US market outlook
The recovery of the US housing market has been bolstered by some good news recently released by the National Association of Realtors which states that the prices for single family homes have increased in the first quarter of 2013 in 89 per cent of cities across America. The median price for a single family home is now US$176,600, that’s up 11 per cent over the same period last year. In addition, the NAR states that they see a “dramatic turnaround” in places previously hard hit by the depression in the US housing markets, such as Phoenix, Sacramento and Miami.
Reuters were also reporting that the improvement in the US housing market may herald the return of US workforce mobility, which will have a huge impact on economic growth, as employees feel more confident in moving to where the jobs are located, knowing that they can sell their property. At the same time employers will feel ready to hire again, knowing they can attract the best employees, wherever they are located.
Cayman market Statistics Overview
As our economy is so closely linked with that of the US, most industry sectors in Cayman follow its lead. However, this month I thought we would present some statistics (as recorded by CIREBA) showing that the real estate market in Cayman has not suffered the severe price declines as in the US.
An analysis of Cayman’s residential housing market prices and how they have changed over the last few years makes for interesting reading. While the industry saw a dip in the number of larger houses sold in 2007-2009, sales of houses overall increased in 2010 and 2011 with a high increase in sales of larger homes in 2012/13. Along with increased numbers of larger homes, there have been significant increases in value of these sales, with several homes valued at over $3 million sold in 2012. This goes hand in hand with increased sales of larger, luxury condominiums along Seven Mile Beach, indicating a higher growth in overseas investment, as I have outlined in previous articles.
Sale prices of 3-bedroom and smaller homes have remained relatively stable over the last several years, showing the stability of the Cayman real estate market. The same can be said for condominium sales with prices of 3 bedroom or less condos (excluding SMB) remaining relatively flat, while prices for larger condos have increased, similar to the situation along SMB. As a large percentage of our community live in condominiums, this is good news. It is also interesting to look at how few condominiums greater than 3 bedrooms have been sold over the years and the fact that the numbers of condos sold is more than double that of sales of standalone houses.
While there may have been an increase in foreclosures, these tended to be older properties in need of repairs. Similar to the US market, the number of foreclosures increased dramatically in 2011 and following the US, are trending down and we expect them to continue to decline this year. It is interesting to see that of all 52 foreclosures on condos from 2005 to present, only 2 were SMB beachfront and only 2 others were in the SMB area on the land side of West Bay Road. Foreclosures along the SMB corridor tend to be rare and turn quickly.
The US housing market has significantly improved particularly due to the fact that investors are busy buying up property at knock down prices, upgrading and then flipping the properties for a higher price.
Cayman’s market cannot work along similar lines – it’s not as simple as flipping a house for a quick profit. We are trailing somewhat behind our American counterparts, partly due to the slow foreclosure process here. That said, low cost properties are coming to market right now and we should see sales pushing through in the months ahead. But in Cayman many of the homes that have been foreclosed are not in good shape and need cash input from their new owners. Investors have to weigh up whether such a cash outlay will really make a quick flip worth their while, with costs such as Stamp Duty to consider. In Cayman investors are better off considering the end user of the property and make an investment that will bring them rewards over a period of time, not just in the short term.
Areas of concern for our new Government
Infrastructure development must be at the forefront of priorities for our new Government. Top of my list are road extensions and improvement, careful consideration of how to deal with the landfill, improving the airport and increasing room count on island. In particular, I urge our new leaders to stop the landfill issue becoming even more of a political football than it already is and implement some sound and sensible solutions to this ever-increasing problem. At present, residences within a two-mile radius are affected by the odours emanating from this eyesore, stretching up from Camana Bay down to George Town and everywhere in between. It is preventing developers from investing further in home building projects and is therefore preventing our economy from growing further.
With our new Government brings new optimism for the future. I look forward to our newly elected leaders working together to secure a brighter future for the Cayman Islands. With the election finally behind us, it is time to get to work.