Investing in Cayman Property

According to the National Pensions Act, all participants (members) in a private pension plan can choose, on retirement, to purchase an annuity or begin drawing down the balance in their pension account. Many residents have speculated about the maximum drawdown being limited to only CI$1000 per month which would certainly not provide a meaningful retirement income. We thought we would investigate this for you so that you can decide what to do about investing in a pension. Here is what we found: When you retire, whether that is 65, the official ‘age of pension entitlement’, or as early as 50 with special restrictions, you can draw down a percentage of your pension pot based on your age. At 65 this would be between 2.05% and 5.11% of your total pension pot, or, if your maximum drawdown allowance does not reach an annual total of CI$12,480, then you are given an annual allowance of CI$12,480, which can be paid monthly, quarterly or annually, until the balance of your pension is finished. If a member has a pension balance of CI$200,000 and wishes to drawdown the maximum from their pension at age 65, this is calculated as $200,000 x .0511 which gives a total of CI$10,220. As this is below the minimum threshold of CI$12,480, the member will receive CI$12,480 per annum. If however, the member were to have a balance of CI$500,000 at the age of 65 then the member would receive CI$25,550 per annum. This drawdown schedule can be found on some pension plan’s websites.

There are a few other things to consider: 1) if a member has made additional voluntary contributions (AVCs), these can be withdrawn as a lump sum at normal retirement (65). 2) Before retirement, members can access their AVC’s for four specific ‘hardship’ reasons – temporary unemployment (for a max of 6 months), to pay for medical bills (non-elective medical treatment only), housing (to purchase land or a home, construct a home or pay off the balance of a mortgage), or education (extended to the member’s children if in full-time education).

Private pensions were made mandatory in 1998. Since then, Government has allowed pension holidays in April 2010 (12 months for Caymanians and 18 months for non-Caymanians) as well as the current pension holiday which started in April 2020 and is set to expire at the end of 2021. Coupled with the emergency withdrawals for COVID-19, which saw members withdraw almost CI$500 million from the various plans, many have good reason to worry that their pension will not provide a meaningful income when they retire. In fact, at the current contribution rate of 10% a member will contribute 1 year of their average earnings for every 10 years they are contributing to their plan, meaning that those looking to retire in the near term might expect to see a balance representing just 2 years’ worth of their income plus investment returns, less fees and withdrawals.

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As most retirement professionals believe that a person should contribute between 17% and 20% to their retirement investment for a minimum of 40 years; Cayman’s private pension system will achieve little more than an income supplement for the majority of pensioners and we understand that the Government has been well aware of this for many years. In many other jurisdictions, as well as higher pension contribution rates, individuals benefit from government funded Social Security to supplement retirement income and are given tax breaks on registered savings plans if the money is not withdrawn until retirement. As these benefits do not exist in Cayman yet, individuals should speak with their pension provider or a financial planner if they are concerned about their retirement income. At a minimum, it is recommended that those who withdrew funds from their pension account in 2020 should make provisions to repay those funds to their pension by making additional voluntary contributions over a few years when they have the means to do so. After these additional contributions have been deducted from the employee’s salary for some time, it’s likely the funds won’t even be missed, and the increased contribution rate could be carried forward indefinitely. Ultimately this will make for a more meaningful and comfortable retirement.

There is also a government pension plan that has performed extremely well in the last number of years and had a market value of $1.193 billion as of 31st December 2020. According to the 2020 annual report for the plan, the fund grew by more than US$170 million and provided a return of 15.5% in 2020.

INVESTING IN CRYPTO ASSETS

The financial service industry in Cayman is well positioned to support this new decentralised economic model. The Virtual Asset (Service Providers) Act (2020) has introduced a framework to regulate digital assets, in order to ensure that any risks

Building a better FINANCIAL FUTURE

If you've just arrived in Cayman, setting up a bank account is only the first step in securing your financial future. Talk to an independent financial advisor at IFP today for advice on any pensions you may have left behind and how to best structure your financial future in Cayman.

