As mentioned at the end of my last article, I wanted to explore the lower end of the Cayman Islands real estate market to provide a full picture of the real estate market here in the Cayman Islands. I thought I’d take this opportunity to explore inventory and lower priced properties, single family home and condo sales from 2018 to date, and the impact of increasing interest rates and property prices on buyers in this market.
Real Estate inventory and lower priced properties
Right now, there are 258 residential properties listed in the Cayman MLS system that are US$500,00 and under. Of those 132 are pending and 52 are pending/conditional, which means there are only 74 properties available for sale.
When you look at single family homes in Grand Cayman under US$500,000 there are only 5 real estate listings that pull up in the MLS and 3 of those are pending or pending/conditional which means there are only 2 single family homes available to buy in Grand Cayman under US$500,000.
Single family home sales – 2018 to date
For the most part the number of real estate sales of single family homes under US$500,000 has been decreasing year-over-year. In 2018 there were 83 homes sold under US$500,000 which dropped to 72 in 2019, which is a 13.3% decrease. In 2020, we saw that number drop to only 28 solds, a 61% drop, but that number jumped back up to 52 in 2021, which was an 85% year-over-year increase. The numbers in 2020 were low due to the COVID-shutdown which impacted the entire marketplace not just properties in this price range.
It’s not surprising to see that jump in 2021 as that was a record-breaking year for property sales across all segments of the market. As of the end of November 2022 there have been only 23 single family homes sold under US$500,000. In comparison we had 48 during the same period in 2021 which is a 52% decrease.
Condo sales – 2018 to date
When you look at the sale of condos under US$500,000, the story is a bit different. It is also important to note that these numbers will include investment units such as those sold at the Grand Hyatt and Hilton. In 2018, 203 condos were sold under US$500,000. This dropped to 146 or a 28% decrease in 2019. In 2020, we saw 127 sales which was a 13% year-over-year decrease.
As with single family homes, we saw a jump in sales in 2021 to 175 sales, which is a 37.8% year-over-year increase. As of the end of November 2022 there have been 163 condos under US$500,000 that have sold. In comparison we had 108 during the same period in 2021 which is a 50% increase.
It is not surprising to see that overall condo sales are increasing this year. As single family homes continue to increase in price coupled with the almost complete lack of inventory, many buyers are turning to condos in this price range.
The impact of increasing interest rates
As interest rates continue to increase those purchasing property at the lower end of the market are being hit the hardest. Interest rates in the Cayman Islands are directly related to interest rates in the US.
The US Federal Reserve in November raised its rates to a range of 3.75% to 4% which was the 4th straight 75-basis-point interest-rate hike, as it seeks to rein in demands for goods, services, and labour to reduce inflation that’s running more than three times the Fed’s 2% target.[i] This pushes borrowing costs to a new high since 2008.
It is anticipated that the US Federal Reserve will raise rates again, but the move is anticipated to be smaller to give the Fed more scope to judge how rapid rate hikes it has approved so far this year are affecting the economy, an impact that may only be apparent over many months.[ii]
As of writing this article, a leading bank in the Cayman Islands is listing mortgage rates “as low as 6.99% (annual percentage rate/effective annual interest rate).”
A 6.99% interest rate on a mortgage makes a huge difference in the monthly payment compared to where interest rates were just a year ago. For example, a 2.5% interest rate on a 25-year mortgage on a US$500,000 loan is approximately US$2,239.83 per month. When that interest rate is increased to 6.99% using the same parameters that monthly payment jumps to US$3,498.99, which is US$1,259.16 more per month or a 56% increase.
Low interest loans for Caymanians – but not for long
Back in July the Cayman Compass reported that Caymanian families were being offered low-interest mortgage deals to buy homes or avoid foreclosures. The Cayman Islands Development Bank was offering loans of up to $600,000 at interest rates as low as 3.75% for the first two years, significantly below the rates on offer from commercial banks.
At that time, there was $15 million earmarked for such loans with terms of up to 30 years. Unfortunately, per the Cayman Islands Development Bank website, “the home mortgage loan program has been temporarily suspended until further notice.”
At the lower end of the real estate market, home affordability is becoming even more challenging as interest rates increase coupled with housing prices which continue to rise. The fact that we have very limited inventory in the market especially for single family homes at this price point illustrates that we not in a real estate bubble. There is more demand than there is availability.
Unfortunately, I don’t see these things changing for quite some time. As fewer and fewer houses come on the market at the lower end of the spectrum, demand will automatically increase among buyers. Similarly, I don’t see interest rates coming down for at least a year if not longer.
As I’ve addressed in a previous article, we need a national plan with respect to affordable housing. This is something that needs to be addressed sooner rather than later as prices to build continue to rise. Of course, affordable housing development is directly related to the need for a national development plan which I’ve also addressed in a previous article. This log jam is not something that can be fixed overnight but needs to become a priority.
The good news is the National Planning Framework (Plan Cayman), which sets out a proposed development map for the islands, will be moving forward in the upcoming year.