In these last few weeks we’ve seen a significant uptick in new buyers, both locally and internationally, wanting to invest in their own piece of Cayman. They may be keen to get their feet wet, but many are unfamiliar with buying property in the Cayman Islands and most importantly what to expect when it comes to their bank financing options. It’s so important for new buyers to educate themselves on what their options are and what they “qualify” for before they start to look at properties. This ensures there is no guessing on what they can afford, what they may or may not be entitled to, and guarantee a smooth Closing process when they fall in love with a property and make an Offer. Senior Manager of Personal lending at Butterfield Bank (Cayman) Limited, Amanda Bodden, was kind enough to answer some of the most common questions we are asked at Property Cayman.
If you have any additional questions don’t hesitate to reach out to us to learn more. If we don’t know the answer, we will ensure you are connected with the right person to give you the facts ahead of making one of the biggest decisions in your lifetime – buying a property!
Q. How do the bank’s loan terms vary when buying a primary home, investment property & raw land?
The risk profile of an owner-occupied property mortgage is different than that of an investment property or raw land. A person’s primary residence represents a lower lending risk than an investment property which may become less profitable or even loss-making, or raw land which would not provide any income to offset its borrowing costs. Because of this, banks will generally require higher down payments and/or shorter repayment terms on investment properties or raw land than they would for your primary residence. You may also see higher interest rates charged for investment properties and raw land to reflect the higher risk lending.
Q. How do terms vary depending on the borrower’s age?
Typically, most banks in Cayman will lend up to age 65, which is the local retirement age. The borrower’s age will therefore be a factor that determines the maximum repayment term. Where a borrower does not have a mandated retirement age (for example, self-employed individuals) we are able to be a bit more flexible on the repayment term of a mortgage. As lenders we must understand the repayment source and verify that it is reasonably going to be available to service the debt over the agreed term. Lending to age 65 is not a strict policy, but it is important for us to understand when and how a mortgage will be repaid when we consider lending beyond retirement age.
Q. What if any are the differences in lending policy & immigration status?
At Butterfield, our lending policy is the same for Caymanians, PR Status holders, RERC and work permit holders. We do not have different policies; we have one local resident policy that covers everyone. Our non-resident policy differs in that we will require a higher down payment and likely a shorter repayment term.
Q. What if any are the benefits of paying your mortgage bi-monthly instead of monthly?
Paying bi-weekly accelerates your mortgage repayment. If you pay half of your normal monthly payment every two weeks you will essentially make 13 payments each year instead of 12. On a longer-term debt this can save quite a bit of interest and repay the debt earlier. At Butterfield we offer weekly, bi-weekly, and monthly payment options.
*The responses to these questions are specific to Butterfield Bank (Cayman) Limited and do not represent the opinions/ lending policies of other banks. Buyers are free to use any lender of their choosing when buying a property.
Photo credit: Courtney Platt | www.courtneyplatt.com
We all seem to have a love/hate relationship with COVID-19 related news. We love the camaraderie, hate the negativity. Love the creativity, hate the dramatics. As another week in lock down passes, we feel that the dust has settled enough for us to take a look at the data and numbers and provide you all with a meaningful, factual, un-sensationalised statistical review of the Cayman real estate market. Our analysis covers how COVID-19 has been a catalyst to the changes we are seeing and those we anticipate looking forward.
Whilst there is undoubtedly a ‘COVID-Confidence-Crisis’, the true value in real estate is its long-term stability.
Whilst there are short-term tactics that we can employ, our advice and guidance remain the same….this storm too shall pass. We will get to more of that in a moment, but first lets deep dive into facts & figures…
(All figures are in US$ and data is as of 28th April 2020)
1438 active CIREBA listings: 749 Condos ($39,000 – $8,500,000) 234 Homes ($170,000 – $39,900,000) 431 Land ($26,000 – $10,800,000) 24 Commercial ($18,000 – $31,500,000)
Compared to Q1 of 2019, this active listing count has only decreased by 3.8% for the same period. Now having said that, bear in mind that April and May are the final and slightly slower months of high season so the impact isn’t as it would have been if the pandemic unfolded in October instead. Overall, we maintained a strong market until the ‘COVID-Confidence-Crisis’ prematurely ended our 5-year momentum.
Looking forward we can expect a gradual increase in supply to as much as 2,000 – 2,500 by the end of the year. Changes in employment, income and lack of tourist rentals will attribute to reasons why properties will come to market. Whilst each sector will react differently at different stages, we can expect investment apartments and condos to come to market from early summer onwards.
