Sakamoto Properties

Now is the Time to Buy Maui Bargains
August 21st, 2012

Betty Sakamoto: Aloha and welcome to Betty's Real Estate Corner brought to you by Sakamoto Properties where prestige is our business, reputation our foundation. Today Dean Otto is here with me in the studio and we're trying to come up with some things that we think you'll be interested in hearing about. Maybe a little bit of mortgage information, some information on what you ought to be doing as a seller to sell your home. I think Dean came up with a variety of interesting statistics, so we're going to kind of wander through something or another. Aloha Dean.

Dean Otto: Aloha Betty and thanks for having me. We are talking about market updates and statistics. Probably the question I'm getting the most is, you know, what's going on with the market? We keep reading and hearing about how the market is improving and progressing, however it certainly doesn't feel like it and I think it becomes a little evident as you look at the statistics. The number of single family home sales, and the number of condominium sales on Maui is very flat. In fact, we had 511 sales this year so far on Maui and last year we had 511. So we're in exactly the same place as we were last year.

B: That's basically residential homes?

D: That's residential homes and condominium sales are almost the same thing. We had 742 last year and 744 this year, so we're pretty flat. You know, the market is chugging along and not making huge progress but I think that the general consensus is that we are actually on the upswing and we are improving. I think the primary basis for that opinion is the fact that our inventory has shrunk as much as 50% over the last two and a half years. So I think there's a general acknowledgement that we're progressing in the sense that our inventory has become very limited and there's no question that it will have to drive some progress into the future even though it's hard to feel it now.

B: One thing I think is kind of interesting is that we can call the market flat when on a small island we've had over twelve hundred and some sales, you know, plus that didn't even include land sales. So it is kind of interesting that we've been in the worst recession that most of us remember. It's been epic and for two years we've had somewhat close to the same amount and yet when you read the statistics they make it sound like it's a bad thing. But I think, Dean, you've talked a lot recently about the fact that the declining inventory is going to be a springboard.

D: I think you're right. I don't think there's any question that supply drives the market and we're quite lucky actually when you consider that tourism is at its all time high, interest rates are at it's all time lowest, and inventory is shrinking rapidly. That's pretty good ingredients for a market recovery. I think one interesting statistic that we didn't look at was land. You mentioned land and rural area but what has happened is that condominiums and home sales are flat, while land sales are actually picking up. And I think that's a good sign for the market too because ultimately when the market drops land is the first thing to go away and construction is the second thing to go away. But what we're seeing is an emerging construction market and a land sale market. Right now we're up 26% in the volume of land sales this year already and that's a pretty good indication too. These are more early indicators but I think they're good indicators and fundamentally sound indicators. Betty, you've already referenced the great downswing that we just went through and I think the slow recovery is not going to be a bad thing and even though the statistics are barely inching up I think that's not a bad thing and I think it'll be a good thing for our market over the next five years or so.

B: I think interestingly enough, the whole idea of the land and then more construction is also a great indicator for our community in general because then we're going to have more people working. So if you've got more people, you've got more builders working, you've got more decorators working, everybody is working ? the landscape people, the architects, everybody, surveyors. So that all will bring around a recovery because a lot of those same people that get involved in that are going to be people that will be looking to buy real estate. So we do have a lot of, in a way, a lot of positive indicators.

D: Agreed, and looking at some of the other statistics I think what is also changing is the absorption rates. Properties on the market have come down dramatically, it used to take over a year to sell a house on Maui and sometimes substantially longer. Right now we're running at a rate of 9.7 months to sell a residential house on Maui and 12.5 months for a condo. So you know, those aren't particularly attractive numbers but they are showing an improvement. Nine months to sell a house is certainly a lot more attractive than what it's been over the last few years.

B: You know, that's another interesting Maui statistic, as time has gone by. Where you'd be listening to someone in Buffalo, New York, which actually interestingly Buffalo did not have a big slump in the market. Their market has stayed pretty steady, but when you come down to this whole thing of days on market to a certain extent in a lot of neighborhoods and a lot of the ownership on Maui there's a lot of strength. So a lot of people that put a home on the market and really did want to sell it and had some sort of a different plan in place for what they were going to do if they didn't sell they had the strength to hang on. So they just hung on, sometimes took the home off the market for a while, but again there's a certain strength in the fact that there were fewer desperate people trying to get the property sold. And I think in certain places that makes a difference too. What do you think on that?

