National Housing Market Outlook

Hawaii Offers Diverse Investment Opportunities

April 12, 2012

Our recent work in Hawaii shows us that there are three different types of investment opportunities to be had across the Hawaiian Islands today. Here are some takeaways that might help you identify a niche for yourself:

The Ultra-Luxury Resort Sector

The most desirable projects are still achieving sales similar to 2010 levels, while other, easily-replaceable projects are struggling. What sells most are either homes priced at a relative value, or those that are difficult to replace.

Detail: We analyzed the highest-end new home projects in the State, which are all located on Oahu’s neighbor islands (Kauai, Maui, Big Island), with a focus being on homes in the $5 to $20 million range. We spent a significant amount of time researching specific unit sales, touring communities, interviewing sales staff and analyzing macro-level demand factors. On one hand, there are projects struggling to achieve any sales in spite of significant amenities being in place. On the other hand, there are sales such as the home of actor Will Smith, who paid $13.5 million for a 7-acre oceanfront property on Kauai in December of 2009, and then re-sold it for $20 million exactly two years later!

The Primary Housing Sector

For those already in the market or those that can enter quickly, there is plenty of upside as demand improves further and prices begin to recover.

Detail: We found a “good news/bad news” scenario on the island of Oahu.

  • The good news is that most new home projects on the island are selling at least two units per month, and many are selling quite well (3.5 to 5.0+ units per month). This is due in part to the relative lack of new supply. While there are literally thousands of homes currently in the planning process, most are in large master plans that still need entitlements and/or infrastructure, and will not enter the market until 2014-2016.
  • The bad news is that visitor totals in 2011 were still relatively low and were certainly not helped by unpredictable factors such as the tsunami in Japan. In addition, the job market is still tough with historically “high” unemployment (5.7% vs. the long-term average of 3.8%) and no significant new job growth.

The Rental Apartment Sector

The catch is finding cost-effective product that yields an acceptable return.

Detail: We did an exhaustive deep-dive into supply and demand characteristics for the Oahu rental market. This allowed us to arrive at two very clear conclusions: a) most rental product on the island is either older, poorly managed, or both; and, b) there is demand for new units, to varying degrees and for varying product types, island-wide.

Our findings lead us to conclude that, whether you are a high net worth individual looking to buy a vacation home, a single family home builder looking for the next deal, or an apartment developer looking to expand, opportunity exists if you know where to look. 


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