Cayman Islands’ property market weakens

The property market in the Cayman Islands has been weak for the last two years. In 2008, property prices fell further, and transaction volumes again slowed.

The average sales price of detached homes fell by 8% in 2008 from a year earlier, according to latest report from Coldwell Banker Cayman Islands Realty. Prices of condominium units also dropped 4% over the same period.

The economy of Cayman Islands is fuelled by tourism and financial services, which account for about 70% - 80% of GDP. The tourist industry targets the luxury market, catering mainly to visitors from North America.  The Cayman Islands is also a well-known tax haven, the world’s fifth-largest banking centre.

Both weaker tourism, and increased US Government attacks on the worldwide offshore tax-avoidance industry, have been negative for the Cayman Islands.

Seven Mile Beach, dubbed “The Caribbean’s Best Beach”, is the most developed area in Grand Cayman and home to well-known resorts, hotels and luxury residences. Luxury villas and townhouses on Seven Mile Beach are typically priced from CI$1.2 million (US$1.5 million) to CI$4.4 million (US$5.5 million).

On Grand Cayman, the largest island, where the capital George Town is located, the average price of residential properties is around US$3,274 per square metre (sq. m.), according to recent Global Property Guide research.  Two-bedroom condominium units are available for an average price of CI$297,600 (US$372,000), according to the Chamber of Commerce. The average price of three-bedroom houses is around CI$403,200 (US$504,000).

Property prices in the Cayman Islands stagnated between 2000 and 2005. The problem? Bad luck, primarily. The Caymans were hit by a series of mini-troubles, and each time one trouble blew over, another problem appeared:

• Tourism stay-overs fell after the U.S. recession in 2000, largely because the Caymans is expensive, and has marketed itself poorly.
• The Patriot Act after 9-11 seriously roiled the financial industry, with the more secrecy-dependent parts badly hurt. Fund management has survived unscathed.
• Grand Cayman was hard hit by Hurricane Ivan in September 2004, damaging 90% of all the buildings in the island.

The property market recovered in 2006, with prices and transaction volumes rising sharply.  However, then contagion from the global financial meltdown pulled the Cayman Islands’ property market back down.

Transactions volumes fall

The total value of freehold property transfers in the Cayman Islands dropped 21% from 2006 to 2007, from CI$691.1 million (US$863.9 million) in 2006, to CI$544.7 million (US$680.9 million) in 2007, according to the Lands and Survey Department. In terms of numbers of transfers, this was a drop from 2,777 in 2006, to 2,190 in 2007.

As of September 2008, there had been 1,780 freehold property transfers in the islands this year.

The number of approved building permits also fell in 2007.  The falls were greatest in the apartment and condominium sector.

• Permits for apartments and condominiums fell significantly, by 41.4%, to just 219 permits.
• The value of apartment and condominium permits plummeted 32.5%, to CI$116.4 million (US$145.5 million).

Residential houses have been much less badly affected:

• In Grand Cayman, there were 496 permits for residential houses in 2007 - down 4.1% from a year earlier.
• The total value of residential house permits in Grand Cayman fell 15.8% in 2007, to CI$100.7 million (US$125.9 million).

As of September 2008, the value of approved building permits was CI$93 million (US$116.3 million) for houses, and CI$99.4 million (US$124.3 million) for apartments and condominiums, suggesting that the 2008 totals for both houses and condominiums are likely to be similar to 2007.

The mortgage market has been strong

Mortgage interest rates in the Cayman Islands are typically tied to the prime interest rate set by the Cayman Islands Monetary Authority, which tend to follow the US Fed funds rate, because the Cayman Islands dollar (CI$) is pegged to the US dollar at CI$1 = US$1.25.

To boost the economy, the prime lending rate was successively cut to 5% in September 2008 from 8.25% in July 2007. In 2008, mortgage interest rates were equal to the prime rate plus 0.5% to 2%.

The mortgage market in Cayman Islands has grown well in recent years. From 37% of GDP in 2003, the mortgage market expanded to 51% of GDP in 2007.  Recent mortgage growth has continued surprisingly strong:

• During 2007, total domestic property loans rose 4.9%, to CI$1.09 (US$1.36) billion.
• In September 2008, mortgage and other property loans were up 37.7% from the same period last year, to CI$1.4 (US$1.75) billion,

Rental market softens

The rental market has been buoyant in the past years, fuelled by demand from tourists and foreign workers (comprising 50% of total workforce). However, the rental market has slowed during the second half of 2008, due to weak tourist arrivals and the government's recent ‘hiring freeze'.

The famous Seven Mile Beach is the primary location of most rental properties, followed by South Sound and George Town. Rents vary considerably in different areas in the Cayman Islands. Rental properties along the beach tend to be more expensive than inland properties.

Two pillars of Cayman Islands’ economy

The Cayman Islands, a British Overseas Territory, is among the most prosperous of the island groups in the Caribbean.

It enjoyed an average real GDP growth rate of 3.2% annually from 1997 to 2007.  In 2008, economic growth slowed to 2.2%, due to the impact of the global meltdown.

The economy of Cayman Islands is fuelled by tourism and financial services, which together account for about 70% - 80% of GDP. The tourist industry targets the luxury market, and caters mainly to visitors from North America. In 2007, about 80% of tourist arrivals came from the US and 6% from Canada, according to Department of Tourism.

The Cayman Islands is a thriving international financial centre. It is a well-known tax haven, with more registered businesses on the islands than people. It is the fifth-largest banking centre in the world, with about CI$1.2 trillion (US$1.5 trillion) in banking liabilities. As of June 2008, about 279 banks were based in Cayman Islands.