Call us at +345 769 5352 or email enquiries@ifp.ky www.ifp.ky

associated with such activities are analysed and mitigated, that any benefits are realised in a manner consistent with a well-regulated financial services jurisdiction, and to develop sensible measures for blockchain innovation to thrive. It is widely speculated that this new technology has the potential to disrupt the current global economic model by providing a more efficient engine for the flow of assets across borders. In these early stages the process of investing in crypto assets is still being fine-tuned, but the basic procedure is to (i) purchase, (ii) transfer, and (iii) store a crypto asset(s). (i) Purchase: Open an exchange account (e.g. Bitfinex, Gemini, CoinBase or Bitrex) and fund your account with a fiat currency. (ii) Transfer: The most secure way to store crypto assets is within an application known as a wallet. Popular examples include Electrum or Bitcoin-Core for Bitcoin, MetaMask for Ethereum and Ledger or Jaxx for a multiple crypto asset storage solution. The wallet has a deposit button which appears to be a random set of characters, known as your public key (think ‘user name’). The exchange will have a withdrawal function, requiring your public key to send the crypto asset to your wallet. Once the transaction is executed on the exchange, a global network of computers (the decentralised ‘governance’, so to speak) will process the transaction and publicly confirm its successful completion. (iii) Store: Your crypto asset is now stored in your wallet, for you to make purchases to another wallet, or make further transfers.

Anyone looking to secure large values of crypto assets should first speak to a technical expert.

PRECIOUS METALS & SECURE STORAGE

Owning gold, silver and other precious metals makes tremendous sense and offers investors opportunities for both wealth preservation and wealth appreciation across a wide spectrum of economic scenarios. Purchasing and storing precious metals in the Cayman Islands is a solid investment in your future. Adding precious metals to a diversified portfolio of stocks and bonds

helps improve the returns of such a portfolio over time while reducing risk and overall portfolio volatility. Traditionally, financial advisors have recommended allocating 5%–10% of one’s portfolio to precious metals, however, recent data indicates that the optimal allocation to precious metals is closer to 20%–25%.

The Cayman Islands is an excellent jurisdiction for the storage of precious metals for several key reasons: > Its proximity to the United States,

Canada and Latin America; > There are no import or export tariffs on precious metals coming to or leaving the country; > There is no sales tax on the storage of precious metals; > Assets in storage are not reportable to any local or foreign government or tax authorities. If you would like to invest in precious metals, the following company can help:

Strategic Wealth Preservation (SWP) 115A Printer Way, George Town Tel: 1 (888) 445 1977 Email: info@swpcayman.com www.swpcayman.com Strategic Wealth Preservation (SWP) is a fully integrated precious metals dealer and secure storage provider located here in George Town. SWP specialises in the acquisition and secure storage of precious metal bullion, as well as secure storage for corporate data, documents and other valuable items.

INVESTING IN CAYMAN PROPERTY

According to Fleur Peck at BluePoint Consultants, prior to the COVID-19 pandemic, the Cayman Islands’ real estate market experienced steady price growth for most property types in the years between 2010 and 2019. Most notably there was a steep increase in the number of transactions between 2017 and 2019. As a result of the COVID-19 pandemic, 2020 was the first year that showed a decline in both the number of transactions and the value of freehold transfers. As shown from the data below, the total number of open market transfers registered with the Land Registry for 2020 was 1,920 compared with 1,922 in 2019, only a slight decrease of under 1%. However, the total consideration in CI dollars was CI$770,551,070 in 2020, compared to CI$816,438,256 in 2019, representing a decrease of 6% by value. This is a surprisingly small reduction considering the Island has had closed borders and was under a national ‘stayat-home’ lockdown for a period of three months. During this time the value of each individual transaction has increased by just under 15% from CI$427,000 to CI$490,000. There are several factors that have contributed to the increase in property values and demand over the last few years. Interest rates have been low and this has significantly contributed to the rate of borrowing, especially for people buying real estate as an investment. Local banks are offering (as of October 2021) 4.25% interest mortgages and up to 90% loanto-value. This has made lending finance attractive both for new purchases and for existing property owners to either re-finance their homes/properties for improvements or purchase a new property for investment. On the commercial side, this has also opened up opportunities for investors to buy commercial real estate, either for redevelopment or leasing. An example being the highest transaction of 2020, which was the purchase of a redevelopment property - the site of a former hotel on West Bay Road called The Cayman Islander, which was purchased by the late Sandals owner, Butch Stewart, for CI$15,120,000 or CI$61.22 per square foot.