Equally, life continues. There will be marriages and babies born (watch out for the ‘Coronial’ generation in 9 months), new jobs, returning residents, graduating students and new opportunities will saturate some of the anticipated surge in supply. We should acknowledge some recent and very sizeable sales in CIREBA, ($18M development land,$14m private home, US$7m vacation home and on and on) demonstrating that despite this ‘blip’ there are a number of property investors still 100% interested in Cayman. They can see past the short term disruption.
For the time being, sellers are standing firm on their asking prices and buyers are not (yet) confident enough to enter the market. The resulting effect couldsee us return to a buyer’s market with new supply, decreased demand and consequently a decrease in values. By how much? Well, not as much as you’d like to think...
The Foreclosure Forecast – It’s not what you might expect.
The 2008/9 Great Recession was a lesson learned and this time around, banks have promptly activated a 3-month mortgage holiday. Thus, protecting their clients and ultimately safeguarding all property values. This has relieved a tremendous amount of pressure and bought time for the storm to pass us by.
Furthermore, banks will make every effort to avoid foreclosing on their clients to the extent that after the mortgage holiday you can expect their willingness to consider case by case payment plans moving forward.
With all this said we aren’t expecting a flood of foreclosures and if they do foreclose, we don’t expect to see this until the beginning of 2021. At that stage the courts set a precedence in that foreclosed property values must remain comparable. So, you can’t expect steals and deals.Overall, it’s good news for the individual, the banks and the market place!
This is an impressive 516 different transactions under contract at various stages in the selling cycle. 62% of these contracts are Pending/Condition (conditions still to be waived). This high figure reflects the numerous pre-construction contracts yet to complete. Despite a plethora of pressures, we anticipate the majority of these to complete unhitched.
At the time of writing, CIREBA is surveying all banks, so stay in touch with us for a comprehensive summary of all bank offerings. In a nut shell,Banks are still lending. What is evident is that they will review applications with a little more caution to mitigate their exposure. This helps applicants ensure they aren’t over-extending themselves. Meanwhile, the prudent investor with access to capital will see through this and use it to their advantage.
March and April saw a significant decline in new sales contracts due to the lockdown restrictions. The knock-on effect of this in Q2 and Q3 will be a reduced number of actual closings with sustained, potentially increased inventory. The irony is that we are still closing with attorneys and Government departments more efficiently than ever before.
Additionally, some buyers’ ROI expectations have been deflated to levels where they are now considering their options and may withdraw from a potential purchase. What buyers need to be aware of is in a graph further down in this report. Housing prices in Cayman have not fluctuated that much over the past 20 years, even during similar economic downturns. As we mentioned earlier, real estate is a stable investment and whether you chose to buy, sell or hold firm, you need to fully consider the short, medium and long term.
246 Listings on and along the Seven Mile Beach Corridor:
178 Condos (US$125K – $8M) 43 Homes (US$900K – $17M) 16 Land (US$290K – $2.6M) 9 Commercial (US$180K – $6.3M)
This is a relatively low number of options along the world-famous SMB corridor. Demand has suddenly disappeared with closed borders and a nonexistent tourism market. The resulting effect is short term rental condos looking for long term tenants,flooding the market with rental inventory and decreasing long term rental rates. As anticipated in our Rental Migration blog a few weeks ago, we are seeing this projection play out. Trends and projections matter.See current rental rate availability below:
111 CIREBA’s long-term rentals: 77 Condos ($1,000 - $17,000/month) 21 Homes ($2,200 - $15,000/month) 13 Commercial ($26 per sq. ft. – $13,000/month)
Rentals by neighbourhood: 55 Seven Mile Rentals ($1,000 - $17,000/month) 12 West Bay Rentals ($2,000 - $4,000/month) 19 GT/South Sound ($2,000 - $15,000/month) 16 Grand Harbour / Prospect / Spotts ($2,000 - $9,000/month)
With CIREBA’s new rental platform consolidating rentals into a central and convenient location, we have seen a sharp rise in rental inventory come available along the Seven Mile Beach corridor. As mentioned, many of these options are traditionally reserved for short-term vacationers, however in the absence of tourists, many landlords are converting to the long-term rentals to sustain income.See our previous blog on The Rental Migration.