D: I think you're right. The other thing I'm looking at too, if you look at the last twelve months, the last twelve months of sales which has resulted in 905 residential sales. For the last twelve months 40% of sales were REOs or short sales, either bank owned or the bank negotiating the way out of the deals. And that's a huge number and that's obviously one of the reasons that's slowing down progress is that we're rooting out the least distressed properties from the market. And as I said, in the last twelve months as much as 40% have been REOs or short sales. So that's a huge number, it's been dropping, in fact it's shown a significant drop in condos which over the last twelve months had 1,161 sales and only 29% of those were REOs and short sales. Those were both over fifty percent the last time I checked. That's also a good indication that a lot of these distressed properties have been removed from the market.

B: You know Dean, one of the things we were talking about driving over here is the theory that you should buy real estate when all of the best bargains are gone. Now that's a little hard for everyone to think about but the point was you know, a lot of the buyers, our international buyers or people that are coming from the mainland or coming from foreign countries, etcetera. A lot of people are showing up and their really looking for this giveaway deal, they've heard all of these great things but the point is that we have hit a market that the inventory is somewhat down, we're finding that people are, like you said, the inventory's down, prices are kind of interesting, so that you step in and you're a little afraid, "oh maybe I shouldn't be doing this right now", but if you take a long hard look, when you see that theoretically all of the best deals are gone that's when you ought to step in. If you went to a community and right now it's kind of in the gutter, there's all of these "give away" properties, well that could be going on for the next five years. Whereas I think right now Maui real estate, I think we have hit a spot, and I think that the biggest thing Dean is that declining inventory statistic. I think if somebody has been thinking buy, buy now.

D: I think you're absolutely right and it speaks to the opinion that it's really hard to predict the bottom of the market or the top of the market and I think what you're alluding to is that there's a comfort level in buying when other people are buying as well because no one really wants to be the only one breaking the ice and that's an uncomfortable place to be. The other thing is, the most savvy investors really would like to know that other people are buying before they buy as well because ultimately to peg the bottom of the market is impossible because you have to get past the bottom to look back and go, "okay there was the bottom". So it would be impossible to predict the bottom of the market, and there's a comfort level of buying knowing that other people are buying as well. And I think ultimately people follow the lead.

B: I think you're right. There's an old saying: most people buy when everybody else is buying, most people sell when everybody else is selling. The guy who is really savvy and makes money in real estate is able to step in at a point like this where he will be the person that really is starting to happen, or is already starting to happen. But again, if you're looking at the market right now I think this is the time. You know, call us at anytime at (808) 669-0070, look at our website at SakamotoProperties.com and you'll be able to get through our website, and you'll be able to get through our website, you can get through every property that's currently in the multiple listing service. You know, you'll be able to reach us or any of our agents, but again call us (808) 669-0070. Dean always has his cell phone which is (808) 870-7736, so Dean?

D: Great, thank you. So we were also thinking as we were driving over here of some of the hot topics in Maui real estate. I don't know if you want to switch gears here Betty and talk a little bit about, enough statistics, talk a little bit about what's going on in Maui real estate. One of the things that are certainly on the forefront right now is this whole new transient vacation rental and all that's just going into effect and what that all exactly means. But as everyone probably knows already vacation renting single family homes is not in the Maui county code and I think the county's done a great job of coming up with a plan that creates a process for legal vacation rental and not only is it good for the process but ultimately including a way to enforce this as well which I think is important. What I'm reading up about right now is that the county has essentially gone on the internet and they've printed out some 270 unpermitted single family homes currently renting. What the proposal is and with the current law is to use that listing on the internet as a categorical violation of the code, they are going to essentially be printing out 270 unpermitted property, and will be mailing letters to those people suggesting that they stop vacation renting or at least apply for a permit, and will immediately begin applying a higher tax rate to any of these properties advertising on the internet. So what's happening is it's a chance to get the appropriate taxes on the properties being rented as well as it's an inexpensive way to enforce the code which right now isn't being enforced that well. We just can't afford to have a police force patrolling the island looking for vacation rentals but they can now under this law pull the promotion of an ad on the internet and use that as the definitive statement so that they can go ahead and raise the taxes and send the letter and require that they stop or apply for the permit.

B: Up until now the only way that they could go after someone that's doing an "illegal" rental and not paying taxes, etcetera, based on the use of the property is that there's a complaint from the neighbor next door. And there have been instances where the police will go out to the house and the people have ended up, in one case that we know of, had to leave the property so that's the renter here from the mainland is suddenly told that has to move out of the house which certainly causes a huge problem for him and for the existing owner. But I think it is time, from the standpoint of the county that they figure out how they can collect the taxes that should be due. I know it is a hardship on a lot of people that have been doing this but the law hasn't changed. It's always said that a residential neighborhood is a residential neighborhood, it's not a hotel zone. So I think, again Dean, it is a hot topic.

