Market Report - year end 2006

REVIEW

In our last report we predicted a flurry of Stamp Duty related sales activity, which indeed has occurred. We also predicted a return to the traditional yearly market cycles with the summer being the slower period and that has also occurred.

OUTLOOK

Sales figures year to date show a dollar volume increase of approximately 100% over 2005. Number of units sold is also up by 60%. We are now only a small percentage behind pre-Ivan figures and that deficit will undoubtedly be made up by year-end. Pending sales are also up about 30% over last year, which bodes well for the next 12-18 months. As in our last report both the number and value of new listings are still up - about 50% over last year which would normally lead to market softening. This is starting to slow, however.

As our ?off season? concludes, the natural rhythms of our normal tourism cycles are more and more in evidence. Year to date data puts us back where we were immediately pre-Ivan. Although that may not be good news for some property owners hoping that the ?post-Ivan bounce? would continue to push prices higher, in our view it is a good thing. Any influences which result in the market being more stable and predictable is good for business. Beyond that, the 2004 market was a very good one before it was interrupted. So the corrections which are occurring in some market sectors should not be cause for concern. Supply and demand are still the major factors in price movement and the factors influencing these are simply becoming more regularized.

Not everything is back to normal as Ivan has left a lasting legacy in certain areas. Because of new preferred materials and construction techniques, building costs have increased. While they are now not as high as they were immediately post-Ivan, they are higher than they used to be and we don?t see that easing significantly.

Insurance costs are another. We are certainly in for a number of years of higher costs. Hopefully insurance companies will see fit to discount those property owners who have built higher, added seawalls or installed hurricane rated windows and doors. That is becoming the norm on upper level properties and it would be a shame if those willing to pay the price to make those improvements were not recognized by lower premiums.

RESIDENTIAL

The residential rental market is feeling the first effects of over supply and has softened. Over the next 12 months nearly 1,000 new inland apartments will be completed. That should soften both rental and sales values in that sector. That our census figures now shows a population of 52,000 a considerable jump since the last one may somewhat moderate the effects of oversupply.

Condos on good sections of 7-mile beach under $750,000 are very difficult to find now. Coldwell Banker continues to handle the bulk of the beachfront resale market at the Ritz-Carlton and Caribbean Club. Selling recently was our second floor beachfront Ritz listing, a 4-bed unit of 3,847 sq. ft. for just under $6,000,000. We also have 3 oceanfront Caribbean Club Villas under resale contracts already.

It appears the 7 Year Rollover Policy is here to stay and a number of potential purchasers have decided to pass on purchasing based on the new immigration policies. There is no doubt that this has had a negative effect on sales, but going forward the way the law is implemented will determine its effect and we are encouraged that Government is addressing our concerns. With regard to the rise in Stamp Duty earlier this year, it apparently has been taken in stride by the market place and probably has had no discernable effect on sales. However, as there have been so many other factors which have been influencing the market place, it is hard to determine exactly what effect that move has actually had.

COMMERCIAL

A number of mixed-use developments with commercial residential and storage application are either under construction or planned for the West Bay Road corridor. The Eastern side of West Bay Road was originally zoned Commercial. A few years ago that was changed to Neighborhood Commercial in order to create a buffer between West Bay Road activity and the Residential Land communities to the East. That was sensible then but with the completion of the bypass extension what would have been appropriate for residential use now fronts on a highway and is no longer prime residential. We are hopeful that the Planning Department recognizes that fact and is more flexible in allowing commercial usage along the bypass. If a change of use could be part of the deal for the landowner, the government could probably save some money on land acquisition costs for the road corridor. This would be a win/win scenario.

Bu press time we will have closed the High & Dry Storage Building on Eastern Avenue and it points out the continuing need for storm resistant storage and also storage combined with retail applications. We have two commercial storage and storage/retail developments which we will be marketing early in the new year. If you are in the market to buy your own space, give us a call and get your name on the list for the first available spaces.