159 Sold from January – March 2020 (an average of 53 per month) 83 Condos ($20,000 – $5,400,000) 20 Homes ($170,000 – $7,000,000) 50 Land ($24,000 – $2,900,000) 6 Commercial ($325,000 – $18,000,000)
CIREBA averages approximately 50 sales a month. April demonstrated a 50% drop in closed transactions. 25Solds (April 2020) 13 Condos ($24,000 - $5,400,000) 4 Homes ($180,000 - $14,700,000) 8 Land ($24,000 - $20,000,000) 0 Commercial
We would ordinarily expect a small slow down at the end of high season, however, the Covid-Catalyst has fast tracked us into slow season. What has been a strong and buoyant market for the past 5 years has now lost the wind in its ‘sales’. The easy projections show this trend continuing through summer at which point we can revise projections for the balance of 2020.
As any prudent investor will tell you, trying to time the market is a fool’s game, and nigh impossible. Of course, like any market,pricing will go up and down, however those wishfully hoping for pricing to fall to levels pre-2015 will never enter the market.
Don’t believe us? Look at the pricing levels for condos over the past 20 years. Throughout this period there was 9/11 (2001), Hurricane Ivan(2004), and the Great Recession(2008/2009). Specifically, notice what happened to pricing/values after those key dates. A flattening of the curve for sure, but relatively marginal.
Source: CIREBA and Lands Information Services – Disclaimer: these are approximate figures designed to provide a snap-shot image of the Cayman Islands property market only and are subject to further discussion. If you have a desire to see the specifics as it relates to your personal property journey, please contact us.
In short, real estate is all about using time to your advantage. Buy and hold through the good times and the not so good, but know this:
It is impossible to time the market
Over time, values will increase
Real estate is a very stable asset class
Post any economic downturn, pricing may fluctuate, then it will stabilise and continue to increase
The gains from 2016 won’t be lost
Cayman remains beautifully positively positioned as a safe harbour in a stormy world
The future is bright, although it may not seem like it right now, the property market is secure and as history has taught us, there is no reason to lose confidence.For those not in the market, don’t worry, it’s never too late to get on the ladder. The right time to buy is predominantly predicated on when it is convenient for you. With a concise plan of action, your property plan will serve your family and investment needs very well over time. Secure tomorrow, today!
For over a collective 25 years we have assisted more than 1,000 individuals and families achieve their property goals. We have been through the ups and downs and stood shoulder to shoulder with every single one of our clients. If you are looking to buy, sell or rent you will have questions so, reach out to any one of our agents, irrespective of your budget. No strings attached, just good, honest real estate advice. Establish your property plan, today.
A reflection of a turning, turned renter’s market during the current COVID-19 climate.
Our agents Kate Ryley and Jen Powell who assist a lot of landlords and tenants alike share their perspectives on the shifts and migration happening in the current Cayman rental market. They also offer advice on the hard hitting and most frequently asked questions from landlords and tenants.
Please note that the market is changing on a weekly and sometimes daily basis. These are our findings and advice as of the 8th April 2020. We will update you as and when changes occur. If you have any specific questions not answered here, please reach out to us.
In the absence of tourists, a heavy and sudden loss of jobs and the inevitable decline in population, the rental market is loosening up.
As holiday-units sit vacant, most condo investors are converting to long term tenancy. Owners are looking for tenants as some lose jobs (and can’t afford to stay) and tenants are requesting rate reductions from landlords who cannot afford to pay their mortgages.
There is no “one-size fits all” approach. The effects of this shift are being felt heavily by both landlords and tenants.
With this in mind, we urge both landlords and tenants to take extra care during this unique time; using empathy and compassion in all decisions being made and know that this will pass.
We are firm believers that while in the short term, this pandemic is going to allow for a significant correction in the rental market, easing affordability for residents, it is likely to be a temporary shift lasting 12-months.
The climate is rapidly changing and no two situations are the same. We encourage you to reach out to us to discuss your situation – we’ve got nothing but time and it’s 100% free. In the mean time, here are 4 quick steps plus some FAQs that will help:
First things first. Reread your rental agreement. This is important, everyone’s lease is slightly different, and you must familiarize yourself with the agreement before making any decisions, this goes for both landlords and tenants!
How is your tenancy situation shaping up? Have they asked for a reduction in rent or maybe they even missed rent this month?
We are seeing a surge of empty apartments and condos come to market as owners look to replace tenants that have had to leave island or even visitors who have cancelled their vacations entirely. There is also an increase in interest from renters to see upgrade opportunities maybe at a nicer location for the same amount of rent.
