Now, I’d like to caveat this blog post by stating that I am neither a real estate expert nor a personal finance expert. Writing this blog is a bit like Kim Lund writing a blog on the employment market. However, as a resident of the Cayman Islands, I’d like to share my insight on whether you should rent or buy in the Cayman Islands.

To Rent or To Buy

The flow of Cayman’s real estate/living market has been an occurring dinner party conversation, but I’ve always felt ill-equipped to discuss it without the aid of a spreadsheet. Tempting as it is, I’m sure it’s really inappropriate to interject with, “hold on, I’ll just grab my laptop and bring up Excel”. With that being said, it probably wouldn’t come as much of a surprise that I don’t get invited to many dinner parties.

The Cayman Islands is an island with many financial services professionals. Yet, there seems to be a stubborn misconception that paying a hefty mortgage is better than renting a home. Surprisingly, many believe that renting is simply “throwing money away”. This is an excellent example of conventional wisdom, which is often nothing more than a widely-held fallacy. Is mortgage interest any less “thrown away” than rent? Nothing burns through a stack of money faster than 7% stamp duty if throwing money away is your thing.

There is a handy shortcut to considering whether To Rent or To Buy – Are landlords generally making money or losing money? The landlord/tenant relationship is a zero-sum game; the more they are making, the less of a good deal you are getting as a tenant. That’s pretty obvious.

Renting From Experience

As my family recently outgrew our two-bed condo, after considering buying for some time, my wife and I opted to rent a larger place. This allowed us to rent out our old home, which we had purchased back in 2006. Therefore, I can tell you from personal experience that landlords in the two-bed condo market are not making money.

In the Cayman Islands, rent has fallen precipitously in 18 months. Most landlords that bought in the previous 3-4 years are struggling to cover their mortgages alone. And let’s not mention other significant costs such as maintenance and strata fees. (For the overseas reader, a strata is a cooperative which looks after common interests for owners in an apartment or townhouse complex. Paying Strata fees monthly, including insurance, landscaping, cable TV and some maintenance). Rents have come down by between 10 and 30%—great news for renters.

The Foreseeable Future For Landlord

Worse still for landlords, I don’t believe we’ve reached the bottom. The reason is a case study in micro-economics. There has been a well-publicised reduction in the number of work permit holders on the island. Reports vary, but possibly as many as 5,000 last year (mostly in construction and hospitality; financial services only have 2,000 work permit holders). In terms of population, add non-working partners and dependents to that 5,000. Then consider that even 5,000 people would have meant at least 2,000 homes.

Add to that the ongoing development of 2 and 3 bed town-home complexes, and you get a picture of significant over-supply in this market segment. If there are even 5% more condos than renters looking for them, that 5% will constantly reduce their price to compete with each other and occupied units and set the market rates in the process. The value of the unit is almost irrelevant. Any amount of rent is better than none, which is what 5% of landlords will have at any one time.

This dynamic is also putting downward pressure on home values. Eventually, a landlord will decide that renting at a loss isn’t worth it and put the property up for sale. Of course, if selling would also mean making a loss (which is likely to be for buyers in the last 3-4 years), it will come down to the relative size of the losses and the landlord’s expectations for the future.

Upholding Supply and Demand

Thankfully, many great Caymanian landlords own a property outright. This prevents them from flooding the sale market, but it does mean they can afford to drop rents to maintain occupancy? Whether the situation for landlords improves depends on two things: economic performance (and the effect on population) and movement in inventory (i.e. new condo developments).

In terms of inventory, there is always a lag between the supply and demand conditions and the pace of development. Residential development projects surely take three and five years to be planned and designed, which means that many projects will be well advanced in the future – too advanced for the developer to slam on the brakes.

A peculiarity of the Cayman real estate market is that new homes are nearly always cheaper than used homes, as buyers can avoid stamp duty on new homes by taking title to the land before the home is built and thus paying stamp duty for the land alone. This is a loophole that needs to be closed. The value of the land on a CI$2-300,000 apartment is peanuts. This is costing the government some much-needed revenue. Still, it is also fuelling over-supply conditions in the real estate market by acting as a government subsidy on new condos. At the same time, there are few signs that the economy will improve dramatically enough to plug the 5,000 person strong hole in the population.

Therefore, the outlook for landlords is, in my opinion, bleak. That means rents will drop further, and therefore so will sale prices. Furthermore, needless to say, my family and I will be renting for the foreseeable future.

Looking to relocate to the Cayman Islands? Read our Cost of Living in the Cayman Islands Guide.