9 Reason Why Cayman Islands will NOT see a Huge Recession5/3/2020
We are in the same boat as you all are (granted some of us are in rowboats and others are in yachts), but we are all wondering about the future of the real estate market, and we do not have all the answers. However, because we eat and sleep data about real estate, we can shed some light on the matter by learning from the past.
The Great Recession of 2007 to 2011 was a scary time for a lot of people in the United States. The subprime mortgage crisis was a mess and many people lost everything they owned. Because The Cayman Islands are so closely connected, we felt the real effects, not until 2008/9.
This Covid-19 has is a World Wide health crisis that has slammed the door shut on the worldwide economy. This is different then we have ever experienced before.
Here are 9 things Our broker and License Partner Heidi Kiss at Engel & Volkers Cayman Islands feels about today’s housing market that was different in 2008.
When we look at appreciation, there’s a big difference between the six years before the housing crash and the most recent 6-year period of time. Leading up to the crash, we had much higher appreciation in this country than we see today. The highest level of appreciation most recently is below the lowest level we saw leading up to the crash. Prices have been rising lately, but not at the rate they were climbing back when we had runaway appreciation. In Cayman, we did have runaway rental rates. Frankly, the highest we have ever seen, it was all about supply and demand. There was a great demand because we had the highest number of work permit holders living on the island, and many of the rentals were taken out of long term rentals and put into Short Term vacation lets thanks to Airbnb and VRBO. We are seeing that since landlords will not enjoy the Airbnb and VRBO income, they have decided to take a long term tenant. Prices are going down a few hundred dollars but still steady. In the past 40 days as of May 4, there was been just 742 people leave the island to go their home countries. and 198 Caymanians have returned.
2. Mortgage Credit
In American, before the housing crash, you could easily buy a home with no income verification checks. The mortgage brokers of those times didn't care as long as they made tones of commission on writing the loan. Of course, Canada and Cayman Islands had a much stricter approach to financing and therefore didn't fare as badly. After the crash, lending standards tightened and have remained so up to today. A much healthier way of lending. Thank you to Scotia, Butterfield, Cayman National Bank, FCIB, and Fidelity.
3. Number of Homes for Sale
One of the factors of the housing crash in 2008 was an oversupply of homes for sale. Builders were building large development and they said, "build it and they will come" well they didn't and there were stuck with a lot of inventory that pushed the price down to recoup their costs. Today, it is different. In Cayman, we do not have enough homes on the market for the number of people who want to buy them. In the United States, there are less than 6 months of inventory, an undersupply of homes available for interested buyers. In Cayman, we have an undersupply still. True, we have a lot of new developers with the shovels in the ground. Still, according to our discussion with our Developers, our Advisors, and other CIREBA agents, no one is putting their projects on hold. Very few buyers are asking for their deposits back. The pre-construction product that Engel & Volkers, has sold, the majority of them are buying it to live in themselves. They bought at a reasonable price, and we won't see those low prices again. Those buyers who are renting will move out and free up that condo for a rental at a more reasonable rental cost.
4. Use of Home Equity
The good news is that a lot of people learned their lesson in 2008. They did not take the equity out of their house to buy that new fancy car, jewelry, or take exotic vacations. Today, purchasers are treating the equity in their homes much more carefully and are happy to have 40% or more in the equity. Also, in the Cayman Islands, typically most people do not have 5 or 6 credit cards.
5. "Cayman is a safe oasis in trouble and a chaotic world".
We have been affected just the same as everyone else and we respect our Government and our police force. We acknowledge that our Government is proactive and doing all they can to keep us safe. They are keen to get the economy going again but are rightly so, cautiously. Since we are an island we will be seen as a progressive, reasonable and safe place. Our friends, investors, and high net worth families want to come to Cayman.
6. Financial Services Sector
We have a varied and robust industry, unfortunately, our tourism sector is being affected. We will see the resilience of the Cayman people transitioning into another career or business. Our financial services are a very strong pillar to our economy, unlike other Caribbean nations that depend only on tourism.
7. DART has challenged the wealthy community to step up and match his US$ 1 million donations and if we go over that he will match it. DART has committed to $115 million in construction, this will help us thru. Our Government is allowing people to access their pension funds. It has been said around US$500 million in pension funds to be withdrawn and used on islands. As long as the pensioners use the money wisely, it will be a good thing.
8. No distress sales
As in 2008, there were a handful of "distress sale" but only a few, there might a few priced reduction and maybe a few distress sales in the next year, so if you have cash and are ready to buy, let one of our Advisors know so we can put you on our investor list.
9. Local Banks are lending, They see the importance of keeping the money flowing, rates are at al all-time low. Now is the time to get pre-approved and your financial house in order so once we are allowed to work in real estate, you can go shopping.