If you are a landlord of a long-term rental, stay calm and explore all your options before making any decisions. Read your rental agreements, talk to your loan officer, and have open discussions with your tenants. It’s important to note that there is going to be significantly more inventory out there for your tenants to consider. Reduced rent from a grateful tenant is much more attractive than no rent at all if they choose to vacate.
You may run the risk of no income if you do not allow for circumstantial understanding. Be sure to think about your short, medium and long term property plan and know that we are available any time to guide you through these new norms.
Should I be offering / accepting a reduction in rent or postponing the collection of rent?
Landlords are not required to stop charging rent during this period, and many tenants will be able to pay rent as normal and should continue to do so, however, it is important to understand than many tenants will be without income or a reduced income in this difficult time. Discuss options with your tenants as soon as possible.
Consider an interim, temporary agreement for a reduced rental rate, for example 6 months reduced in exchange for a ‘no leave clause’ for the same period. Or ideally aim for 12 months. At this stage it’s about buying time, covering your costs AND securing tenant loyalty.
How can I protect my investment during this uncertain time?
Mortgage lenders have agreed to offer payment holidays for 3 months, and most banks will consider a longer period, speak to your representative to determine the best option for you.
Discuss with your Strata on how they can trim fees for 6 to 12 months.
Dip into savings to cover strata and mortgage. Short term pain for long term gain.
Seek a co-investor who can buy in and share the ownership, and the costs!
If none of the above works for you, perhaps it’s time to consider selling. That’s a whole other market!
Can I evict my tenant for failure to pay rent?
Most rental agreements should have a clause with respect to non-payment. If your tenant does not honour their rental agreement you can ask them to vacate.
We advise landlords not to evict during this challenging time without a very good reason. It is essential that we work together in these unprecedented circumstances to keep each other safe and soften the adverse effects on the community in any way that we can.
As inventory increases and demand decreases it may be hard to find a replacement tenant, so if you evict you may be jeopardizing longer term income.
So what happens when there is an influx of new inventory for long term rentals in the market? Prices will follow suit giving you more options and opportunities to:
Upsize: Make a lateral move, paying the same price and upgrade to something better or bigger. This includes upsizing your lifestyle too. Fancy some oceanfront property or a condo with fancier amenities?
Move locations: Where the price factor once determined your location, you now have the power of choice; canal or beach, shorter commute or quieter lifestyle? We are already seeing a small rental migration in motion, for example:
Savannah moving to Prospect
Prospect to Grand Harbour to South Sound
West Bay to Snug Harbour
South Sound and Snug Harbour to 7MB
Downsize: Move to a more affordable residence and save.
Be conscious that if you choose to relocate for a better location or rental rate, you run the risk of losing your security deposit and also not having your new rental agreement renewed in a years’ time if the market returns. Be sure to think through your living situation on the longer term and give us a call to chat through your thoughts and strategy.
Can I stop paying rent?
Tenants should continue to pay rent and abide by all terms in their rental agreement, at least to the best of their financial ability.
If you have no significant disruption to your income, you should continue to honour your rental agreement.
If there is a clause allowing you to give notice (i.e. 60 days to vacate) and you determine there is a more suitable or affordable place to relocate to, you should stick to the terms and allowances of the agreement and speak to your landlord as soon as possible.
If you choose to leave in breach of your agreement, your security deposit is in jeopardy. Read your agreement and understand both your rights, as well as your landlord.
If you feel that you are paying too much in rent and are considering other options, explain this openly with your landlord to determine a fair outcome for both parties under the circumstances.
If your income has been affected, but is likely to only be short term, you should seek a new and temporary agreement which can be applied for extension, month to month, as there is more clarity on what happens next. This temporary agreement could include a reduced rental rate or agreement to pay in arrears at a later date.
If you are a work permit holder and are considering leaving island, or are not guaranteed to return to work prior to the airport reopening and will likely have to leave island temporarily, speak to your landlord as soon as possible to discuss your options.
It’s a dynamic, fluid and complex situation that’s unfolding rapidly. We do feel strongly that the rental market will return to some form of stability in time so it’s important that BOTH landlords and tenants respect each other and use communication to come to a common ground in this unique time.
Every property journey is different; if you are uncertain as to what to do, or how to do it, we are here every step of the way. All you have to do is ask.