A second driver for the Cayman Islands real estate market has been the low community COVID-19 transmission environment and safe and clean living conditions it offers. As a consequence, Cayman has seen a large demand in ultraluxury properties where cash-rich investors have purchased, in some cases, sight unseen. An example of these transactions is the purchase of the Watermark penthouse

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by an Asian investor for a reported US$19 million in 2020, and the transaction to a New York hedge fund owner of a 7,000 sq ft house on South Sound Road for a reported US$13.5 million.

Lastly, Cayman saw a notable increase in demand for lower value properties, both land and residential for under CI$500,000, by locals who took advantage of the opportunity to extract money from their pension funds, which was a measure introduced by the CI Government in the summer of 2020 during the COVID-19 pandemic to stimulate the economy.

With the national borders being closed, and strict protocols for re-entry throughout 2020 and 2021, Cayman has had a unique situation whereby residents, a great many of whom normally travel abroad regularly, have spent more time in the Cayman Islands and are therefore looking for local, rather than overseas investments.

There is however, a concern about the supply of property, and the sheer number of residential and commercial developments currently under construction and in the pipeline, and what impact this will have on the increasingly bad traffic situation and importantly, the environment. Many feel that Cayman’s planning policy needs to be reviewed to ensure that we follow a more sustainable path of development, and take into consideration the negative impact of over-development, plus the risk of what a rise in interest rates, or a global recession, could do to our local property values.

Land values in certain high demand areas such as Crystal Harbour and Grand Harbour have almost doubled in the last five years, whilst more recently, low value subdivisions in the outer region such as Savannah, East End and West Bay have also been selling at a fast pace.

In the built residential sector, there remains strong demand for the ultra-luxury accommodation on Seven Mile Beach, with several high-value Kimpton Seafire apartments recently selling and the newest condominium developments such as Watermark attracting record figures of over US$1,700 per sq ft during 2020. Likewise house prices in popular areas close to town, such as Snug Harbour, Crystal Harbour and South Sound have been increasing at a significant rate, as desirable land available for construction becomes scarce.

In regards to the commercial property market, at the beginning of the COVID-19 pandemic in 2020, there were early signs of rent reductions Cayman-wide, and defaults on leases in major office complexes as the trading level of some businesses were impacted. However, the financial services and legal industries remain strong and continue to expand which has meant that many of the prime offices have been able to retain their tenants, despite the increasing number of employees working from home. We have also seen cash rich investors such as Dart purchase commercial buildings which has boosted confidence in the market. Recent freehold office sales include Commerce House, Bermuda House and Elizabethan Square, the former HSBC building, and various class B office buildings in the centre of George Town. The former HSBC building was the highest commercial sale in 2020, selling for CI$14,025,602 for 44,477 sq ft of office, retail and restaurant space, equating to $315 per sq ft.Trusted wealth management solutions, built around you.

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Fixed Income Investing

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BlacktowerFinancialManagement(International)LimitedintheGrandCayman isregulatedbytheCaymanIslandsMonetaryAuthority.LicenseNumber896523. What is Available For Sale From the breathtaking canal front properties tucked away in the North Sound waterways, to the new developments popping up in almost every district of Grand Cayman, it is safe to say that our property market is pretty much on fire! The trend is now on building for a more sustainable future with eco-friendly building designs incorporating solar panels, low-flow plumbing, high efficiency appliances, LED lighting and shade trees, all designed to reduce our energy bills and be more gentle on the environment.

