Property prices are rising strongly in Cayman Islands
November 05, 2017
After several challenging years, Cayman Islands' property market is now growing rapidly again, amidst increased consumer and investor confidence. House prices are rising strongly. Property transactions are picking up. Residential property construction is also improving dramatically.
During the second quarter of 2017, the average value of freehold property transfers rose by 9.6% to KYD406,817 (US$496,118) over the same period last year, based on figures from the Lands & Survey Department. The average value of freehold property transfers surged by 42% y-o-y last year, after rising by 6.7% in 2015 and declining by 9.5% in 2014.
The average sale price of residential properties sold through the Cayman Islands Real Estate Brokers Association's Multiple Listing System (MLS) was KYD564,552 (US$688,478) in 2016.
Growth is centered along Seven Mile Beach for condominiums, and Cayman Kai, on the island's north, for single-family homes. The most expensive housing are along Seven Mile Beach, a coral-sand beach located on the western end of Grand Cayman island, where property prices can reach as high as KYD1,200 (US$1,463) per square foot (sq. ft.).
- At The Meridian, a collection of 32 super luxurious oceanfront villas located on the Seven Mile Beach, the average sales price of villas was KDY1.45 million (US$1.77 million) in 2016, up by 3% from the previous year.
- At The Pinnacle, a luxury beachfront development on Grand Cayman's Seven Mile Beach, the average sales price of condominium units was KYD1.62 million (US$1.98 million) in 2016, down by 3% from a year earlier, according to Charterland, Ltd;
- At the Regal Beach Club, a beachfront condominium development of 57 units in six, 3-storey blocks located on the Seven Mile Beach, the average sales price rose by around 9% y-o-y to KYD570,185 (US$695,348). Residential property values have been rising since 2013.
- At The Grandview, a seafront development of 60 condo units in 12, three-storey blocks in Seven Mile Beach, the average sales price increased 11% y-o-y to KYD526,427 (US$641,984) in 2016, following an 8% rise in 2015.
- In George Town's Garden, Coco, Mystic and Sunset Retreat, the average sales price of two-bedroom inland townhouses was stable at about KYD193,000 (US$235,366) in 2016.
With strong demand, coupled with limited supply, the housing market is now turning into a seller's market.
Property demand remains robust. The total number of open market property transfers in the Cayman Islands rose by 4% to 1,616 units in 2016 from the previous year, based on a property review conducted by Charterland, Ltd. Likewise, the value of real estate transactions surged by 16% y-o-y to KYD622 million (US$758.5 million). Then during the first eight months of 2017, the number of freehold property transfers increased 8.8% while the value of transfers fell slightly by 2.3% from the same period last year, based on figures released by Cayman Islands' Lands and Survey Department.
Residential construction activity continues to improve, with an increase in luxury condominium developments. In the first quarter of 2017, residential project approvals in Cayman Islands increased, both in number and value, by 37% and 140%, respectively, according to Cayman Islands Planning Department. Building approvals for condominiums more than tripled to KYD94.7 million (US$115.5 million) in Q1 2017 from a year earlier. Likewise, building approvals for houses increased 46.3% to KYD37.6 million (US$45.9 million) over the same period.
During the past decade, the movement of the average value of property transfers has been erratic. This can be attributed to large-scale acquisitions made by some property developers in a particular period, which distort the property market. For instance in 2011, Dart Group made significant acquisitions which represented about 28% of the total value of all the property transfers for that year.
Positive housing market outlook
Caymans' property market is expected to remain buoyant in the coming months, especially along Seven Mile Beach and in residential developments such as the Crystal Harbour, Grand Harbour, Vista Del Mar, and the Yacht Club, according to local real estate experts.
"The outlook for the market still looks positive for the 2017 and onwards," said CIREBA. "The rental market is growing along with the population of the islands. Cayman tourism is doing well with both stay over and cruise tourism numbers remaining steady in addition to development across the island."
"I believe that when you look at how things are trending in Cayman on a macro level - taking things such as real estate sales, public and civic development, improvements to infrastructure and the favorable laws in this country with respect to taxation and private business - you see the Cayman Islands continuing to grow, prosper and move in a positive direction with respect to future growth and economic stability," said CIBERA president Jeanette Totten.
Land values are rising
Land prices continue to increase strongly in the Cayman Islands.
- At the Crystal Harbour, the average price of high-end canal-front lots sold increased 20% y-o-y to KYD29.10 (US$35.50) per square foot (sq. ft), according to Charterland, Ltd.
