Updates on 2021 and 2022 Cayman Islands real estate market and Lacovia developement

Updates on 2021 and 2022 Cayman Islands real estate market and Lacovia developement

For this update on sales activity at Lacovia and future sales expectations, it is important to review our progress to date and the near term outlook and expectations for the Seven Mile Beach real estate market, over the next couple years. Lacovia sales were able to get off to a good start, but 2022 should be a better year for sales momentum, due to a number of reasons.

Considering the challenges of the last couple of years with COVID, the sales level at Lacovia reaching up to around US$150M is a great achievement and testament to the perceived value and market demand for this development. This level of sales is no small feat in a market that had a good supply of inventory and competition, at that time, and no tourism base on island to work with. Although sales activity dropped off in the last quarter of 2021, this is a normal pause in the sales process, before the next event in the development drives demand back up, again.

Going forward, Lacovia will benefit from some market dynamics that will work in its favour. These will positively impact Lacovia, as follows, for 2022 and into 2023:

1) Much less sales competition in the upper end of the market – Until recently,

Lacovia had to compete with other Seven Mile Beach developments, existing and pre-construction that were selling in a similar market range. Most notably, these consisted of Watermark (near Public Beach), Seafire Residences (Kimpton), and Aqua Bay (near West Bay) – however, it is important to note that Aqua Bay still does not have Planning Appoval and this will be more difficult to obtain with our new government. All of these developments offered residences ranging in price from around US$5M up to US$26M for some Penthouses. During the last couple years, there were approximately 75 residences actively on the market for US$5M and above on Seven Mile Beach, not counting Lacovia. Currently, there are 22 residences actively on the market, not counting Lacovia. Because of this, Lacovia is now the best and almost only option for the upper end of the market and can still offer a broad choice of residences.

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2) New upcoming competition to Lacovia very limited – The only new competition that

could impact sales momentum for Lacovia would potentially be the Mandarin Oriental Residences and the Four Season’s Residences. The Mandarin is now actively on the market with residences for sale and I have met with their Sales Director and had a thorough presentation of the development. Currently, their prices range from US$1,600 per sq. ft. to US$2,450, so similar to Lacovia and Seven Mile Beach prices. However, Mandarin is out in Beach Bay, just before Bodden Town, in a very isolated, mostly residential area, with no infrastructure nearby and a marginal beach. In my opinion, this development will attract that rare type of Purchaser and owners of other Mandarin residences, who are a very small percentage of the market and want this isolation and total privacy, while providing many other potential Purchasers for Lacovia, who don’t want this all inclusive and remote lifestyle. These customers will compare developments and see how much the Seven Mile Beach corridor has to offer and the prime location of Lacovia. In regards, to the Four Seasons, which Dart is rumoured to be planning to bring to the Royal Palms site and link into Camana Bay (at least, this is the current location considered), their residences could prove to be some competition to Lacovia. For this caveat, there are no concrete plans or market information whatsoever about what they plan for their residences, pricing, layouts, or even whether they will come to market within the next year or two. However, due to this potential threat, it is important to aggressively pursue the current market opportunity of low competition for Lacovia sales, while it exists.

3) Start of construction will help drive demand – From my experience with selling new

pre-construction developments along Seven Mile Beach over the last 32 years, there tends to be a general rhythm to market demand and sales based on various events in the development cycle. Initially, the first event is the pre-construction sales announcement. This is when we get the early adopters who want to buy in at the beginning and get the best choice and price. Once that market of customers has purchased and been satisfied, there tends to be a lull until the next event in the development, which is the start of construction. At this time, many potential Purchasers who are a bit more conservative and were “sitting on the fence” will purchase, as they now see the development is real and going forward – there are a good number of them already for Lacovia. Additionally, they now have an accurate timeline for completion, as construction has started and the completion date can be confirmed. Price increases will be easy to implement, as they can be based on construction benchmarks as they are reached in combination with sales progress. These price increases tend to drive sales, as it becomes apparent that it will cost more, the longer a customer waits. The other two events where demand normally increases is when the structure is up and potential Purchasers can walk into the residence and see the view and layout before they buy. Finally, the last event is about 6 to 9 months from completion when demand picks up, again, as now a customer can buy a residence and be moving into it, around the next time they come back to Cayman, similar to purchasing an existing property.

