum going by rolling in part or all the stamp duty into the purchasing process as such facilitating this transaction. However, if you are getting bank financing, please keep in mind that the bank will have to be on board with this. Regardless, I believe developments will continue to sell as the market has real momentum as there continues to be the buying interest.

As I’ve touched on in previous articles, the real estate market is booming for multiple reasons but one of the key reasons is that people are continuing to re-evaluate their living situations. Over the last year, a house has become more than just a place we live. It’s our home. Across much of the globe almost everyone is re-evaluating what type of home they want. Home has become so many things from a sanctuary to a home office to a school and much more. For many, home can also be almost anywhere in the world which is also bringing new buyers to our islands.

There is still time to take advantage of this savings on select properties including Montage at South Sound, Paraiso Residences, Oceans 9, and the Aqua Ground Floor Estate Residence where the savings is over US$500,000.

The new government and real estate

With every new government change is inevitable. In many areas, they campaigned for the need for change, the people voted and agreed that some changes are needed for the Cayman Islands to have a secure, robust, and forward-thinking future particularly in the areas of housing, the environment, investment, energy, opportunities, infrastructure, and tourism.

Undoubtedly, any changes in these areas will have a knock-on effect in the real estate market here in the Cayman Islands however I don’t believe these changes will be a complete 180 of our current direction. Additionally, these changes cannot happen overnight and will take time.

I believe that there will be a shift in development in the Cayman Islands, but the reality is any shift or slowdown will not happen in the short term as there are at least 75 construction projects with somewhere in the neighbourhood of over 3,500 units, that are currently in construction, pre-construction or have government approval to proceed. The reality is that all these projects that have been approved come with up to 5 years to start the project.

Being more environmentally conscious is something obviously all of us are concerned about for the future of our children and our country but growth and development cannot be halted. Development is directly related to a country’s ability to move forward in a completive global market. This is even more important now as the world recognizes they can live and work from anywhere but how we do this needs to take into consideration all the relevant factors. What is critical is that there is a point where balance can be created so that development can continue to move forward while respecting the wishes of the majority.

In my opinion, one of the biggest challenges our new government faces is the need to revamp or develop a new development plan (Plan Cayman) as this dictates what an owner/developer can do with his or her property. This is the place where we can set the density, zoning, plan for infrastructure address the Department of Environment and other bodies that can way in. However, it is an enormous project as you can imagine. We need to ensure that our infrastructure can handle the growing population and the influx of new people to our Islands and that in turn will guide how development moves forward in a direction that benefits us all today and for the years to come.