- At the Grand Harbour, the average sale price of high-end canal-front lots rose by 8% to KYD19.50 (US$23.80) per sq. ft. from the previous year.
- In the mid-range area of Savannah, the average sale price of residential lots was almost unchanged from a year earlier, at KYD5.80 (US$7.10) per sq. ft.
- In the lower-end area of Frank Sound, the average sale price of residential lots increased 17% y-o-y to KYD3.45 (US$4.20) per sq. ft.
- In Cayman Brac Bluff areas, undeveloped residential lots were sold for an average price of KYD1.70 (US$2.10) per sq. ft, up 10% from a year earlier.
Property transactions continue to increase
In 2016, the total number of open market property transfers in the Cayman Islands reached 1,616 units, up by 4% from a year earlier and the highest level since 2008, based on a property review conducted by Charterland, Ltd. Likewise, the value of real estate transactions surged by 16% y-o-y to KYD622 million (US$758.5 million). In fact, the total value of transactions last year has already surpassed the previous peak of KYD600 million (US$731.7 million) in sales in 2006.
Some of the highest value property sales recorded in 2016 include the following:
- Grand Cayman Beach Suites: sold for more than KYD31 million (US$37.8 million) net of chattels
- Two condominiums at the Watercolours on Seven Mile Beach: sold for a joint price of KYD8,968,461 (US$10,676,739) net of chattels
- Highgrove Business Park, located in the George Town industrial estate: sold for KYD7,925,000 (US$9,434,524).
- A single family dwelling at the upscale Vista Del Mar development: sold for KYD6,226,390 (US$7,412,369) net of chattels.
From January to August 2017, total freehold property transfers increased 8.8% at 1,329 units compared to the same period last year, based on figures released by Cayman Islands' Lands and Survey Department. However, the value of freehold transfers fell slightly by 2.3% y-o-y to KYD602.5 million (US$734.8 million) during the first eight months of 2017.
The increase in the number of freehold property transfers can be partly attributed to increasing interest from foreign investors. At least 75% of homebuyers in Cayman Islands come from the United States and Canada, said Malin Ratcliffe of West Indies Brokers Real Estate. There is also a growing interest from Europeans and South Americans.
Residential construction activity improving
Residential construction is increasing, thanks to an increase in luxury condominium developments.
In Grand Cayman, residential building permits rose by 13% in 2016 from a year earlier, according to Cayman Islands Planning Department.
- The value of permits for apartments in Grand Cayman rose strongly by 70.9% y-o-y to KYD71.1 million (US$86.7 million) in 2016 from a year earlier.
- The total value of building permits for houses in Grand Cayman dropped 12% y-o-y to KYD84.9 million (US$103.5 million) over the same period.
Then in the first quarter of 2017, residential project approvals in Cayman Islands increased, both in number and value, by 37% and 140%, respectively, according to Cayman Islands Planning Department. Building approvals for condominiums increased 3.2 times to KYD94.7 million (US$115.5 million) in Q1 2017. Likewise, building approvals for houses also increased 46.3% to KYD37.6 million (US$45.9 million) over the same period.
Some notable luxury condominium developments in Cayman Islands include an 81-unit apartment complex and the Solara apartments valued at KYD60 million (US$73.2 million) and KYD12 million (US$14.6 million), respectively.
The rise of canal-front properties
Recently, there has been increased interest in canal-front homes, both from home buyers and property developers, according to the Cayman Islands Real Estate Association Brokers (CIREBA), mainly because they are a more affordable alternative to oceanfront properties but also offer incredible views to home owners.
For instance, canal-front homes are currently under construction along the Seven Mile Beach corridor, stretching up to West Bay, primarily on land south of the Ritz-Carlton, Grand Cayman, and land to the north of the Yacht Club and land at Camana Bay. Another example is that of Safe Haven, though the canal-front properties there are leasehold.
There are at least 20 canal residential subdivisions in Grand Cayman, half of which can be found along the Seven Mile Beach and West Bay, and the other half run east from Prospect to North Sound Estates and the Cays in Rum Point.
Canal subdivisions can be divided into five levels, depending on the price and quality.
- Level 1 - the most expensive and top of the line estate homes, with strong covenants and manned security gates. These include Vista Del Mar, Salt Creek, and Camana Bay, with land values ranging from KYD451,000 (US$550,000) to KYD2,460,000 (US$3,000,000).
