Market Report - Mid Year 2006
REVIEW In our last report we predicted rising prices in mid to upper level properties due to short supply and a superheated economy.We also predicted a better than expected tourist season. |
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OUTLOOK As our recovery continues, all the indicators of market activity are not surprisingly - UP. Both in terms of numbers of sales and sales dollar volume the increase is approximately 70% over this month last year and about 60% higher than pre-Ivan levels. Year to date figures for # of sales are up 64% while the sales dollar volume is up a whopping 90% over last year but this year still lags a bit behind pre-Ivan annual figures. By years end we should be on par. Sales pending closing are also up indicating a continuing rise in near term sales volume. Obviously higher priced properties began selling strongly again during our Winter high season. This was a reflection of our Tourism being pretty strong under the circumstances. We have regained about 75% of the Tourism volume lost after Ivan and we would expect to reach or exceed the pre-Ivan totals next winter.
The only sobering statistic is the number and dollar volume of listings which are also up about 52% over last year and 45% higher than pre-Ivan levels. With all the construction going on that is hardly surprising, but this increase in supply will begin to effect pricing before too long. The rental market, which has been out of control since Ivan, has leveled off and begun to sag a bit.
RESIDENTIAL The detached home market looks flat by the statistical analysis but in actuality new highs have finally been set for canal front homes with a Crystal Harbour sale made by Carlene Alexander of Coldwell Banker Cayman Islands Realty at $365/sq. ft. Other homes in prime neighborhoods have also attracted record sales prices over the past six months. Cayman continues to attract people who want to live here and run offshore businesses, thus the continuing demand for residential property.
In the Condo sector the statistical analysis shows pricing up dramatically (129%!) no doubt the result of the impressive numbers of luxury pre construction units sold this season in Water's Edge, Beachcomber and Renaissance, etc. There are still a few units left in each project at the moment so if you have an interest, it's time to give us a call for full details. Brian Butler's newest: South Bay Beach Club has just come on the market on the site of Turtle Beach. Those beachfront 2 & 3 Bedroom units start as low as US$768,000. Call or email for more details. There are also numerous new inland developments happening, at more affordable levels so call us if these interest you.
HOTELS All the hotels are back open and doing very well except the Hyatt. Their insurance settlement has not been completed and the word is that it is going to be litigated. Meanwhile, the Ritz is experiencing a high percentage occupancy. There are still about a dozen of the 96 condo units left for sale, plus the resales some of which are better deals than the Developers units. We have two excellent beachfront listings, one a revenue producing PIP unit which allows 10 weeks owner usage each year and guarantees 35% of the gross revenue with a guarantee of US$155,000/yr. The owner of this unit pays no condo fees or further costs or any costs - ever! The other is a second floor beachfront 4 bedroom which is fully furnished and ready for residential use. Call us for more details. We understand the Marriott Beach Resort, which has done well since Ivan, is now under contract.
COMMERCIAL Strong cruise ship traffic together with expansion of the law firms and accounting firms has generated strong demand for downtown commercial property. Retail businesses have had a very good last 12 months and immediate prospects also look good. The results are increasing costs and increasing activity in George Town.
We also expect continued retail expansion in West Bay Road Commercial further fuelled by the spin off income created by the hurricane reconstruction process. All of a sudden we have a multitude of furniture and flooring centers to choose from. There is very strong activity in smaller commercial rental plazas and this continues to look strong for the future. Similarly, warehouse storage is another commercially viable sector still looking good. As we expect our tourism numbers to reach and finally exceed pre-Ivan levels next winter, we expect further commercial expansion to service those customers.
CONSTRUCTION & INFRASTRUCTURE Construction continues at a furious pace with lots of Commercial development along West Bay Road as well as the beachside Residential. Dart City (Camana Bay) is rapidly filling the skyline. The Planning Department is moving so slowly that one wonders if that is by design to try and slow Cayman down? Construction prices seem to be leveling off a bit now and that is a relief.
The Seaview Hotel, the site of many a memorable session for the serious drinking fraternity in the old days, was relieved of the embarrassment of falling down by being demolished recently. With the demolition of Victoria House (purchased by the Dart Foundation) right on the heels of Tarquynn Manor and Beachcomber, Cayman's landmarks are disappearing this year nearly as fast as we lost them after Ivan in 2004. Although redevelopment and seven storeys looks to be a continuing trend on Seven Mile Beach, we would not be surprised to see some of the nicer lower density three storey developments which have been upgraded and renovated become the most popular on the beach in the long run. Low density translates to greater privacy.
SISTER ISLANDS Sales of condominiums in Little Cayman have been quite strong so far this year. A higher number of people either living in Grand Cayman or who own property there are making the move to the quiet and tranquil setting Little Cayman has to offer. In the past it could be said that the vast majority of people looking to buy condos on the island were foreigners looking for the perfect island escape. The tide has started to change and those with Grand Cayman connections are seeing the present value and future potential of this sleepy little gem.