NEW DEVELOPMENTS

There are still several pre-construction units left in Brian Butler?s Developments like Renaissance and South Bay Beach Club. We have several listed in the range of US$795,000 - $1,695,000. Call for specific details or view them on our website at www.cirealty.com.

NEW LISTINGS

There are several new interesting listings worthy of note.

The first is Ritz-Carlton Suite #506 which is a fifth floor beachfront unit. This is a 3-bed, 3-bath South Tower unit with a large patio that will feature year round sunsets. This suite is priced below the remaining beachfront Ritz Developer units and is by far the best deal in the project.

The second, four Commercial parcels on Shedden Road in George Town which have a total of 1.38 acres and 400 ft. of road frontage. They can be purchased as a whole or separately and are very reasonably priced. Call us for details.

Lastly, the final phase of ?Sawgrass? condominiums in Omega Bay. This beautifully appointed canal complex developed by noted upscale contractor Chris Phillips, is a unique opportunity to purchase a stylish high quality property at astoundingly low prices. We have only 4 units left with pricing from CI$245,000 - $310,000 for two and three bedroom units. Call for further details.

DEVELOPMENT SITES & PROPOSED PROJECTS

The best available Destination Resort Site in Cayman is the Colliers site of approximately 530 acres and approx. 1,475 ft. of beach frontage. This site boasts a water lens under its western third as well as the Colliers Pond providing a natural buffer from the main road. Aside from the Pond and its surrounds, the land is high and dry. The price has just been increased to US$47,500,000. This equates to about $2/sq. ft. including that huge stretch of beach! When considered in that light, the price is actually quite reasonable.

We envision a complete Destination Resort that would include 27 holes of PGA rated championship golf, a tennis center, world-class spa, convention centre, commercial complex, jogging and nature trails, a 5-star hotel, and an extensive hotel beach facility. Real estate would include condominium suites on the beach as well as homes and town homes along the golf courses. Investors and developers are currently being sought to undertake the project.

There are quite a number of proposed resorts on the drawing board at the moment. They are all touted as ?ready to commence construction? especially those which have a sales element as part of their financing. This is somewhat of a ?Catch 22? as the only thing that will guarantee the project being built are the presales hoping to be made while it is still a question mark. Further, some of these projects are planned on waterfront that is less than ideal. Five star resorts planned for properties with questionable beach quality do not have a good track record. In fact one of the basic tenets of Real Estate Development is to make sure the property is suitable for the projected use. This needs to be considered by both the developer and the end user.

CONSTRUCTION & INFRASTRUCTURE

Building continues at a strong pace, but thankfully one can now find a reputable builder to take on new jobs. That is somewhat surprising in that new projects are being announced every week. The 2 new High Schools in Frank Sound and West Bay as well as the second phase of the Citrus Grove Building and a mixed-use development next to our own offices are just a few. In most areas of the island reconstruction is well underway now, however there are still a significant number of properties which have not yet been repaired especially along the South Coast.

YAHOO!

The West Bay Road Bypass is finally open! Although it is only a chip and spray surface and has limited lighting and no vegetation buffer as yet, the effect of the Bypass on traffic has been dramatic. Getting to and from work is much easier. Property values in West Bay will increase and the upscale residential development like the Highlands is worth a closer look. Foreign visitors will discover a more user friendly Cayman again - at least traffic wise. It is pretty messy at the moment and the traffic patterns are somewhat confusing so we hope the promised guardrails and vegetation buffers are put in place without delay. Next Government will start on the new road system to the East of George Town.

FINANCING

The Bank of Butterfield recently took on board one of our suggestions and is now prepared to pre-qualify customers for mortgages. This means purchasers can begin to look for property already knowing what the bank will lend so they will know exactly what they can afford. This will also enable a purchaser to make a potentially lower offer which is still attractive to a seller because it won?t come with all the uncertainties of a financing condition. A ?win/win? situation for sure!

With the 5-6 point spread between local CD rates and local lending rates, there appears to be an opportunity in Cayman for both personal sellers financing and also personal mortgage placement in the 7.5% range. The concept is being discussed more and more widely and as the need for mortgage money evidently goes beyond what is being provided commercially, in regard to both rate and term, we would expect to see this happening more often.

