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2012 - Mid-Year

Market Report 
Mid Year 2012 
An honest appraisal of the Cayman marketplace

Review

We reported improvement in market activity in 2011. We predicted that further improvement in the Real Estate sector would be based on the progress of local Cayman projects but suggested that progress in that arena would likely be slower than hoped. We predicted worsening economic conditions worldwide would dampen positive economic progress. We expected 2012 to be similar to 2011.

General Outlook
Indeed, all the negative comments in our year-end report were borne out: world economic conditions are worsening – especially in Europe, and local projects have not really commenced (aside from work on the West Bay Road bypass). And after a brief early flurry the YTD Real Estate figures are trending lower than 2011. CIREBA stats show year to date sales volume figures down 12% compared to 2011 with monetary value down by 20%. However, over the past 2 years there has been a lot of “non-retail” sales activity particularly with regard to Dart. For example CIREBA sales showed US$323M in sales spread over 467 transactions in 2011 but would not include the big Stan Thomas purchase by Dart which adds US$114M and another +/- 40 properties traded. In 2012 Dart has also purchased another large industrial tract at US$15.5M which would add another 13% on to YTD 2012 figures. In short, there has been much more sales activity than one might think. At Coldwell Banker we are seeing a lot more activity, and sometimes, more than the figures, it is the feel for the market from the professionals that tells us the most.

The expected Political pump priming is beginning to happen in the US. President Obama’s poll numbers reflect an increasing discontent with his policies and as a result spending by the Democrats will surely increase, as will Republican, in the run up to the elections in the US. How continued printing of dollars and deficit spending by the US Government cannot be worrying to the American electorate in the face of what is happening in Europe is a mystery, with the only explanation being a complete lack of understanding of economic principles combined with a whitewash by the mainstream media.

With regard to specific Cayman market sectors, the Residential housing market is down 5% in number of properties sold YTD at about the same dollar volume levels but marketing time has increased by 20%. This market sector which has led the way for several years has slowed. So many good properties were snapped up that the options are much more limited now.

In the Condo Market we find the number of sales up 2%, but the value of condo sales is down 6% and marketing time has also increased – by 15%. There have been exceptions to this with some slightly improved activity on 7 Mile, but sellers are still being very careful about buying in general, and as a result sales are quite slow even though the showing activity has definitely improved.

If you are looking for a Real Deal in a luxury condo on 7 Mile Beach, the creditors have pulled the plug on the developers of Sea Breeze in preparation for Auction later this year. Contact us to register interest and we will keep you posted.

Watercolours, where construction is now approaching the 7th storey, continues to impress and appeal to those in the upper end of our 7 Mile condo market. Five more sales have now been booked bringing the project to about 35% sold. We have listings in this spectacular project. Please call for updated information. There are also a few units still left at Brian Butler’s Renaissance development as well.

In the Commercial Markets, Coldwell Banker’s sale of the Piccadilly Building was a bright spot. The building was purchased for US$6,750,000 virtually empty and the new owner is now offering very generous lease terms and parking to fill it. There is a real opportunity here for a business looking to relocate and lower its overhead. Naming rights are also available. Give us a call for full details.

The Raw Land Market is full of offerings which has the effect of keeping the lid on prices. At the same time, land is a maintenance free investment and in speaking to land developers it appears the cost to subdivide and service new developments is now so high that it is not worth doing based on current sales levels. This ensures no further market supply until prices rise. This is a very good safety net for those considering a lot purchase.

One notable available land tract is a half acre South Sound beachfront parcel near the rugby club – recently cleared and fenced which can be purchased for US$849,000 – and maybe less. The last sale in the area was at US$980,000 so this is a deal in a location sure to return eventually to previous highs of US$1,250,000. Call for a map and spec sheet or drive by and look for our sign.

In terms of businesses, The Cayman Auto Spa is on the market. This is a virtual monopoly on the automated car wash business. The Godfrey Nixon Way location is a cash cow and the new Red Bay location has even more potential in the long run. Just reduced by US$500,000! We also have one of Cayman’s premier retail/dive shops for sale. Divers World has long been Cayman’s Hallmark. The owners of both properties are willing to give a buyer a good deal and will provide transition management. Give us a call for full details.

Let’s briefly review the progress made in the all important Cayman projects:

Dart – There are many facets of the deal agreed by Dart and the Cayman Islands Government but November 2011 UK Legislation requires an independent review of the deal. The initial version of that review (by PWC) is now done. As with any extra layer of bureaucracy (UK involvement) – time has been wasted. It is hoped that perhaps as soon as this month the deal will be approved and we will finally see some real action. Within the nine big projects or about $283M of shovel ready projects, there would be $50M direct investment and 774 jobs over the next 6 months says Dart CEO Mark Van Develde. (See Alan Markoff’s excellent article on page 17 of the July 2012 Cayman Islands Journal).

Cayman Enterprise City – This project is about four months behind schedule. An 18,000 sq. ft. building is planned for its home in Savannah (believed to be on the road to Pedro Castle although not yet announced at the time of this writing). Apparently there are 10 companies committed to participate and about twice again that number in the pipeline. There is no Western Hemispheric competitor in this arena and so the tax, import duty and work permit exceptions will likely be found to be very attractive. And the streamlined time frames will be an important draw. Keep in mind these concessions are for offshore businesses only and concentrate on the following six sectors: Information technology, media, derivatives, commodities, biotechnology and outsourcing.

