Is over supply on the horizon?

07 May 2018

This is one question that I’m being asked with increasing frequency by investors based overseas, as people take in the scale of development currently happening in Grand Cayman. In many cases people are referring more specifically to the new hotels planned for Seven Mile Beach and George Town, including the Four Seasons, the new Grand Hyatt and the existing developments such as the residences at the Kimpton Seafire. But I am also asked this question by the local market as well, as a large amount of activity is locally based when it comes to buying property off the Seven Mile Beach strip, in places such as West Bay, the Seven Mile Beach corridor opposite the beach and also South Sound and going further east.

This is quite a normal question that is asked when the real estate market is seen as buoyant and seriously active, especially when prices are moving up, a natural reaction to a succession of development projects and increased inventory. From my perspective I see it as a Catch 22 situation: do we have enough inventory or not enough? Ultimately not every prospective development actually gets built; however as far as Seven Mile Beach is concerned, everything scheduled for development gets built and then absorbed.

Understanding absorption

To understand the absorption rate one has to realise that the crucial element is the price point. Understand what the market can afford and then you can appreciate whether the market will be over saturated or not. As far as Seven Mile Beach is concerned, I have found that the absorption rate for properties at around the $3 million mark is between 15 and 18 units. Units priced at the $1.5 to $3 million rate will have a slightly higher absorption rate, therefore more units are likely to be sold at this price range. But the Seven Mile Beach price point continues to rise as we see a shift in the type of buyer looking to invest there, i.e. those in a position to afford higher prices. That is why properties that historically haven’t seen consistent appreciation are now seeing large increases in prices because there are fewer sellers and more buyers.

Elsewhere off Seven Mile Beach it’s a case of feast or famine, with prices controlled by the market itself and with consistent population growth the primary driver. The types of people coming to reside here in increasing numbers are generally professionals with the added benefit of all ages of retirees who have chosen the Cayman Islands as a place to reside and work from.

Moving forward

I believe the market is heading in a positive direction for the next three years at least, if not longer, even if there is negative news on a global scale. I believe that Cayman will remain resilient because our real estate industry is such a small and highly desirable market and often negative news abroad is a positive driver for our market, as investors find Cayman a safe place for growth.

Another factor that influences my reasoning behind a positive outlook is the fact that two enormous projects will be taking off in the near future: that of the Grand Hyatt and the Four Seasons, quite possibly requiring up to 1,800 staff between them. And these are just two projects coming online.

Where I would issue a word of caution is when it comes to timing from a local perspective in the short term, because there may be some over-reaction with the anticipation of new construction at the lower spectrum of the market, with multiple family developments in the planning stages. From a real estate perspective, not all growth in population equates to sales initially. People moving to Cayman do not buy straight away.

That said, Cayman is enjoying a rare moment in history that it might have only enjoyed perhaps two other times in the past – enjoying an extra strong market as a whole. There are still pockets which remain a challenge but generally it is still a sellers’ market and will be for the foreseeable future, so buyers need to be aware of this, take the leap and get into the market otherwise they may well be disappointed in time as the prices continue to move up.

James Bovell

James Bovell

Broker/Owner

+1 345 945 4000

[email protected]