- Level 2 - luxury homes with strong covenants but unmanned security gates. These include canal-front developments such as the Crystal Harbour, Crystal Cove, Cypress Pointe North, Britannia, and the redeveloped Cayman Islands Yacht Club, with land values ranging from KYD303,400 (US$370,000) to KYD820,000 (US$1,000,000).
- Level 3 - well-maintained upper-middle class luxury homes with good covenants. These include developments such as the Canal Point, the Shores and Mangrove Point, the Grand Harbour, the older and more developed side called South Reach, The Isles, The Estates, Patrick's Island, and Sunrise Landing, with land prices ranging from KYD246,000 (US$300,000) to KYD492,000 (US$600,000).
- Level 4 - mixed mid-level homes with decent services, including older subdivisions like Red Bay, Omega, and Prospect and newer developments such as Newlands Sound, Palm Heights in Snug Harbour. Land values range from KYD123,000 (US$150,000) to KYD295,200 (US$360,000).
- Level 5 - mid- to low-level homes with minimal maintenance, such as the North Sound Estates and Red Bay Prospect. Land values range from KYD102,500 (US$125,000) to KYD164,000 (US$200,000).
Mortgage interest rates gently rising
Mortgage interest rates in the Cayman Islands are typically tied to the prime rate set by the Cayman Islands Monetary Authority (CIMA), which follows the US Fed funds rate. Typically, mortgage interest rates are one or two percentage points above the current prime rate. The Cayman Islands dollar (CI$) is pegged to the US dollar at CI$1 = US$1.20.
During the first quarter of 2017, the average prime lending rate was raised for the third time in the past 18 months to 3.92%. Prior to the rate hikes, the prime lending rate has been at 3.25% since Q1 2009, based on figures from the CIMA. The average interest rate on loans stood at 7.05% in Q1 2017, slightly up from 7.01% in the previous quarter and the second highest since Q1 2011.
The maximum loan-to-value (LTV) ratio is 70% of the property's appraised value, with maximum term of around 10 to 15 years. However, Caymanians are offered longer periods of between 30 to 40 years. The minimum loan amount is US$100,000.
Cayman Islands' mortgage market has grown rapidly in the previous years, from just about 30% of GDP in 2003 to almost 72% of GDP in 2012. However, the mortgage market contracted to 69.8% of GDP in 2013, to 68% of GDP in 2014 and to 65.5% of GDP in 2015. Last year, the size of the mortgage market remained stable at 65.5% of GDP, despite a 3% growth in the total value of outstanding property loans to households.
In the second quarter of 2017, the total outstanding amount of property loans to households rose by 3.7% y-o-y to KYD1.96 billion (US$2.39 billion), according to the CIMA.
In Q1 2017, foreclosure rate dropped to 2.4%, from 2.8% in the same period last year. Over the same period, there were 177 properties in the localcommercial banks' foreclosure inventory amounting to KYD41.7 million (US$50.8 million), down from 196properties valued at KYD45.6 million (US$55.6 million) in the same period last year.
The rental market is growing
The Cayman Islands' rental market is expanding as the population rises, and more employees have offices in the island's special economic zone, Cayman Enterprise City. In 2016, almost 47% of households in Cayman Islands rented their dwellings, up from 41.5% five years ago, according to the Economics and Statistics Office.
Cayman Islands offer good rental yields, ranging from 5%-7% along the Seven Mile Beach to 7.5%-8.2% in other beach communities in Grand Cayman, based on Global Property Guide research.
The rental market is tight, especially near Seven Mile Beach in Grand Cayman, which is considered as the most expensive area in the Cayman Islands, according to Capital Realty. A two and three-bedroom condominium unit on Seven Mile Beach rents for about KDY2,050 (US$2,500) to KDY4,510 (US$5,500) per month.
Apartment complexes on Seven Mile Beach offering long-term rentals include George Town Villas, The Grandview, Sunset Cove, Seagull Condominiums, Laguna del Mar, Lacovia, The Sovereign and The Pinnacle. Currently, monthly rents range from KYD2,000 (US$2,439) to KYD9,000 (US$10,976).
The Terraces, located in the Camana Bay, also offers 63 apartments for long-term rental, with monthly rents starting from KYD2,050 (US$2,500) for a one-bedroom unit.
There are also other upscale residential areas outside Seven Mile Beach. This includes the South Sound, a posh area close to schools, and George Town which offers executive homes and apartments. The monthly rent of two-bedroom apartments across the road starts at KYD1,500 (USD1,829) while those on the sea are rented from KYD2,000 (USD2,439) to KYD4,600 (USD5,610).
