Looking for a new real estate opportunity? While most markets are crumbling, the island of Grand Cayman is enjoying quite a boom. The combination of a thriving financial services industry and buoyant tourism led prices 10% higher last year, according to Kim Lund, owner of ReMax Cayman Islands, and should push values up another 15% to 20% this year.

Don’t, however, expect any bargains. The Ritz-Carlton, for example, is offering two-bedroom condos starting at $2.9 million. If that seems high to you for a Caribbean island, you’re not alone.

In fairness, Mr. Lund points out that the Ritz-Carlton properties are on the island’s most prestigious shore, known as Seven Mile Beach, and they offer the high-end amenities available at the Ritz’s 365-room luxury resort next door. They are also a favorite destination of the hedge fund types who frequent the place.

Grand Cayman, the largest of the three Cayman Islands, has emerged as one of the top five financial centers in the world — no small achievement for a spit of land measuring only 22 by 8 miles, and for a place nearly obliterated by Hurricane Ivan in 2004. A local realtor, Donnita Moist, recalls, “85% of all the structures of the island were destroyed. It was a Category 5 hurricane, and it sat on us for three days. It was very traumatic.”

Ironically, the storm undoubtedly helped pave the way for the current real estate boom. “We had a billion-dollar face-lift,” said Mr. Lund. “Nearly everything was covered by insurance.”

Indeed, the island has been substantially rebuilt. In its refurbishment Cayman ended up with state-of-the-art communications capabilities, luxury resorts and condos, and spruced-up roads and airports. A broker for a leading development firm, Butler Properties, Douglas Sell, adds that the most significant addition to the island in the storm’s aftermath was the $500 million Ritz-Carlton, which has attracted deep-pocket travelers from all over the world.

Over the past decade, though, a more profound makeover has been taking place. Once reputed to be a choice spot for money laundering, Cayman (not “the Caymans”) has instituted world-class banking regulations and oversight to prevent fraud and criminal activities. A positive review of these measures by the IMF is proudly quoted on the government’s Web site.

The result is that over 40 of the world’s top 50 banks are registered in Cayman, with assets estimated at $1.6 trillion, as well as more than 7,000 mutual funds, 800 insurance companies, and over 60% of the world’s hedge funds. A thriving professional population has arrived, boosting real estate values.

The attractions are simple. Cayman is a British Overseas Territory, pretty much guaranteeing the islands’ stability and rule of law. The population is a mix of peoples from Britain, Scotland, and Africa, who appear to be extremely pleased with the status quo. “No one here is interested in independence,” said Mr. Gund.

English is the official language in Cayman, Miami is only 480 miles north, and the average temperature is 75 degrees during the winter (giving Cayman a distinct advantage over the Channel Islands, for example, or Luxembourg). Also, island residents boast that Cayman is safe; there is little crime of any kind.

More important, the government of Cayman has worked to attract business. The territory describes itself as tax-neutral; it collects no corporation tax, capital gains tax, or property tax. Instead, revenues come from a stamp tax assessed on property purchases, various fees levied on registered corporations, and monies collected from the large number of cruise ships that visit the island each year. Also, regulation is meant to be sufficient to prevent illegal activities, but relaxed enough to allow easy start-up of new businesses. Currencies are freely imported and exchanged, and the government guarantees confidentiality of client information. Confidentiality is only breached when there is evidence of criminal activity.

The accommodating business climate and the success of the local stock market (CSX), begun in 1997, translate into a continuing inflow of new financial products, such as structured finance. The Cayman government cites FactSet data showing that structured finance transactions in the Cayman Islands tripled from 837 in 2003 to 2,512 in 2006. Of the 1,250 listings on the CSX, over 25% are securitized debt offerings.

Of course, it is more than finance that drives the economy of Cayman. Tourism is still the no. 1 business, accounting for some 70% of GDP. Other than the weather and the natural beauty of the island’s beaches, Cayman is also known for its superb scuba diving and snorkeling.

Like many tourist destinations, Cayman was hard hit by the onetwo punch of the dot-com recession in 2000 and then the terrorist attacks of September 11, 2001. The economy was just recovering when Ivan knocked the islands flat. The past two years have seen a remarkable recovery. Ms. Moist said “People here are very resilient. They started to clean up and rebuild right away.”

Butler Properties has been in the forefront of the rebuilding effort, and currently has three luxury condominium projects under way, which are selling out fast. Caymanians have learned that units acquired during the “prebuild” selling period usually turn a nice profit, so some 25% of the units under contract are probably speculative, according to the aptly named Mr. Sell. Also encouraging early purchase (and possible flipping) is the government’s 7% stamp tax, which is paid only at closing. Nonetheless, the firm’s 41-unit Beachcomber property, which should be completed in November 2008, has only 4 units remaining despite prices of around $2 million per unit.

Which, in the dead of winter, begins to seem more and more reasonable.

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