Until now, knowing where the Cayman Islands real estate market was, is and is going has been an imprecise guess based on personal experience, intuition and a disparate set of statistics that never told the whole picture.
A presentation by Lou Dimitrov and Matthew O’Keeffe of Dart Enterprises at the 4th annual Cayman Islands Property & Construction Conference on March 15 at the Grand Cayman Marriott Beach Resort revealed that a dedicated mathematical and geographical information system approach to the Cayman Islands’ residential real estate market analysis has now been developed.
The theme of the conference, which was presented by the Cayman Islands chapter of the Royal Institution of Chartered Surveyors — better known as RICS — was “Boom or Bust: Navigating the Cayman Islands Real Estate and Construction Market.”
In the breakout session, titled “Cayman’s Residential Market Trends, a Data Driven Approach,” Dimitrov outlined the difficulties in understanding real estate pricing trends. He spoke about the problems with using common methodology in housing price indices. While the various methods have uses, they all come with problems relating to data.
“It’s a heavyweight problem,” Dimitrov said. “Fortunately this is where I was lucky, because I was working in the same company with Matthew, who had already solved it for me.”
O’Keeffe then explained that in trying to get a better understanding of the local real estate market, he started looking specifically at the condominium products in the Seven Mile Beach corridor, along with some of the waterfront developments in George Town.
“We needed to understand historical prices in order to understand the direction the market was moving in,” O’Keeffe said. “It became apparent that we could start to answer these questions, but only by referring to datasets in disparate locations – websites, land registries and paper-based plans.”
A new database was created by using a variety of sources, including the original strata plans, the Cayman Land Info site run by the Cayman Islands Government Lands & Survey Department and the Cayman Islands Real Estate Brokers Association website.
“To be clear, this is a 100 per cent quantitative approach that is purely data driven,” he said. “In other words, I’m not attempting to answer any questions about the real estate market using a qualitative approach, such as speaking to brokers, developers, buyers, sellers, valuation professionals or banks. Both approaches are important and the two can work in cohort where the former seeks to complement the latter and vice versa.”
Using the combined data, Dimitrov and O’Keeffe developed the Dimitrov O’Keeffe Home Price Index based on a repeat-sales methodology. With the index, it was easy to calculate that the historical growth in the 78 condominium developments analysed is 3.8 per cent per annum.
“An interesting observation is the huge increase in condo prices during the last two years — 23 per cent in 2017 and 10 per cent in 2018,” Dimitrov said. “Another observation, which appears quite positive, is the fact that condo prices did not go down much during the Great Recession – only about a 12 per cent cumulative drop between 2010 and 2011. This is actually less than the cumulative drop in the United States.”
In comparing real estate price trends in the Cayman Islands versus the United States over the past 21 years, Dimitrov noted that they were almost the same.
“It appears that the markets are in sync and Cayman is lagging a year or two behind the U.S.,” he said.
With regard to the various price range levels, Dimitrov said the high end of the condominium market has appreciated faster, but that last year, the lower market segment saw a larger upswing.
Comparing the real estate market trends for the Seven Mile Beach corridor with the entire Cayman Islands, Dimitrov said that in 2018, price increases for the whole country were actually slightly higher than those for the Seven Mile Beach corridor.
Looking specifically at condominiums on Seven Mile Beach instead of including the off-beach properties in the corridor, however, shows that those properties still continue to see price increases faster than the Cayman Islands as a whole. Historically, the annual growth of Seven Mile Beach condominiums is 5.3 per cent, while it’s 3 per cent for the entire Cayman Islands.
For valuation purposes, Dimitrov said there were limitations in the index, including that it does not measure the changes on a development or property level.
“And it is not a substitute for a professional valuation,” he said.