In the Old Crewe Road, the Sunrise Apartments, Pine Crest Apartments and Elizabeth Villas are found, with the monthly rent of two-bedroom apartments starting from KYD1,400 (US$1,707). Some of the newer, more exclusive condominiums in the area are rented out from KYD2,000 (US$2,439) to KYD2,500 (US$3,049) per month.
Other areas in Cayman Islands popular with families and professionals include Jennifer Drive, Andrew Drive, Palm Heights Drive, Canal Point Drive, Parkway Drive and Whitehall Estates.
Tourism remains strong
Tourist visits from the United States and Canada continue to increase. Tourism accounts for around 30% of GDP. In 2016, the total number of visitor arrivals remained almost stable at around 2.1 million, according to the Cayman Islands' Department of Tourism.
- Stay-over visitors increased slightly by 0.03% y-o-y to 385,500 people in 2016.
- Sea and cruise ship arrivals also dropped 0.3% to 1,711,800 people in 2016 from a year earlier.
During the first three quarters of 2017, air arrivals rose by 5.3% to 312,110 tourists from the same period last year. Over the same period, cruise arrivals fell by 7.6% to 1,183,038 tourists. The United States accounted for around 82% of all stay-over arrivals in Cayman Islands.
Cruise ship arrivals are expected to rebound in the coming months, as multiple ships are being diverted to the Cayman Islands from hurricane ravaged islands in the eastern Caribbean, such as Puerto Rico, U.S. Virgin Islands, and British Virgin Islands. Around 70 additional cruise calls are expected in George Town between now and April, according to the Port Authority of the Cayman Islands.
The introduction of medical tourism in the country is also attracting tourists. The Narayana Cayman University Medical Center, a 500-acre, 2,000-bed medical school and hospital complex - opened its first phase, a 200-bed hospital, in August 2012. 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.
To attract more visitors, the government has been improving its infrastructure and flight access from around the world. Recently, the government has unveiled its plan to construct an airport terminal, with an estimated cost of US$50 million. The expansion of the Own Roberts International Airport is expected to be completed by 2018.
Other significant developments include:
- George Town port and berthing facility for cruise ships;
- Construction of transportation links and two new underpasses on West Bay Road and the Esterley Tibbetts Highway;
- Expansion of the bypass to a four-lane highway to relieve traffic congestion;
- Camana Bay town centre expansion and residential development of 200 homes and condominiums;
- Expansion of Marriot Courtyard Hotel and its re-instatement to a new 4 to 5 star brand;
- Cayman Enterprise City and special economic zone;
- Kimpton Seafire Resort + Spa, a luxurious boutique resort located at the Seven Mile Beach, was opened in 2016;
- The Hyatt Hotel, which was destroyed by Hurricane Ivan in September 2004, was also recently announced to undergo a major renovation these coming months;
- Expansion of Camana Bay and Health City in the Eastern part;
- In the South Sound, the 168-unit Vela condominium complex Vela is under construction, as well as the Tides project, which will comprise of 24 energy-efficient ocean front condos; and,
- In Frank Sound, the Ironwood development is already on the planning stage and is expected to introduce new shops, a cinema, and various types of accommodations.
Modest economic growth
The Cayman Islands is one of the most affluent countries in the Caribbean. Thanks to its twin pillars of development, tourism and international finance, this British overseas territory enjoyed average real GDP growth of 3.1% annually from 1998 to 2007. The country is the world's sixth largest banking center. "Cayman is a First World country in the Caribbean with a large international business community and well developed, diverse facilities including hospitals, schools, golf courses and hotels," says Charles Weston-Baker of Savills.
From 2008 to 2010, the spillover effects of the global financial meltdown caused real GDP to fall by 7% in 2009 and another 2.7% in 2010. The economy finally recovered in 2011, with a real GDP growth rate of 1.2%.
However economic growth has been modest since then. In 2016, the economy grew by 2.7%, after expanding by 2.8% in 2015, 2.2% in 2014, 1.5% in 2013, and 1.3% in 2012, according to the Economics and Statistics Office (ESO). The economy is expected to continue growing modestly this year.
In Q2 2017, nationwide inflation rate stood at 2.2%.
Unemployment dropped to 4.1% in Q2 2017, from an annual average of 4.4% from 2012 to 2014, according to the ESO.
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