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Dec 03, 2012

Cayman Islands' housing market sluggish


The housing market in the Cayman Islands remains weak. During the first eight months property transactions were down on 2011 (though with slight increases from May to August 2012). However, the figures are an improvement on the same period in 2010, according to the Cayman Islands Real Estate Brokers Association (CIREBA).

In October 2012, the average sales price for condominiums was CI$ 194,924 (US$ 237,711) according to the Cayman Islands’ Lands and Survey Development 2012 statistics. For residential properties, the average sales price was at CI$ 291,741 (US$ 355,780).

The economic slump in the country from 2008 to 2010, brought by the worldwide recession, has forced lay-offs and migration of foreign workers leading to a decline of 7.3% in Cayman Islands’ population in 2009.

With the economy growing 1.1% in 2011, the real estate market seemed to be bottoming out at the beginning of 2012. Real market activity (sales volumes) for 2011 showed an improvement, rising by 7% as compared to the previous year, according to Kim Lund of RE/MAX Cayman Islands. However, a disappointing turnout of events, including a decline in the GDP growth projection from 1.8% to 1.4% this year, has taken the shine off the housing market.

However the high-end property market heads to the winter season with a positive outlook. Based on CIREBA’s data, the number of pending sales for high-end properties surged 94% during the year to September 2012. The average sale price for those kinds of properties was also up by 20% to CI$ 1,492,147 in September 2012, from CI$ 1,241,487 in September 2011.

Decline in transaction volumes

Cayman island interest rates

There was a 3.4% decline in property transfers during the year to October 2012, according to the Valuations and Estates Office, and the value of transfers declined by 38.1%. Freehold transfers dropped 2.5%, while leasehold transfers fell by 53.6%.

The value of building permits granted during the first half of 2012 also fell by 11.6% to CI$ 88 million (US$ 107.32 million), from CI$ 99.5 million (US$ 121.34 million), according to the Department of Planning.

Permits for houses surged by 59.5% to CI$ 60.6 million, from CI$ 38 million from the previous year. The rise was in part due to the CI$ 19.7 million George Town development, as well as other existing developments’ expansion. In contrast, permits for apartments sharply declined by 65.9%, from CI$ 32 million, to CI$ 10.9 million.

Expanding mortgage market

Cayman mortgages

The territory’s prime lending rate continued at a record low, since it was lowered from 5%, to 3.75% in Q4 2008, and 3.25% in Q1 2009, following the decline in the US Fed funds rate. The rate stands at 3.25% in June 2012. Mortgage interest rates in the Cayman Islands are typically tied to the prime interest rate set by the Cayman Islands Monetary Authority, which follows the US Fed funds rate. The Cayman Islands dollar (CI$) is pegged to the US dollar at CI$1 = US$1.25.

The maximum loan-to-value (LTV) ratio is 70% of the property’s appraised value, with maximum term of around 20 years. The minimum loan amount is US$ 100,000.

Slow economic recovery

Cayman Island GDP

The Cayman Islands is one of the most affluent countries in the Caribbean. Thanks to its “twin pillars of economic development” namely, tourism and international finance, this British overseas territory enjoyed average real GDP growth of 3.1% annually from 1998 to 2007.

From 2008 to 2010, the spillover effects of the global financial meltdown caused real GDP to fall by 3.6%. There were three consecutive years of contraction, then the economy grew by 1.1% in 2011.

In 2012 economic expansion of 1.4% is expected, down from the previous 1.8% forecast. This year’s inflation forecast was also trimmed from 2.1% to 1.7%. Meanwhile, unemployment is expected to be slightly higher, at 6.3%. But the financial and insurance services sector, which accounts for 41.9% of GDP, expanded by 0.6% in 2011, an improvement from its 4.8% decline in 2010. During the first half of 2012, however, the financial sector’s performance was lacklustre, growing by only 0.2%.

Developments in tourism

The tourism sector, which accounts for around 23.8% of GDP in 2011, has performed well during the first half of 2012. As compared to the same period in 2011, total visitor arrivals in the first half of 2012 rose by 4.8% y-o-y to 1.1 million visitors, based on the data by Cayman Islands’ Department of Tourism. The outlook remains positive, due to the expected boost in air arrivals with the introduction of JetBlue service to the Cayman Islands.

In 2011, Cayman Islands suffered from 12.3% decline in cruise arrivals, as cruise lines diverted their new larger ships to other ports, due to lack of pier infrastructure and inadequate facilities for cruise ships. This decline outweighed the 7.2% increase in stay-over arrivals, which lead to a 9.3% decline in the total visitor arrivals over the year.

Cayman Island visitors

The introduction of medical tourism in the country is a new strand in the Cayman Islands’s growth strategy. The Narayana Cayman University Medical Center —a 500-acre, 2,000-bed medical school and hospital complex - opened opens its first phase, a 200-bed hospital, in August 2012. The hospital is expected to start operating in August 2013. According to its renowned heart surgeon, Dr. Devi Shetty, the hospital initially intended to target medical tourists from America, but will also focus on attracting patients from South and Latin America and the Caribbean.

According to Kim Lund of RE/MAX Cayman Islands, other significant developments include:

  • George Town port and berthing facility for cruise ships;
  • Camana Bay town centre expansion and residential development f 200 homes and condominiums;
  • Expansion of Marriot Courtyard Hotel and its re-instatement to a new 4 to 5 star brand; and
  • Cayman Enterprise City and special economic zone
 

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Comments

#1 DOUG WORDEN | May 25, 2010

Grand Cayman may see an nice increase in demand and tightening of supply over the next two years. A new medical tourism hospital has been announced and projected to have a substantial impact on the need for hotel rooms and housing. We are hoping to see real estate values respond accordingly.

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