Market Report - Mid Year 2007

REVIEW

In our last report we predicted a good Winter Season with Tourism numbers approaching pre-Ivan levels.

OUTLOOK

In actuality, over the winter, Air Arrival tourism numbers were still down about 12% over pre-Ivan figures. The 2007 Winter Season got off to a slow start. January and February were more reminiscent of 2006 than what we expected in 2007. But finally in March Tourism kicked into high gear and our Real Estate Market has been very active since then. This recent surge has extended our prime selling season with sales activity relating to visitors happening later than usual.

Nearly 3 years removed from Hurricane Ivan, CIREBA sales data is finally beginning to provide useable benchmarks again. Overall the number and value of listings are up and now at US$1.637 Billion which is 8% higher than last year to date. However supply peaked in February 2007 at $1.743 Billion and has been steadily decreasing since. New listings on a monthly basis are down about 28% over last year at this time. That is good news and will provide balance in a Market where although Sales Volume is up about 22% year to date over last year, pending sales are down about 25% over last year, indicating a slowing of the market.

Some in Real Estate and related businesses are singing the blues and calling our Market Place a strong buyers market. Much of that is over emphasized by a crowded media looking for a story that will sell papers and magazines, and a super competitive Real Estate industry where even new agents are quoted in the papers as Real Estate Experts. We see the market differently. First of all, fluctuations noted only over a short period should not be touted as trends in the market place. The big picture is a much better barometer to use when trying to formulate an investment strategy. Secondly, “the Market” is made up of several sectors and these sectors may not respond the same to market forces. For example, an international event effecting foreign travel will effect demand on 7-Mile Beach immediately – but not in Lower Valley. Conversely, an unfavourable local immigration policy may cause havoc in mid-level inland properties but have no effect on 7-Mile Beach condos. So when someone says the market is up or down, or it’s a buyers’ or sellers’ market, they should be sure it is an historical trend and specify in which sector of the market place.

Prices rose by approximately 15% since Ivan and properties sold at those prices. Supply has now caught up to demand and as a result, that 15% gain has disappeared. Prices for many properties (but not all) are drifting back toward 2004 levels. People are singling out the Rollover, or Stamp Duty or Interest Rates, but we also have had the Passport issue, an overspent local market and higher property prices since Ivan as well. Contrary to recent newspaper reports, the increase in Stamp Duty has been the least detrimental factor in all this. All of these are contributors, but the main factor has been the softness of the US Market and lagging visitor arrivals.

However, in general as prices slip, we are finding more demand and less supply and shorter marketing times and those are signs of a healthy marketplace. Sales are continuing to happen removing the lower priced inventory from the list and making the next higher level more attractive. It is different in the case of someone who “must sell”; then it is always a buyers’ market!

RESIDENTIAL

The home sales data is interesting. Year to date the number of sales is down about 14% but the value of the average sale is up 13% to US$685,000. Time on the market is down 15% with buyers generally getting about a 12% discount off the list price. Again – as with our comments above, although our numbers are up over this time last year, the prices actually peaked in April of 2007 at nearly US$693,000 and have begun to fall.

However at Coldwell Banker we have found the Housing Market very bullish for the past few months. For example, our sale of “Far Out”, Cayman’s finest beachfront home at a residential record-breaking US$7.5M, has been followed with the sales of Sky High Kai in Cayman Kai and others now under contract. It appears that the foreign market has now rediscovered Cayman and as they are comfortable spending more time here each year, seafront homes are now a serious consideration by people who were previously only willing to look at condos.

CONDOS

What about the Condo Market? Cayman is coming off an unprecedented Condo sales run. Never before in our history have there been so many Condo projects being sold at one time – and most of them very successfully. The Ritz and Meridian have closed and Caribbean Club and Water’s Edge will close in mid summer. Beachcomber, and Renaissance have 2 years to go but are selling well with South Bay Beach lagging a bit, but with several units now redesigned, it is back on track.

