Cayman Islands' housing market robust, with good yields, and limited supply
Lalaine C. Delmendo | December 06, 2019
“We are into unchartered territory in the property market,” said Simon Watson of Charterland. “The market has recovered from the downturn of 2010 and is now way beyond the previous peak.”
Growth is centered along Seven Mile Beach for condominiums, and Cayman Kai, on the island's north, for single-family homes. The most expensive housing is along Seven Mile Beach, a coral-sand beach on the western end of Grand Cayman island. Property prices can reach as high as KYD1,500 (US$1,800) per square foot (sq. ft.). Prices surged 33% in 2018.
- At The Pinnacle, a luxury beachfront development on Seven Mile Beach, the average condominium sales price was KYD2.37 million (US$2.82 million) in 2018, up 25%, according to Charterland, Ltd;
- At the Regal Beach Club, a beachfront condominium development of 57 units on Seven Mile Beach, the average sales price rose in 2018 by 19% to KYD951,300 (US$1.13 million).
- At George Town Villas, another Seven Mile Beach seafront development of 60 condo units, sales prices increased 28% y-o-y to KYD655,500 (US$780,300).
- In George Town's Garden, Coco, Mystic and Sunset Retreat, two-bedroom inland townhouses' prices rose 21% to about KYD247,400 (US$294,600) in 2018.
In 2018 property transfers on the open market were up 9% to 857, the highest level since 2005, according to Charterland, Ltd, with transaction values up 17.8% to KYD800 million (US$962.3 million). However in the first nine months of 2019, freehold property transfers fell both in number and value by 8.3% and 11.4%, respectively, due to limited supply.
Residential construction is falling. In Grand Cayman, residential building permits fell by 10% in 2018 from a year earlier. The total value of permits for houses was down by 13.3% and by 4.3% for apartments and condominium units. Likewise, approved applications fell by 15% to KYD 286.65 million (US$344.8 million) in 2018.
During the past decade, the movement of the average value of property transfers has been erratic because large-scale acquisitions by property developers distorted the market. For instance in 2011, Dart Group made significant acquisitions representing about 28% of the total value of all property transfers.
There are no restrictions on foreign ownership of property in the islands. The absence of taxes and restrictions on foreign ownership of land makes investing in the Cayman Islands very attractive.
Rental incomes in Cayman Islands - 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.
Modest economic growth, falling unemploymentThe Cayman Islands is one of the most affluent countries in the Caribbean. Thanks to its twin pillars of development, 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%. However economic growth has been modest since then. Economic growth averaged 2.4% from 2012 to 2017.
In 2018, the economy grew by 3.3%, up from the prior year’s 3% growth and the highest expansion since 2006, according to the Economics and Statistics Office (ESO).
Tourism accounts for around 30% of the islands’ GDP. Tourist visits from the United States and Canada continue to increase. In 2018, total visitor arrivals rose by 11% y-o-y to a record 2.38 million people, according to the Cayman Islands' Department of Tourism.
During the first three quarters of 2019, stay-over visitors rose by 10.3% to 386,290 tourists from the same period last year. Over the same period, cruise arrivals fell by 5.9% to 1,332,159 tourists. The United States accounted for more than 84% of all stay-over arrivals in Cayman Islands during the period.
In Q1 2019, nationwide inflation rate stood at 4.5%, up from 1.7% in the previous quarter and 3.2% a year ago, according to ESO.
Unemployment was 2.8% in 2018, sharply down from 4.9% in 2017 and the lowest level since 2006.