CAYMAN KAI Over the past 6-8 years Cayman Kai has been pretty quiet (aside from the sound of Rex Crighton's bull-dozers). That may be about to change. Recently Alexandra Calhoun of Coldwell Banker Cayman Islands Realty was involved in the sale of Ivory Kai Point (the western tip of Water Cay) 12 lots for approximately US$9.3M. The plan there is for a luxury condominium development - one of the few areas in Cayman Kai where that can be done. That should generate increased interest in the area, while removing a dozen lots from the market at the same time. We have a few lots still available on Water Cay Road which can be purchased for US$275,000 (and very possibly lower). This is a steal for Cayman Kai. Call for details.
LAND The Planning requirements for subdivisions are now causing potential developers to rethink what they can pay for the land. Lot prices have gone up significantly since Ivan due to strong demand, however; when one adds the increased costs of fill to the new height requirements we are pushing the envelope. The raw land can only command increased prices, if it is in a location where the retail lot sales can help absorb these higher costs. As a result we are not seeing higher prices achieved for potential inland development property in outlying areas.
Marina properties have been hot of late with both locals and expats purchasing and clearing existing inventory. Dart has purchased the soundfront land between Camana Bay and the Hyatt. This property is a mix of Commercial, Marine Commercial, Residential and Hotel. There are also rumours of interest in the adjacent Hyatt Britannia property but nothing confirmed in that regard.
It is not only Dart purchasing large properties. Stan Thomas who already has significant holdings on the North Side of Salt Creek, along Seven Mile Beach and in East End, is purchasing the Cayman Islands Yacht Club. That can only be good news for lot owners there, as the previous owner had not managed to make anything happen. There are only a few good lots left under $300,000 in the Yacht Club. Call us for specific details - but don't wait or you will surely be paying more.
BANKING Interest rates continue to rise and realtors are finding it harder and harder to get financing for our customers. Most banks have some "special financing programs" which sound inviting, but the sad fact is: few people qualify. Our advice is �· If you live elsewhere try to get a loan on your portfolio at home and pay cash when you buy here. Another alternative under current circumstances would be for customers to look for a bank that is willing to pre-qualify you for a mortgage before you make an offer on a property. Avoid wasting time or incurring costs on a deal that won't fly.
KUDOS The long awaited by-pass extension is underway and the base prep for the roadway is nearly done. Government is going to use a temporary chip and spray surface and hopes to have it open up to the Marriott Courtyard by the end of July. We would like to congratulate the current Government for making that a priority and getting it done. Traffic congestion has become a major problem for locals and tourists alike and we expect this new leg will ease traffic significantly, at least from the Marriott Courtyard South.
SPECIAL Government has announced its plan to raise Stamp Duty rates to help cover a shortfall in revenue. There are a number of different scenarios which apply only to first time Caymanian buyers, but in summary for everyone else, as of July 1st, Caymanians will pay 4%; non-Caymanians will pay 6% and anyone buying in George Town or along West Bay Road will pay 7.5%.
Years ago a law was passed to allow purchasers to pay Stamp Duty in advance on their contract rather than waiting for registration. This prepaying of Stamp Duty on contracts was introduced as a win/win situation. The purchaser of a residential lot who was buying on a time contract or a purchaser of a preconstruction condo could pay his Stamp Duty in advance thus limiting his tax liability to the contract price or assessed value at that time. The Government, on the other hand, would be receiving revenues years before they were actually due. A win/win right? That had been the case until recently when the Lands & Survey Department began to apply their right to reassess values for Stamp Duty to this prepayment situation. This is, of course, a response to Governments' call for each department to increase revenue, however, it flies in the face of fairness and ignores the spirit behind the law. Why would anyone want to give Government any tax money early unless there was some benefit to them? If Lands & Survey can require payment on a higher figure later, the incentive to prepay is removed. But what goes around comes around they say - so the result will likely be that going forward, prepayment of Stamp Duty will only ever happen when the Stamp Duty rates are being raised thereby eliminating for the most part a potential early source of revenue for Government in the future.
Also with regard to Lands Registry, the Purchasers, Island Lawyers and Realtors are having a very difficult time with getting Registrations done in a timely manner. That is because a significant number of Transfers are being returned with questions about furniture values, or sales values and invariably the customer is being charged more than he had budgeted after the fact. Customers are being asked to provide values for every individual piece of used furniture being claimed as a deduction. Sounds a bit like the IRS or inland revenue doesn't it?
What is being accomplished here? The cost of valuers time spent sending these packages back and forth probably cancels out any gain made on the reappraisal so the only real accomplishment is aggravating the very customers we are trying to encourage to buy here, while requiring their attorneys to spend more time pursuing totally unnecessary recurrent registrations (for which they then bill the customer). All this could and should be eliminated by agreeing a set % for furniture deductions on a standard transaction. This concept was used years ago under a different Registrar of Land and it worked very well. The only problem might be that it would eliminate the need for a lot of Lands & Survey salaried valuers. So what was that downside again?
FORECAST Due to the raising of Stamp Duty we expect a flurry of activity to try to get closings for foreigners done prior to July. For similar reasons, we expect local purchasers to buy later in the summer. As the weather gets hotter and memories of Ivan resurface we expect a slowing of the sales pace which is normal during the traditionally slower/hotter months. If we make it through the summer without any significant storms we will be poised for what promises to be our best sales and tourism season ever. So look for continued clearing skies over the next few months. |
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