4) COVID restrictions falling away – The excellent start to sales at Lacovia has been

achieved despite somewhat Draconian measures from the Cayman Islands that have held back customers and demand. With more visitors and tourists coming to Cayman and seeing the Lacovia site and sales information, the more that sales will improve – a lot of customers want to be on island before they will purchase. Currently, anyone coming to Cayman has to take COVID tests while here and if they do get COVID, they will not be able to go back home until they are clear. Due to the risk of that happening, our level of tourism is still muted. As soon as this is no longer in place, there should be a substantial increase in visitors and tourists coming back to Cayman. This represents a pent up demand for real estate, predominantly along Seven Mile Beach, of which Lacovia will benefit. It appears we are close to being clear of these COVID restrictions that are holding back a large market of on island sales for Lacovia sales.

5) Infrastructure development in Grand Cayman is accelerating – The improvements

to Grand Cayman’s infrastructure over the next 5 years and beyond will push real estate demand, as property values and prices continue to rise. It will not pay to wait to invest, while property prices continue to increase. Inflation will also drive this. More restaurants, shops, and entertainment facilities are becoming available through new commercial developments like the Grove on West Bay Road and three other similar mixed use developments planned for this area. Camana Bay continues to expand and contribute more facilities at a very high level of quality. New hotels are under construction including the 5 Star Grand Hyatt, 4 Star Kailani Curio by Hilton, and 5 Star Mandarin Oriental (starting construction in April), which will all bring in more tourists and investors. More new roads and better access throughout Grand Cayman is ongoing. All this helps drive demand for real estate investment and a sense of urgency now prevails, as it becomes apparent that next year, prices will be even higher.

These are the main drivers for increased sales activity at Lacovia, during the few years.

This year will provide a good opportunity for Lacovia sales. I have increased my marketing budget dramatically, as there is an opportunity to really ramp up sales this year, especially as construction starts. You will see Google ads for Lacovia throughout the online media in Cayman, as well as all the gateways where flights originate into Cayman, and select overseas locations that have consistent high net worth Purchasers of Seven Mile Beach real estate.

This is only one of a multifaceted approach that I have taken to the marketing and sales effort. Lacovia dominates my real estate sales focus until I get it sold out. The 54 residences at Watermark are 92% sold out, now, so that one is not competing. I have sold about 45 residences there, including all of their 10 resales, to date. Prices there have increased 53% since the start of construction, about a year and a half ago and residences have sold for US$2,300 per sq. ft. The Developer residences currently for sale are listed at a similar high price as Mandarin Oriental, at US$2,450 per sq. ft.

Looking ahead at demand for Grand Cayman real estate and the Seven Mile Beach market, we still have lots of room to move with pricing for the reasons mentioned above. What isn’t going to benefit Lacovia is that our Seven Mile Beach market will continue to lose inventory much faster than it can be replaced. New development sites are just not available along Seven Mile Beach. Demand is not abating and we will soon open our borders, without COVID restrictions, to a low supply of real estate. 

In terms of where prices on Seven Mile Beach are going, that trend has already started and has become entrenched, due to the market conditions that are not changing. Prices from 2001 until about 2012 in Cayman never increased. There were this, but the bottom line is that our market pricing and values stagnated for about 10 or more years. While we have had some good price appreciation over the last 5 years, we are still way behind the curve of many similar high quality resort destinations. One of my clients just bought a 2 bedroom, 1,600 square foot condominium in Vail, CO for US$3,000 per sq. ft., as one example.

By the end of this year, prices should hit US$2,500 per sq. ft. or very close to it, for the most prestigious developments like Watermark, Mandarin, and Lacovia. By completion of construction in about 4 years from now, under normal circumstances and economic conditions, Lacovia will be at or near US$3,000 per sq. ft. for their most prime residences. 

Every year, Grand Cayman becomes a more desirable location to visit and reside. The trend of more and more higher net worth individuals coming to Cayman is only getting stronger. This will drive prices and values higher, especially for the most desirable real estate in the Cayman Islands, which is where Lacovia is sitting