All of these are higher than average valued properties which will continue to support the average sales price for condominiums in Cayman. The data already reflects this with the total number sold up 21% year-to-date and average sale value up a whopping 88% to over US$760,000 year-to-date with only a 6% discount off the list. Marketing time shows an increase of 44% but that is a reflection of how long it takes to build condos not how long it takes to sell them. Going forward all CIREBA Pre-construction sales will reflect the contract date not the closing date to better reflect when the sales activity was actually taking place. This will be valuable information – available nowhere else in Cayman.

New sales records are still being set in most seafront complexes but as overall activity slows that will probably not continue at the same rate. If you are looking at a Pre-construction development and it has not started yet because there are not enough pre-sales, considering current market direction that project just may not happen. There are a few of those out there right now. Condo sales data over the past 6 months is similar to housing numbers i.e. peaking in March at US$792,500 and beginning to fall.

The figures above include both condos on and off the water, however if we were to isolate those in the interior, the picture would look quite different. While supply continues to rise, prices are not, and we expect those prices to fall, significantly. We have been saying this for over a year now. There has been an awful lot of local investment in Real Estate over the past 2 – 3 years and we do not see that demand here as sustainable at the same level. The expansion of the rental market which is being fueled by new employees coming to the islands will keep this over-supply from devastating that segment of the market. But local developers expecting windfalls from sales on inland projects, better tighten their belts and prepare to be very patient.

INTERNATIONAL EXPOSURE AND LOCAL EXPERTISE

Recently in considering the reasons for our company’s sales successes in 2007, we mentioned International Exposure coupled with Local Expertise. With the Coldwell Banker network the International part should not surprise anyone. With 33 offices in 14 countries, in 2006 Coldwell Banker firms were involved in over 1400 transactions for a sales volume of well over 1/2 Billion US$! Coldwell Banker is unquestionably the #1 Real Estate Company in the Caribbean including Bermuda and the Bahamas. (see www.coldwellbankerislands.com).

The coldwellbanker.com Corporate Website gives all Coldwell Banker company listings great exposure. There were 32,000,000 new visitors on this website in 2006!

Our own website (www.caymanislandsrealty.com) is consistently being upgraded. We now offer our properties to viewers in 10 different languages!

However, “local expertise’ doesn’t just mean having been in business in Cayman for over 20 years. It means having the market knowledge to be able to price a property to allow it to sell. Listing prices for comparable properties are all over the map, as is the level of local real estate expertise. While reviewing the website of a competitor, we noticed that fully 40% of their inventory will likely never be built and/or simply won’t sell at anywhere near the asking prices! When your agent gives you a Comparative Market Analysis, it should not be the highest bid for a listing. Yet that’s what so many of them are and that is counter-productive for a seller and not good for the market either. Using an analogy from the construction industry, the Marketing Analysis and Marketing Plan for your property are the foundations of your sales effort. Make sure the one you base your pricing on is realistic.

NEW LISTINGS

At long last there are Commercial Lots available in a good location for business owners who want to build their own premises. There are 10 lots in Grand Harbour - ideal for businesses that prefer to store their inventory and run their retail business from the same location. At .6 - .8 acre in size, lots with Neighborhood Commercial zoning and reasonable pricing, these lots are perfect. Call for full details.

And speaking of listings, as a result of our sales success this year we are starting to run low on listings (in an oversupplied buyers market???). YES – so if you have a property you would like to sell, give us a call. We are ready, willing, and able to give your property the personalized service it deserves.