FOREIGN INVESTMENT

As owners of the Coldwell Banker franchise for the Atlantic and Caribbean Islands, we have been asked to write the Real Estate Section for the Society of Trust and Estate Practitioners (STEP). In doing so and comparing Cayman to the other Caribbean jurisdictions, one of the obvious major advantages for property purchasers here is the lack of obstacles to foreign ownership. The majority of other jurisdictions have alien land holding licenses and/or minimum levels of required investment to purchase etc. - all things which discourage potential purchasers. Our system is one of the most user-friendly and inviting of any in the Caribbean, which in some measure has been responsible for our success.

CIREBA

The Real Estate Brokers Association is now at 32 company members and 180 agent members, which is as large as it has ever been. A complete review of its Rules and Regulations by the Board has just been completed and a new continuing education requirement for all agents and brokers is in the works. We take our profession and our responsibility to provide the best possible service to our customers very seriously. We have come a long way since the pre-MLS cowboy days and these new initiatives can only improve what is without question the most organized and user-friendly Real Estate system in the Caribbean. The Turks & Caicos and Bermuda Real Estate Brokers are considering purchasing our system for use there.

SPECIAL

Government is making a concerted effort to balance the budget, while at the same time attempting to complete capital projects which had been deferred by previous governments. Thankfully our marketplace has been strong and the income generated by Real Estate sales in terms of Stamp Duty and Infrastructure Fees have been a big help. We applaud government?s effort in this regard and hope the market allows them to walk this tightrope for another year.

With regard to the Rollover Policy that now sets a 7-year time limit on the tenure of new foreign working residents, the Caymanian Government is in a difficult position that is mirrored in most affluent Western jurisdictions. The rights of Natural Justice with regard to individuals must be balanced with the local economic and social consequences resulting from a large influx of foreign nationals. As a result of the ill conceived and poorly executed mass status grants engineered by the previous Government, the current Government had no choice but to push the pendulum the other way. We hope and expect that through creative implementation of the new policy they will be able to arrive at a compromise that is fair and reasonable as well as practical under the circumstances.

The losses experienced as a result of Hurricane Ivan represented 183% of GDP. This is a world record loss. Up to now the Cayman Islands National Recovery Fund has coordinated the spending of $12M worth of donations to rebuild Cayman. Although there has lately been talk of money from the EU, even if it comes there will be a shortfall. About 150 homes are still in need of repair or rebuilding which equates to approx. $5.5M. The fund is gratefully accepting donations, both big or small, (which are tax exempt in the US) and if you would like to help they can be reached at cirecovery@candw.ky or 345-943-3863.

NEW OFFICE

In December we will be opening a new office in the Countryside Plaza in Savannah. This new Commercial Center promises to be very popular with anchor tenants like Foster?s Food Fair, A.L Thompson?s, Cayman National Bank and many others. It will be very convenient for customers who own or are looking for property East of George Town to stop in after work to get all the information they need. Stop in and introduce yourself.

STAFF

We would like to welcome our newest member of staff Miss Malaqui Awe. Mal has a background in IT as well as Trusts. She is herself an investor in Real Estate and like the rest of our female staff is intelligent, diligent and easy on the eyes. She already has several sales under her belt.

FORECAST

By year-end, 27 months after Hurricane Ivan, Tourism will be pretty much all the way back - at least along 7-Mile Beach. While that is not the case with regard to many individuals, with the continuing construction boom we expect there to be money available over the next 24 months to keep our economy warm. Although interest rates have risen - they appear to have stabilized for a while. With tourism back to normal levels we can expect a good winter season, even with Real Estate cooling off in the US. So the forecast is for continued clearing and sunny skies.

May the true spirit of Christmas reside in our hearts, not just during the holidays, but throughout the coming year. Merry Christmas from all of us at Coldwell Banker Cayman Islands Realty.

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