The Impact on Investment Property Owners

News, Buying & Selling, Featured

Since the publication of my recent article, Cayman Islands reopening plan announced, I have received several emails and calls from clients and customers stressing additional impacts property owners are facing particularly with respect to investment properties. In fact, one client who owns property in The Cayman Islands is at his breaking point and approached me to sell his property as he wants to invest in another Caribbean Island instead of The Cayman Islands. Even though I am in the business of selling real estate, I convinced this seller to just hold on a while longer as we can see the light at the end of the tunnel with respect to re-opening and that Cayman continues to be the best place for estate investment in the region.

I thought I’d take this opportunity to discuss the additional impacts investment property owners have been experiencing since March 2020 at the beginning of this pandemic and continue to face almost a year and a half later. First, I wanted to put the frustrations of these property owners in context of the rest of the world.

The world is re-opening

Many owners are frustrated that they cannot come and visit the properties they own. They are fully vaccinated, and many do not have the time to quarantine for 10 days if the Cayman government doesn’t recognize their vaccination credentials. As I’ve mentioned in previous articles, our government has done a great job at protecting our people from this pandemic and we are one of a few countries in the world that is COVID-free.

On August 9, Canada opened its borders to fully vaccinated U.S. citizens and permanent residents (those who received their last shot at least 14 days before entering the country). Travellers need to submit proof of vaccination, negative COVID-19 test results, and other travel details to the Canadian government’s ArriveCAN platform at least 72 hours before arriving in the country. Unvaccinated children who are under the age of 12 can enter Canada with a fully vaccinated parent or guardian who is eligible to enter the country. Travellers who give false COVID-19 vaccination information are being fined thousands of dollars.

Canada is not alone. According to a travel restrictions map on the travel website Kayak, which was last updated on August 10, there are 10 countries that are fully open with no restrictions or requirements for visitors including Mexico and 142 countries that are open with restrictions and 74 countries including the Cayman Islands which are closed.

The real cost of investment property ownership

It is common knowledge that a good number of Cayman’s property owners are foreign investors. Many of them have been coming to our islands for decades and with multiple generations of their families. In fact, they come down with friends who also own property here. They have made an attachment to the Cayman Islands over the years and developed long-lasting friendships along the way. They have purchased property here as a plan for retirement, as a second home, as a vacation rental, and in some cases purely as an investment. But it’s one thing to invest capital to buy property but another to eat all the operating costs.

These owners have been carrying all the expenses related to property ownership without being able to either visit without quarantine or see any type of rental income over the last year and a half. These expenses include strata fees, insurance, utilities, cleanings, upkeep and more. It doesn’t take long for these expenses to hit $20,000 or more with some 2-bedroom, 1,700-1,800 sq. ft. condos along Seven Mile Beach averaging more than $30,000 annually which is in all-in number including insurance.

Additionally, owners that are part of a rental program could face hikes in strata fees. Many strata fees are offset by the rental program’s income which subsidize day-to-day maintenance and wear and tear but with no rental tenants there is no rental income.

With no tourists on island as well as the large number of people who left at the beginning of the pandemic, long-term rental inventory is probably at its highest it’s ever been. There are more than 1,600 rental properties available at this time.

While capital appreciation is a big upside to owning real estate in the Cayman Islands, the reality is an owner only benefits from this at the point of sale. Many owners don’t want to sell their properties but the lack of revenue, continued out going costs and the fact that are borders are still closed is making many of them reconsider.

What’s the solution?

The government has shared its re-opening plan and Phase 3 (Limited Introduction of Tourism) is slated to begin September 9 which is subject to the achievement of an 80% vaccination rate. Four weeks ago, when I wrote the article on Cayman’s reopening plan Cayman’s fully vaccination rate was 65%. Today, we are sitting at 68% of the population being fully vaccinated. Although there is a huge push by both the public and private sectors to get people vaccinated, reaching 80% fully vaccinated in less than a month seems unrealistic given our current trajectory especially if the government wants a full 14 days post second shot. A positive sign that Cayman will re-open by this date is their commitment to airlines being allowed back in to resume regular but limited service as of September 9. By them stating that and the ramp up required by airlines it appears they are committed to open by that date.

The government has recently added additional locations (California for one where very little of our tourism and thus homeowners live) as well as providers such as Wal-Mart but the reality is people received vaccinations from all over. Maybe we need to have a system in place, like Canada, where property owners can submit their vaccination certificates online and upon approval do not have to quarantine. If they are found to have falsified documents, then they are fined, or liens are put against their Cayman property.

We are at a tipping point. If fully vaccinated homeowners are required to quarantine because they didn’t get vaccinated at a place that our government recognizes we risk the possibility that they could sell and buy somewhere else. The burden of unrecouped expenses especially when they cannot come and stay at their property for the last year and a half could easily amount to more than tens of thousands of dollars.

I recognize their frustrations, but the reality is that we are moving in the right direction. We just need to give it a little more time. From a real estate perspective, the opportunities in Cayman have only just started and will continue to get better over the years. The things that have, in the past, made Cayman such a great place to buy remain the same – no tax, stable government, first rate healthcare, excellent schools, excellent communication services, clean environment, proximity to the US, high standard of living, safety and of course our incredible year-round tropical climate and some of the best beaches in the world. Sales and prices are continuing to climb with July seeing over $106 million in transactions.

While I understand that carrying operating costs for a property you may not be able to visit can become tremendously burdensome and that some people may have to sell, the truth is we are going to get back to normal. One thing to keep in mind is that property ownership in Cayman helps to secure Cayman residency, a huge upside to owning property in the Cayman Islands, which I’ve outlined in a previous article titled How can I move to the Cayman Islands. It enables owners to return to the islands without impacting their own residency.

The world is opening up. Some places quicker than others and some others more slowly, but things are moving towards getting back to normal. We just need to be patient for just a little while longer.