November Market Update


As published in the Caymanian Compass – WEDNESDAY 6 NOVEMBER 2013

Immigration changes will have a mixed effect on real estate

I have decided to devote this month’s newsletter to the issue of the recent changes in our immigration system and how I perceive these changes will affect the real estate market here in Cayman. This is a very important subject that has caught everyone’s attention at the moment hence my intention to devote some time to this extremely important topic.

Firstly I would like to say that I believe it is a good thing that we now have a decisive and transparent immigration regime that clearly sets out the path necessary to take in order to attain permanent residency and then go on to apply for naturalization and eventually Caymanian status. It is important for the country to have in place a clear cut regime and for everybody to know where they stand and I believe the new legislation adequately addresses the issue.

Investment related to means
In order to obtain permanent residency an individual must obtain sufficient points to be granted residence (110 out of a possible 215 points). Thirty points can be earned with regard to an applicant’s investment in local property and for the first time the way this is now calculated takes into consideration a person’s earnings. So, if an individual is earning $4,000 a month and able to invest $100,000 in property he will earn the same number of points as an individual who earns twice as much and puts twice as much into his property investment. I think this is a much fairer means of assessing an individual’s input into the Islands and may encourage people on lower salaries to take the step and purchase property.

In addition, in order to score points with an investment in a property, only the equity itself will be counted, not the overall value of the property (so, not including any mortgage outstanding). I think this is also a good way to assess an individual’s true investment in the country.

The fact that an individual who contributes a total of $500,000 or more into a property will receive the full maximum 30 points is also a positive step for the industry, as buyers with enough money to invest will know that their contribution will automatically achieve the maximum points, thereby encouraging the higher end of the market.

Deterrent for investors
My greatest concern is the fact that an individual’s investment in a property will only be considered five years retroactively from the date of their permanent residency application. It worries me that this time frame is not longer, because new residents who hope to eventually go on to apply for permanent residency may be deterred from making an initial investment in property, knowing that their investment will only count towards their residency five years before it’s actually made. In my mind this is one factor of the new law that may weaken the real estate market and needs careful consideration because it makes it difficult to encourage new residents to become buyers. If an individual wishes to purchase property to build equity instead of paying someone else’s mortgage by renting, they should not be penalized for this.

In addition, to my mind people who made an investment contribution more than five years ago ought to be properly recognized because if we look at the time value of money, the value of their equity “cash” invested more than 5 years ago was worth more than it is now.

When is the right time?
There is no time like the present to invest in the future. Buying versus renting is a personal choice and there are always many factors to take into consideration, but at least with the new law, people will know where they stand with regard to the PR process and investing in property. However, using only a 5 year time frame for the application of property equity is not fair and needs to be addressed. When calculating points based on equity, time should not matter.