Mark Gaus on What’s Next for Real Estate in the Cayman Islands
By Alexander Britell, Editor-in-Chief, CJI
It’s hard to imagine that there was a hotter real estate market in the Caribbean in recent years, with surging development from beachfront condos to residential resorts. So what’s next for Cayman in the midst of the pandemic? To learn more, we talked to one of Cayman’s leading realtors, RE/MAX Cayman Islands Sales Associate Mark Gaus about the destination’s real estate foundation, his post-COVID-19 outlook and why he’s still bullish on the future of real estate in the Cayman Islands.
What has the state of real estate in Cayman been leading up to this point? It seems like there’s been a development boom.
The Cayman Islands Economy and Real Estate Market has been extremely strong and growing for at least the past three to five years. I have been using the phase that ‘Cayman is in our Golden Age.’ There were numerous factors why Cayman was experiencing this type of prosperity. Yes, the Global Economy and US Economy was strong but there were many “Cayman Specific” reasons which include: in 2017 when many of the other islands in the Caribbean were hit with devastating hurricanes, Cayman was not affected so tourist flocked here allowing our tourism industry to see record breaking numbers. With this we have around 6 large scale new hotels underway, two noteworthy examples are The Grand Hyatt and The Hyatt Curio, RE/MAX Cayman Islands is the Listing Agents for both. On average we have seen a 20-30% capital appreciation of properties in the last three years, this was due to the fact that we were in a robust Seller’s Market with massive demand from Buyers and very limited inventory on the market especially in the most sought after segment of the market which is 1-3 bedroom condos from US$350K to US$550K in the high demand areas from West Bay to South Sound. To satisfy this demand there has been an abundance of new construction projects with our Construction Industry growing around 10% YOY. Other important factors leading to our success include Cayman Enterprise City (Special Economic Zone), Health City (Medical Tourism), and continuous investment from DART who is the developer of our extremely popular city center, Camana Bay.
What makes Cayman such a favorable real estate destination?
The Cayman Islands is unlike any other island in our region. Besides being the safest and wealthiest island where residents experience a very high standard of living, there are many structural factors to making Cayman Real Estate a wise investment. About 98% of our land is Freehold, so you actually own the land as opposed to Leasehold land where the Government is the true owner. Speaking about our Government we have a very stable, effective and fiscally conservative Government which instills trust. The Cayman Islands Government guarantees the Title of your Land. I am also a believer that wherever there are good, high paying jobs then the real estate is also desirable in those locations, with that being said we have excellent jobs in our tourism and financial services industries. It is a common saying that an individual comes to work here for two years and they end up staying twenty years.
How do you see the COVID pandemic affecting real estate in Cayman now?
The COVID-19 Pandemic will have a large impact on Cayman like it will on the whole world however I believe Cayman is primed to withstand and come out just as strong when it is over. There is nothing structurally wrong with our economy — before this Cayman was in its Golden Age. Sale prices rose upwards of 40 percent over the last three years and the starting price of a 2 bedroom condo was around US$400K and there was extremely low inventory, we were in an extreme seller’s market.
As for our overall economy, there are a great number of very positive things happening in Cayman, large scale projects throughout all sectors that will still be here when this crisis is over. Before COVID-19 our real estate market was honestly almost too strong and too hot. As earlier stated prices were getting quite high and affordable housing was difficult to find. One important factor to remember with Cayman is that we are not just a tourism based economy – Tourism is about 40%, Financial Services is about 40%, Real Estate is 10% and Local Business is about 10%. Due to our high standard of living, safety, good infrastructure, stable Government and quality healthcare, and of course Financial Services jobs, we have a lot of wealthy people who live in Grand Cayman so our local economy is very strong. In the short and medium term I see rental prices decreasing (as some tourism based expat employees will return to their home country) and sale prices decreasing (some people may want cash or could have issues paying their mortgage) however in the long run I see our market bouncing back in a short year.
Will it change the underlying fundamentals of what seems to be a strong real estate climate?
Absolutely not, there will be no fundamental changes to the structure of our market or solid demand for our real estate. In the near future, I do see rental prices decreasing (due to some individuals in the tourism industry going back to their home countries) and there may be some more inventory on the market but both would be welcome signs. Our rental and sales prices have been elevated so some price stabilization and reduction would not be a bad thing, I liken it to the stock market slightly decreasing after three years of record gains. I am also hopeful more properties will come on the market, again there has been such little inventory in our most high demand segments that more properties will allow more people to get into the market of ownership.
Do you see opportunities emerging for buyers or sellers as a result of this situation?
Due to the COVID – 19 Pandemic I do see opportunities for buyers as I believe prices will decrease between 15-20% and I also believe more inventory of properties will come on the market. I always like to view a market by segment and the two segments that I see the biggest opportunities are residential properties between US$350K and US$700K as well as land parcels between US$200K and US$500K. The reason for the change in the sector of residential properties is that rental rates and demand may fall so the owners may not be able to hold onto the property and my rationale for the land parcels going on sale is because most sellers will not have excess cash or be willing to take on large projects like building a home or multi-family complex. I do not see many new opportunities for sellers as they were just in a great market for the last 3 years and now buyers may be able to have their chance. I do see these price reductions being short-lived (about 6 months), I believe our demand will still be strong as our Islands have so many great things happening.
We’ve seen certain projects around the Caribbean using special amenities or incentives to lure buyers right now – is that something you see on the way in Cayman?
In our new residential and resort projects they are always competing with each other to see who will have the better amenities and features. Within some of our most luxurious properties like WaterColours, FIN and WaterMark the complexes offer amenities such as car service with a driver, separate guest suites, private boat usage and even on-site high end Spa and 5-Star Restaurants. These projects have not had a need to offer incentives for buyers as our demand has been so robust. Our Government has been adjusting our Stamp Duty which is our one time property tax of 7.5 percent which is due at closing. The Government has mainly been reducing it for certain buyer types and price points to assist with affordable housing however I have been watching if they would reduce the standard 7.5% to help spur on demand during these uncertain times.
Obviously much depends on how soon we can all get the situation under control, but do you have an outlook for the industry going forward?
In one year from now I believe Cayman will be in a very similar position as it was before this crisis. Prices and demand will temporarily dip but then it will come back up. Cayman is an extremely safe place to invest and there are a lot of wealthy individuals here who will not let the prices fall too much as they will be quickly purchased, which will then bring the prices back up. There are so many large scale projects going on in all segments of our economy, not just tourism. Cayman has a diversified economy so we are able to withstand all storms.
Anything else to add?
The Cayman Islands continues to be a wealthy, safe and wonderful place to live, work, vacation, raise a family and invest! Our Government is strong and stable (and doing an outstanding job handling this Pandemic, I have not given them enough credit in this article), our infrastructure is excellent and improving every day, our healthcare is great, crime is very low – Cayman is a wonderful place to live and I am so blessed to call it home.