Go West to discover new developments long the Seven Mile Beach corridor and into West Bay. These include Ocean 9 Villas in Boatswain Bay, which offer nine 4-bedroom homes elevated 12ft above

sea level in a gated community with a single detached garage each. Prices start at CI$553,900. Located at the end of the Esterley Tibbetts highway in Batabano, The Meadows will offer 1 to 3-bedroom, energy efficient, solar ready, hurricane and earthquake resistant townhomes. Prices start at CI$290,000. Located just north of Seven Mile Beach, SeaDreams, an exclusive boutique condominium development has 4 storeys and only 2-units per floor. Residents will enjoy large living spaces, with a pool and a BBQ area. The Grand Hyatt, a 10-storey resort located at Pageant Beach will feature 167 residences and is now more than 75% sold. Located up at Conch Point, Blue Palms will be a private gated community comprising of eight contemporary 3 and 4-bedroom condos. Pre-construction prices start at CI$889,000. Eleven Parc, situated on the Seven Mile Beach corridor, features 17 new townhomes priced at CI$795,000 for 1,800-2,000 sq ft. There is also Dolphin Point Club which is located at the tip of North West Point in West Bay, where 38 eco-friendly, luxury open-plan 1, 2, 3 and 4-bedroom units are being built. Catalina Bay Seafront Residences, located near the George Town Yacht Club, will feature 2 and 3-bedroom seafront condos and is expected to be completed in late 2023. Kailani – Curio will offer 2 and 3-bedroom luxury wellness and boutique condos that will include a thermal spa, sauna and hydra pool. Lotus, located at Canal Point, will comprise of 20 townhouses starting at CI$895,000.

Go East to purchase a condo at Ocean Vista in High Rock located on Seaview Road. Ocean Vista offers 2 and 3-bedroom units priced at CI$300,000-CI$345,000. The Silver Reef Residences, located in North Side, are a new collection of 12, 3-bedroom garden or roof top beachfront condos. Pre-construction prices range from $870k to $1 million. The Rum Point Club Residences is a luxury boutique hotel with thirty one 1 to 4-bedrooms located on Rum Point Drive.

Go South to snag a boutique property in South Sound. In keeping with surrounding luxurious homes and upcoming developments, The Mantras is an apartment complex with 50 units, ranging from CI$495,000-CI$525,000. The 4-bedroom South Sound Collection each come with private rooftop terrace featuring a swimming pool and a kitchen.

Grand Harbour is quickly becoming a desirable neighbourhood with eight developments being built. These include Harbour Walk, the newest of the bunch, which will feature 1 and 2-bedroom apartments with shops and offices on the ground floor. Pre-construction prices range from CI$293,000 to CI$609,000. There is Aura, a collection of 39 luxury 2 or 3-bedroom apartments, and a gated community called Grand Palmyra, also near Grand Harbour. The latter are 3-bedroom townhouses, over 3 storeys with a garage and a den. Prices start at CI$675,000. Paraiso, located at the end of Lord’s Way in Red Bay, boasts 12 modern canal-front homes. Expect a private dock and plunge pool per unit. Pre-construction pricing starts at US$870,507 for a 3 bed, 3.5 bath, and separate den area. Allure is a 26 unit canal front development in Tropical Gardens offering 2 and 3-bedroom apartments starting at CI$470,000.

INVESTING IN ANNUITIES

Fixed annuities are single premium investment products that provide the ability to earn guaranteed interest over a fixed term. They are a great way to protect and grow accumulated savings without downside risk. An individual has the choice to select the duration of their desired investment, which corresponds to a fixed rate of return. Generally the longer an individual invests, the higher the rate of return. Interest is credited every day and compounded annually.

At the end of the fixed term, a guaranteed amount is earned. This amount does not depend on market performance – it is based on the guaranteed interest rate stated in the contract. Fixed annuities are for investors that seek both reasonable investment returns and safety of principal over a medium to long term basis. It is also for individuals that want the option, but not the requirement, to convert their savings into a monthly guaranteed payment over a stated period or their lifetime. Given the increasing reality of outliving financial resources during retirement, most individuals should consider allocating at least some of their savings to a fixed return product like an annuity. Typically the percent allocated to a fixed product should increase as a person gets older.

Knighthead Annuity and Life Assurance Company 62 Forum Lane, 1st Floor, Camana Bay Tel: (345) 623 0300 Email: info@knightheadannuity.com www.knightheadannuity.com Services offered: Fixed annuity investment products with highly attractive, guaranteed investment returns that provide predictable growth and peace of mind. SEE AD THIS PAGE