Market Update August 2012

News

Luxury Home Sales – A Glimmer of Stability

As published in the Caymanian Compass

Market Data (January – June 2012)
Year to date (for the period of Jan1-June 30, 2012), the number of active listings reflected on the CIREBA database remained relatively flat vs year ago, with only a small increase of 2%. However, the number of properties sold year to date dropped significantly, with a 14% decline vs year ago, representing a 20% drop in $ volume estimated at $37.76million.

There are however several factors to take into consideration that will in fact show an upswing in certain segments of the market and stability in the overall market rather than decline for the first half of 2012.  

Firstly, there was a single US$20 million deal done in the beginning of 2011. This single transaction alone accounted for approximately 11% of the total volume for the first half of 2011.

The second factor distorting market numbers for this year is the fact that it does not reflect pre-construction activity or contracts for condominium developments, of which there has been much activity in the first half of 2012.

Backing out the single $20million transaction of 2011 and adding in the pre-construction sales of large developments such as the WaterColours on SMB and Oceana in South Sound, shows market volume flat vs YA.

The fact that the number of “SOLDs” was lower while the dollar value remained flat, reflects the sales of many high end properties and an increase of average sale price, which would have indicated high end investors’ confidence in Cayman as a safe and stable investment environment with good value for money.


High End Luxury Properties Show Strong Sales
The WaterColours development, which is slated for completion at the end of 2013, is moving along at a steady pace. As progress is made on adding floors, so too are pre-construction sales. The WaterColours had a number of units put to contract in the first half of this year, accounting for approximately $20 million increase in sales along SMB vs the same period last year. With each unit transaction at over $3 million, this was an indication that the foreign investor market for high end, luxury properties was back.

These investors are primarily parties that have been in Cayman for some time or have visited many times over the years, but we have seen some new investors coming into the market place, investing in higher valued homes and estates rather than condominiums.

While the market for high end properties targeted to the overseas investor seemed to be showing signs of recovery, the market relating to local residents did not appear as healthy.  As the economy slowed, like the rest of the world, we too have had to deal with this constriction of buyers coming into the market, coupled with added inventory as residents leave because of the lack of work in some areas of employment and immigration roll-over effects.

The market has seen significant declines in sales of smaller condos and residential properties, especially outside of the SMB corridor. ( -13% decline in sales of 2 bed condos outside the SMB corridor and -25% decline in sales of 3 bedroom residential properties).

There have however been small increases in sales of 4 bedroom or larger homes (+8%) and 3 bed condos (excluding SMB) +15%. This may indicate that residents who have secured residency are beginning to upgrade, with these residents buying 3 bed inland condos and larger family homes. The sale of residential land has also increased (+8%). While data on construction is not easily accessible, there are visible signs of residential construction in many neighbourhoods around the island.

Real Estate Market Shaken by proposed Tax
At the time that the first draft of this report was being written, I was pleased to report an upswing in the luxury condominium and high end homes segments of the market, reflecting overseas buyers confidence in the Cayman real estate market. However, the recent Government proposal of an income tax for expats has shaken the market.

Despite the unexpected news of the past days, I am hopeful that this will all settle down and that such a controversial law will not be implemented. I urge clients and buyers not to over-react, the tax has been merely proposed and nothing has been implemented. Time is needed to fully understand the details and implications of what has been proposed. At first glance, this proposed tax will primarily affect local residents, reducing the number buyers in the market place, therefore slowing down the appreciation of Caymanian owned property values. The cost of living in Cayman will increase, which may make it less attractive to the overseas investor.

Should this tax be implemented, one must always compare the market to other jurisdictions and Cayman is still fantastic value and good investment opportunity for the savvy buyer.

Do you have a real estate related question? I invite your comments, suggestions or questions.