George Town Cruise Ship Terminal – Due to some early missteps in the process for choosing a contractor, this process has been long and drawn out. Subsequently, old charges about the World Bank having blacklisted the China Harbour Engineering Company’s parent company CRBC have not helped matters. While the deal has apparently not been made yet, Government says China Harbour is the only company to offer terms that “would enable it to attain realistic value for the leveraging of its assets”. Final agreements have not been signed so it is impossible to suggest a timeline at this stage.

Shetty Hospital – The first phase of the Shetty Hospital (200 beds) will commence construction before years end. This will be an important step as it will begin to establish a medical tourism leg of our economy. And with the recent Supreme Court decision on ObamaCare there may well be more interest in offshore medical care.

Golf – Whew! A sigh of relief is being breathed by the islands’ golfers and the Cayman Tourism industry as it was just announced that Dart has bought into the North Sound Club. This is great news as it means an influx of Capital for improvements, and more importantly, a guarantee that Cayman will have an 18-hole public golf facility going forward. Mike Ryan will retain some ownership but the course will not become part of the Ritz.

Coldwell Banker Management Conference
Partners JC Calhoun & Allen Bloomrosen held their annual Management Conference for all the Coldwell Banker Franchises in the Caribbean recently on Virgin Gorda in the British Virgin Islands. Guest speakers included Mr. Jim Gillespie CEO of Coldwell Banker and Mr. Budge Husky President and COO of Coldwell Banker. Theirs was a very positive message. Based on the first half of 2012 the projection by the National Association of Realtors for the US in 2012 is an increase of 9% in sales volume and 1.2% in prices!

Also, according to NAR, in 2011 both closed deals and average prices were up about 7% with rental rates rising 3-5% making it now cheaper to buy than rent in the US.

But on the other side of the coin, the unemployment numbers are still not good especially if traditional accounting is used ie 22.5%! And with a huge and increasing number of people getting Government assistance of some description, these both will be a major drag on any recovery.

Wall Street Journal/Real Trends reported Real Estate sales volume worldwide in 2011 and shows Coldwell Banker to be US$123B as compared to US$60B for Prudential, US$50B for Keller Williams, and US$47B for Re/Max. In terms of Training, Coldwell Banker ranks #9 among all companies (even above the US Navy), and 1st in Real Estate followed by Keller Williams at 73 and Re/Max at 108.

Local Economic Indicators
The bad news is Tourism figures for last year were down overall 9.3% but that was based only on slow cruise traffic. The good news is that air arrivals grew by 7.2% in 2011. This is the bread and butter of the Real Estate Industry as well as many other spin off industries. Thus far in 2012 we are seeing a 2.2% increase over 2011 with the largest increases being from the Midwest USA, and Continental Europe.

The local population is also rising with the 2011 figures being 55,517.

The GDP in Cayman grew slightly (1.1%) in 2011 but coming on the heels of 3 years of declines that is good news!

All these indicators are positives for Cayman and suggest continuing improvement overall.

Combining the US and Cayman data it looks like the market may have bottomed. Historically, Cayman lags about 6 months behind the US and follows in its footsteps. This would indicate that the period between now and years end may be the best possible time to buy and the last chance to get into the market before it begins to rise. Of course, the results of the US elections will play a part as well as how Europe deals with its current economic crisis, but we are starting to see light at the end of the tunnel.

Development Possibilities
Dart continues to plow ahead with its various projects and the spin-off business for this has been critically important to the Cayman economy over the last 5 years. But we may soon see other developers picking up some of the superb land tracts available in Cayman. With significant local activity moving eastward, land parcels like the 530 acres in Colliers with 1,750 ft. of beachfront, or the 34 acres in Queen’s Highway with 3,000 ft. of beach, or the 19 acres at Barefoot Beach with 1,950 ft. of beach, or the 6 acres in Pease Bay with 550 ft. of beach, or the 6 Commercial acres right next to the Ritz which has just been reduced by US$5.5M(!), all listed with Coldwell Banker, provide extraordinary development opportunities.

Rollover
It looks like the work permit period prior to “Rollover” will be extended to 10 years. This is a good thing for Real Estate as it means residents are more likely to buy rather than rent if they have 10 years to recoup their investment.

CILLA
The Cayman Islands Little League just finished its 23rd successful season, this year under the chairmanship of Mr. Paul Gallagher. As a sponsor of the league for all of those 23 years Coldwell Banker would like to congratulate the Board and thank all the volunteers for their continued community service.

Staff
We would like to welcome Kirk Foster and Rollin Jackson to the Coldwell Banker fold. Kirk is Don Foster’s son and after a successful stint in Food & Beverage he has decided to make a career in Real Estate. Kirk has already made a couple of sales and has shown himself to be a very fast study with an eye for details. His listings also get the benefit of his 360° virtual tours which are beautifully done and a great sales tool. Rollin, in his trademark fedora, has been a fixture in the tour business in Cayman for 30 years and he has decided it is time to work in a related business and take advantage of all those contacts he has made. Rollin truly knows the meaning of “service” so be prepared for a very good experience when working with either of our newest agents at Coldwell Banker.

Forecast
NAR is projecting as much as a 10% rise in home prices next year unless too much new supply is built. In Cayman which typically lags 6 months behind, while waiting for the US market to show continuing strength and for our local projects to come out of the ground, we will see a few more months of mediocre but slowly improving activity. Prices will begin to firm and supply which as been static over the past 12 months will begin to shrink. We see prices beginning to rise in conjunction with our upcoming Winter Season although price increases and recovery will likely be “stair stepped”. If you have been considering a purchase, your leverage may soon be gone. It is time to make your move. Meteorologically speaking then, we see continued partly cloudy skies in our near term with clearing expected around Christmas.