CRIME

With some violent incidents in Cayman recently, perhaps it is time to reflect on just what Cayman has that we can effectively sell to tourists to increase our stay over tourism numbers. Is it beaches or weather or good diving? No, plenty of other Caribbean countries have the same. How about English spoken and US Dollars tendered or proximity to the US? No, other countries nearby have those. But when we consider friendly people and minimal crime – then we can claim to be somewhat unique. In every poll taken by travelers the #1 issue of concern is always safety. That Cayman is becoming less safe there is no doubt. How long before we can call it unsafe? Effectively addressing this situation has got to remain Government’s #1 priority; no matter which Government is in power. That’s where our votes need to go in 2008. Keep your eyes open for candidates willing to make the hard choices and unpopular moves to ensure Cayman remains the safe place it has always been.

PASSPORTS

Finally the U.S. has admitted that its policy to require their traveling citizens to all have passports by now to travel to the Caribbean, was completely unrealistic. The bureaucracy could simply not handle the volume. As a result, they have relaxed the regulations to allow those who have applied for but not received their passports to travel anyway. With terrorism the threat it is today and the illegal immigration problems in the U.S. the new policy was understandable, just not well planned. This factor as much as any other has had a negative effect on our tourism numbers.

FISHING

Well the High Tax Jurisdictions are fishing again. This time it’s the USA rather than Germany and France. USA’s Government Accounting Office ("GAO") seems to be concerned over how many companies are incorporated through Ugland House. Thankfully previous Attorney General Ballantyne is long gone so any foreign agency is now unlikely to be given the keys to the city when they show up here. In fact the GAO has no agreement in place with Cayman to access information beyond what is a matter of public record.

But that actually doesn’t matter. Much of this interest in Cayman’s financial industry is drummed up by the media and writers of novels who think its cool to include the Caymans as the place where “the money is hidden”. People who do more than a novelists cursory research into our financial industry know that it is FAR easier for anyone to set up a bank account in the US than it is in Cayman. If anything, it has become a bureaucratic nuisance to even set up an account for utilities in this country, much less a bank account. We are hopeful that Cayman has had enough of being pushed around by other agenda laden countries and that the Cayman Islands Monetary Authority will send these uninformed US politicians a copy of our regulations followed by a polite but firm invitation from the Government for them to take their fishing expedition to another location, where they might actually catch something.

CRUISE SHIPS

Speaking of Tourism numbers, cruise ship numbers continue to climb and now even downtown merchants are saying the over crowding is hurting their businesses. How long have we been predicting this in our reports? Too long to remember! The overcrowding is not only in George Town but is all up and down West Bay Road. It is up to Government to reign in this craziness before it does lasting damage to our stay over tourism.

THE BY PASS

There is no doubt the by-pass has helped traffic flow on the West Bay Peninsula – up to a point. We are all aware that traffic problems will not be alleviated until the By-Pass is finished to West Bay proper. And we know that each phase or section of the By-Pass can only help to a degree. But how can you finish a section without providing a roundabout to handle the traffic merging back onto overcrowded West Bay Road??? That oversight has significantly and unnecessarily limited the effectiveness of the By-Pass. If, as expected, Government’s focus is now turning to the By-Pass East of George Town, West Bay and West Bay Road residents are now faced with years of congestion before the next Western phase is tackled. It is imperative that Government works some sort of deal with the adjacent landowner to the North of the Marriott Courtyard to create a roundabout at that junction.

STAFF

Since our last report we have added four new staff members. Jerry Arnold is our new Marketing and Sales Manager. He has worked in Cayman before and brings us a wealth of sales experience in the marketing industry. Stacey Kirkconnell, Tulsi Bodden, and Anthony Ebanks are our newest Sales Associates. Stacey has degrees in Law and Accounting and already has a number of sales under her belt. Tulsi has an extensive background in retail sales and you may recognize her from the Cayman Airways Television Commercials. Anthony has an engineering background and is the most energetic and enthusiastic member of our staff passing all 3 CIREBA courses in record time.

FORECAST

There are a variety of factors which would indicate a slowing of the market in general, not the least of which is: it’s the off-season! Therefore while we hope for no serious storms, either practically or metaphorically, we expect the normal slower summer pace or partly cloudy skies.