Readers of articles on our main Turks and Caicos real estate listing site will be aware of our observation that condo "sales" (mainly pre-construction) in the Turks & Caicos Islands and related enquiries appear to have lagged residential housing and raw land sales for the past few months (the latter two being extremely strong). 

This is probably largely due to the fact that condo sales in particular are more seasonal and we have just come through low season - July to October is the low season for tourists who are the main buyers of condos.  However, the reason I am writing about this is that our company has seen a drop off in the number of pre-construction related enquiries even though we are getting a lot more enquiries overall.  I have sounded out a few of the more established real estate agents here and their feedback indicates that they have experienced the same thing to varying degrees.  Obviously my "on the ground" research is not comprehensive and may not be representative of the overall market - but I have decided to comment on it in any event :) 

My view is that we are probably being affected to some degree by the cooling in the preconstruction condo market in the US.  The Florida condo market is the nearest and clearest example of that phenomenon. Its also the area that I am most familiar with because I pass through it whenever I leave the islands.  Christmas 2 years ago I read the Miami Herald on the flight from Miami International to Provo.  On the front page there was an article about a residential property in Miami which had sold for more than US$16 million and on the same page an article indicating that the average gross annual income for people in the Miami / Dade area between the aged of 25 and 35 was US$50,000 or less and that as a group housing was unaffordable and they were barely getting by.  On the second page there was a very interesting article which stated that:

• in the previous decade 10,000 condo units had been released onto the market in the greater Miami area (including Ft. Lauderdale and Palm Beach);

• 10,000 condos were expected to come on the market in 2005 alone; and

• Developments with 65,000 condos in aggregate were in the late stages of the planning process.

In the circumstances I was personally surprised by the strength of the condo market in the Miami area all through 2005.  What is now clear is that a good percentage of the pre-construction sales were being driven by speculators looking to buy preconstruction condos and flip out before completion.  I gather that practice stopped abruptly in the summer of this year. 

Every real estate market has flippers to some degree however it's my experience that the Turks & Caicos condo market has been largely driven by end users.  People who like the islands and value their time here.  Some of the more affluent residents have also purchased condos here as residences because it is a convenient and not overly expensive way to live in some of the most spectacular and exciting areas on Provo (the main condo location).  That being the case it has been my hope that we would be relatively unaffected by the inevitable result of the "insane" overbuilding in the US.  As far as land sales and home sales go that appears to be the case, but it seems to me that with the current negative environment in the US, even condo end-users (as opposed to speculators / flippers) are more cautious on preconstruction condos than previously.  The rationale for that caution is I expect simply being transplanted here (and to other Caribbean jurisdictions no doubt) without any specific consideration or analysis of the very real differences in the market fundamentals in this part of the world compared with the overheated areas of the US.

For the record it is my view that second tier pre-construction condos may struggle as a result of the change in "investor" sentiment.  However, I do believe that the dip in sales for the high-end preconstruction condos on Provo will be temporary as the market grasps the realities and the intrinsic value of top quality beachfront products.  Furthermore, it is my view that the best of what is currently available in high-end condos represents comparative value for people who want to have their own place here on the beach, particularly when considered against the backdrop of an "extremely" strong market in undeveloped land.  Those statements are not as bold as they sound when you consider the following:

• Few people realize that there are only about 1,000 condos in total on Provo at the moment and only a fraction of those are on the market. We don’t have the inventory problem that exists in parts of the US which are now seeing a down-turn.  We also have a very limited number of prime development sites, and Government and the Planning Department is committed to high-end / low density development so the possibility of an oversupply of high quality condos in prime locations is remote. If there is a slow down in new developments on Provo as a result of ecomomic factors in the US the supply / demand ratio will tip more strongly in favour of the comparative few that have a high-end condo here.
   

• Developments in prime locations (i.e. beachfront and waterfront) are less susceptible to market / investment trends. An investment trend is just that, but there will always be people looking for true quality in the best setting and who can afford it.  The Turks & Caicos, unlike many other destinations in the Caribbean has set its sights on making the islands attractive to high-end purchasers.  By way of comparison, while I am negative on the Miami condo market I have no doubt that wealthy areas such as Palm Beach (where membership of a golf club is a near impossibility for new comers) will be just fine.
   

• Prime locations are more expensive to acquire so the developers tend to be stronger financially. In terms of completed developments this manifests itself in a better quality product: in the case of pre-construction developments it reduces the buyers risk of disappointment.
   

• Historically lending institutions have been cautious in real estate lending. Banks have restricted loans to 70% of the appraised market value and trust companies have generally kept to 50% or less.  Higher lending rates have encouraged purchasers of condos to buy in cash if they could afford it. Those factors combined mean that real estate (and condos) in the Turks & Caicos tend to attract more cash purchasers and the minority that do borrow are not as heavily financed as they might be elsewhere. This point relates more directly to the Turks and Caicos real estate market as a whole rather than to the preconstruction market but we believe that it will create a local market that is insulated to a higher degree from economic swings in the US.

Conclusions:

Believe it not, increasing beachfront and waterfront land prices now make condos comparatively cheap. At current price levels buying approximately a half acre of beachfront on Grace Bay and building a 2,800 sq. ft. home will cost in excess of US$3 million when stamp duties and construction costs are factored in which works out at approximately US$1,000 per square foot of living space (i.e. about what condos cost on Seven Mile Beach on Grand Cayman).

You can get a lavishly appointed condo on the best part of Grace Bay beach, with full resort amenities and property management services for less, and save the aggravation of getting involved in the building process. Condo living is not for everyone, but for those who enjoy the conveniences it affords there are compelling reasons to buy.

Bernadette Hunt - October 2006