Cayman Islands' housing market is gaining momentum
Last Updated: November 28, 2015
During the first ten months of 2015, the average value of freehold property transfers rose by 11% to KYD329,702 (US$402,076) over the same period last year, based on figures from the Lands & Survey Department. This was in sharp contrast to the 9.5% y-o-y decline in the average value of property transfers in 2014.
In Q2 2015, residential property prices in the Cayman Islands range from KYD287,000 (US$350,000) to KYD9.84 million (US$12 million), based on figures from CIREBA, the largest property portal in Cayman Islands. In other areas, prices are lower, ranging from KYD100,000 (US$122,000) to KYD2 million (US$2.44 million) over the same period.
Growth is centred along Seven Mile Beach for condominiums, and Cayman Kai, on the island’s north, for single-family homes. The most expensive housing are along Seven Mile Beach, a coral-sand beach located on the western end of Grand Cayman island, where property prices can reach as high as KYD1,066 (US$1,300) per square foot (sq. ft.).
In the Watercolours Residences, a newly completed residential complex located on the Seven Mile Beach and the highest residential building in the Cayman Islands with 60 apartments, three- and four-bedroom units measuring 3,700 sq. ft. are priced from KYD3,198,000 (US$3,900,000).
Residential construction activity is also picking up, thanks to increasing foreign investors. A sports and real estate development was planned on a 600-acre of land in the eastern district of Grand Cayman. The development is expected to build a world-class golf course and to offer freehold apartments, villas, and land plots starting from KYD205,000 (US$250,000).
During the past decade, the movement of the average value of property transfers has been erratic. This can be attributed to large-scale acquisitions made by some property developers in a particular period, which create distortions in the property market. For an instance in 2011, Dart Group made significant acquisitions, which represented about 28% of the total value of all the property transfers for that year.
Rental incomes in Cayman Islands ï¿½ good rental yields, ranging from around 5% to 8.2 %
In Cayman Islands, rental returns can be surprisingly good. Condominium costs on 7 Mile Beach vary in a wide range, with prices from about US$4,000 to US$11,000 per square metre (sq. m.), and some super-luxury large condos hitting amazingly really high per sq. m. prices.
The expected rental income from the smaller properties (120 sq. m and 200 sq. m.) is now about US$3,000 to US$4,500 monthly. This means average rental yields of approximately 5% to 7%, which is not bad.
Our property sample for larger condos was too small to give an accurate picture of rental incomes for this property category.
In general, prices have been firm. The average price of condos in the Cayman Islands at the time of our 2012 survey was US$4,242 per sq. m. - just a bit higher than last yearï¿½s US$4,041 per sq. m..
Rental yields in the other beach communities in Grand Cayman were even better. Properties are less expensive, at about US$2,000 to US$3,000 per square metre, but the expected rental income from these properties is about US$1,000 to US$3,000, giving rental yields of from 7.48% to 8.17%.
In the Cayman Islands, really large properties are less attractive in income terms, with much lower rental yields.
We were surprised by the generous rental yields on smaller and medium-sized condos. But in recent years, high yields have been normal in the Cayman Islands.
Absolute tax freedom in the Cayman Islands
The Cayman Islands is a no tax jurisdiction. There are no income taxes and capital gains taxes in the Cayman Islands.
Stamp duties are levied on lease contracts and transfers of properties.
Rental Income: Owners leasing properties to tourists are liable pay to tourist accommodation tax a levied at 10% on the gross rent without any deductions.
Buying costs are high in Cayman Islands
Roundtrip transaction costs are around 13.50% to 20.50% of the property's value. The buyer pays the 7.5% stamp duty. The real estate agent’s commission is around 5% to 10% of the property's value, and is usually paid by the seller.
The law is pro-landlord in Cayman Islands
Rent: Rents and rent increases can be freely negotiated. Landlord power is strong. Landlords can (in practice rather than strict law) increase rents in mid-lease, and impose surcharges for late rents.
Tenant Eviction: There are no specific legal provisions regarding rental contract termination. Landlords often give tenants notice a few days before contract expiry. Using formal legal channels, it takes an average of 180 days to evict a tenant.
Weak economic growthThe Cayman Islands is one of the most affluent countries in the Caribbean. Thanks to its twin pillars of development namely, tourism and international finance, this British overseas territory enjoyed average real GDP growth of 3.1% annually from 1998 to 2007. The country is the world’s sixth largest banking center. “Cayman is a First World country in the Caribbean with a large international business community and well developed, diverse facilities including hospitals, schools, golf courses and hotels,” says Charles Weston-Baker of Savills.
From 2008 to 2010, the spillover effects of the global financial meltdown caused real GDP to fall by 7% in 2009 and another 2.7% in 2010. The economy finally recovered in 2011, with a real GDP growth rate of 1.2%. In 2014, the economy grew by 2.1%, after expanding by 1.4% in 2013, and 1.2% in 2012, according to the Economics and Statistics Office (ESO). The economy is expected to continue growing modestly this year.
In 2014, the total value of merchandise imports rose by 5% to KYD813.3 million (US$991.8 million) from the previous year. In Q1 2015, merchandise imports fell slightly by 0.9% from the same period last year.
The country’s overall inflation rate slowed to 1.3% in 2014 from 2.2% in 2013, mainly due to falls in imputed rentals for owner-occupied housing and the average cost of utilities, according to the ESO. Then in June 2015, consumer prices actually dropped 3.6% from the same period last year.
In September 2015, nationwide unemployment rate stood at 5.6%, from 4.7% in 2014, 6.3% in 2013, 6.2% in 2012, and 6.3% in 2011, according to the ESO.