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By Alan Markoff

Cayman's post-COVID outlook: Cayman remains strong despite rising interest rates and global supply chain issues

Cayman's post-COVID outlook: Cayman remains strong despite rising interest rates and global supply chain issues

There was good news and bad news at the RICS Cayman Islands Property & Construction Conference held on 29 April at The Ritz-Carlton, Grand Cayman.

The whole-day conference had the theme, “Building A Sustainable And Climate Resilient Future For The Cayman Islands."

The conference covered a variety of topics, some in the context of the post-COVID-19 economic outlook. Two important topics discussed included the local real estate market outlook and the current supply chain issues affecting the costs of construction materials. Although the world faces several challenges that will impact the global economy, the conference speakers noted that the Cayman Islands are well-positioned to surf the turbulent waters ahead.

During the panel discussion about the real estate market outlook, the speakers all agreed that sales — and sales prices — on Grand Cayman have seen significant growth over the past 18 to 24 months.

Jan Feik, who heads up the Investment Analysis Group at Dart — which was a gold sponsor for the conference — noted that with regard to properties along Seven Mile Beach, prices had already risen by double digits every year even between 2017 and 2019.

"What we are seeing now is that prices on properties on rest of the island are rising faster than those did on Seven Mile Beach over the last 24 months," he said.

panel onstage at conference
Dart's Jan Feik, second from left, makes a point about Cayman's real estate market during the RICS Cayman Islands Property & Construction Conference held on 29 April at The Ritz-Carlton, Grand Cayman. Also pictured in the photo are, from left, Appleby Partner Adam Johnson, Director of Planning Haroon Pandohie and Ministry of Sustainability & Climate Resiliency Chief Officer Jennifer Ahearn.

Feik noted that other places in the world, especially in the North American and Western European markets, saw similar growth in the real estate sector since mid-2020 for a variety of reasons, including low interest rates, supply chain issues and the resulting increases in construction costs that created more demand for properties that were ready for move-in.

Specifically to the Cayman Islands, factors that impacted the low- to mid-market included the availability of funds from pension withdrawals, he said, adding that at the upper end of the real estate market, the migration of wealthy people who wished to escape harsh COVID-19 restrictions in their home countries had a key impact.

"These were cash buyers, so this speaks to true wealth migration," Feik said, noting that this demographic of buyer mainly impacted the Seven Mile Beach corridor market.

Feik, however, sees some threats on the horizon for the real estate market, including a steep forecast rise in interest rates, a higher cost of living due in part to higher energy costs and a sluggish economy in the United States.

Helping to offset these threats are the expected population growth on Grand Cayman, buoyed by strong financial services and hospitality sectors.

"I'm more optimistic about the Cayman Islands economy than I am for other jurisdictions in terms of growth," he said.

During one of the afternoon breakout sessions, Keith Shetler of Cox Lumber spoke about the reasons for the current supply chain issues. Those looking for good news on that problem left largely disappointed.

Shetler noted that supply lines had been strained even before the onset of the COVID-19 pandemic because of increased demand. The pandemic only made it worse.

Although some of the shipping port issues experienced in the United States in places like Long Beach, California, late last year and earlier this year have mostly subsided, the port in Shanghai, China, was operating at only 40% capacity at the end of April because of China's "no-COVID" policy, Shetler said. Since so much of the world's goods come from China, including components like microchips for appliances and other electronic devices, the impact on the delivery of consumer goods is great, even if final assembly takes place elsewhere.

Delays like those in Shanghai don't work themselves out overnight, Shetler said, noting that when the Shanghai port reopens to full capacity, it would probably take three to four months for its operations to normalise.

Keith Shetler
Keith Shetler

The Russian invasion of Ukraine is also causing major disruptions to the global supply chain because of sanctions against Russia, the reduction of production in Ukraine and the fact that Ukraine's ports on the Black Sea are shut down.

"Ukraine is a major economic hub of the surrounding area," Shetler said. "Sea access has been denied, land has been lost and millions of people have been displaced. All of that is going to have far-reaching implications over the next few years."

Rising fuel prices and fuel shortages are also going to impact the global supply chains negatively, Shetler said, noting that more than 70% of inland freight transfer in both the United States and China is done by trucks that run on fuel. The higher fuel prices will also impact air and sea freight.

Speaking about specific products, Shetler noted that 65% of the world's pig iron — a crude type of iron used to make products like rebar — was produced by Russia and Ukraine combined. Because of that, Shetler said rebar prices are going up with every shipment and will continue to go up for the foreseeable future.

Other serious supply shortages likely to occur because of the Russian invasion of Ukraine include materials such as aluminium, nickel, palladium, titanium and neon, Shetler said.

"Ukraine produced 70% of the world's neon," he said. "Neon is needed for the production of things like microchips."

Food shortages, particularly those foods that contain wheat or corn, can also be expected, Shetler said.

"Corn is in almost every processed food item," he said.

To help mitigate the effects of the current supply chain disruptions and to become more protected from them in the future, Shetler suggested some measures the country and individuals could take, all of which would also make Cayman's society more sustainable. These measures include having redundant supply chains and buying domestically produced products as much as possible, or at least from places with the closest geographic proximity.

Buying products made from sustainable materials — like bamboo flooring — helps conserve other less sustainable materials. In addition, sustainable materials are less likely to be affected by shipping or supply disruptions in one particular area because of their global availability.

Shetler said using renewable energy sources like geothermal and solar helps reduce Cayman's reliance on oil, a commodity that fluctuates in price greatly depending on supply and demand issues.

He also suggested making purchases based on their expected longevity.

"Build for life, not for budget," he said. "Sometimes, if you want to be a good steward of the planet, you shouldn't buy the cheapest option if you can afford not to. Instead of 'How can I value engineer this?', it should be 'How can I sustainably engineer this?'"

Shetler said that although dependence on luxury and convenience has become commonplace in society, people could ask themselves basic questions before making a purchase, like whether they really need an extra television, laptop or cellphone.

"Do the age-old cost/benefit analysis before making a purchase," he said.

Although Shetler believes many of the supply chain issues are going to get worse before they get better, he offered one bright note.

"The good news is lumber pricing is going down week after week," he said. "It's down 30% - 40% from what it was just a little while ago."

This article was originally published in the May/June 2022 print edition of Camana Bay Times.

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