D: It is a hot topic especially with the homeowners and the communities who are concerned right now that all of a sudden there's going to be a bunch of vacation rentals in the neighborhood but that's not the case. There's a pretty clear process that's been established and one important part of that process is public notification period. So ultimately there'll be a sign posted on the property, there will be a chance for neighbors to express their rejection to a vacation rental so this is only going to be subject to the community's input. It's a very strict process, they're only going to offer 88 permits on Maui, I believe and I don't think it's going to be that easy to get 88. You're going to have to get, essentially get permission from your neighbors to be able to do vacation rentals. You know, it's a hot topic and people are concerned about it, I think it creates a process where you know it's legitimate, it involves community input, and holds people accountable and provides for a way to crack down on people that are abusing the system. Ultimately I think it's a good thing, it still has to be tweaked a little bit, they haven't set the rate for this single family vacation home yet but ultimately that should be decided in the next two months I guess. And they'll be able to start applying the new tax rate to people that are promoting their properties as vacation rentals.

B: Yeah, it's going to be pretty interesting and I think, like you said, it's a hot topic and we're going to all feel some repercussions from it in the community in a lot of different ways. I think it is difficult if you have a home and all of a sudden there's a short term rental where people are arriving at midnight and if there's a pool, jumping in the pool. Or if nothing else, they're just outside, they're excited, they're happy to be here and you've got to get up at five o'clock in the morning and get to work. So it's going to be, I think, a really interesting time. Another hot topic, Dean, what about the ag to rural?

D: Yeah that's an interesting proposal too and something that I've felt was necessary on Maui. Maui is actually one of the only counties in the state that doesn't have a rural zoning. So what we've been faced with is the residential properties up to 10,000 square feet and then it jumps automatically to two-acres agricultural properties and there's been a big void in the market and it shows as you drive around Maui today with all these agricultural subdivisions that really aren't agriculture. The rural zoning allows them to create a non-agricultural large property like this that we never had in the past and I think that it's unnatural. If you look at communities like Plantation Estates in Kapalua or Launiupoko, 99% of the time there's no agriculture happening right there so I think, call it what it is, there's an additional benefit to creating a rural zoning and that is that the county will now gain control over those large parcels and the agricultural zoning is a state mandated process. So the county has no control over the large agricultural properties and I know they would love to be able to get some more control over some of those properties. Call ag "ag" and if it's not ag, call it "rural", and that's the way I think everyone else does it.

B: Yeah, I think it does make sense, we can all see how it all happened but I think it does make sense to have a zoning that's fitting of what the actual use of the property is if the owners happened to truly have an ag zoning and they've got some sort of an ag business that's going on then granted they probably should be able to stay within the ag zoning. But it's another one, Dean, that I don't quite know the whole, all of the ins and outs of it, but I think it is going to be for the next couple of months, a pretty hot topic trying to figure out exactly where that's going to go.

D: I agree, and I think it will be well received, I think everyone wants it. You know, we have a staff of county officials running around the island trying to figure out these agricultural properties and whether they're doing ag or not and it's sort of a waste of their time, ultimately because they're not even responsible for enforcement of ag properties but they don't want to sit around and allow violations going on. It's very messy right now and I think this will go a long way to clarify everything and everyone will be happy with the results.

B: I think you're right, I think in the end it's going to work for everybody and to get everybody paying their fair share of taxes and have the properties, the actual zoning, that reflects what the usage is or etcetera. You know, call us on any of these issues (808) 669-0070. I can't claim personally that I'm an expert on any of this "ag to rural" but if anything we can get some sort of flyers out to you if you really want some information. You know, Dean may possibly know a little bit more about it, his cell phone is (808) 870-7736. So again, call us on anything that we can help you with, there will be someone in the office that can chat with you and check out our website SakamotoProperties.com. You can find a lot of information on there and we're doing our best to keep working on it with Meyer Computer to come up with something that services your needs better and better so you can get all of the information you want.

D: Part of the problem with these issues are that they're still ongoing and while they're on the forefront of the newspapers and everything else they're not completely resolved yet. But I think it's important to stay in the loop on what's happening because the changes are happening whether you know it or not. They affect a lot of people so it makes sense to be a little more in the loop and we can certainly help with that because we tend to monitor them a little closer. The other thing that I'm getting more calls on and people seem to be pretty freaked out about is the fact that there's the rumor out there that there's going to be a 3.8% tax on all real estate sales starting in 2013. And this rumor started at about the time the Obama Healthcare Plan came into effect and it was this rumor that I'm hearing at least once a week from people calling and saying "should I be selling my house this year because next year the 3.8% tax takes effect." So I did a little bit of research on it just to find out what the real deal is and what we've come to conclude is that it's completely a rumor, there is not 3.8% tax kicking in next year. I think there's a misunderstanding on the 3.8% tax on dividends earned by people making over $250,000 in income which will be kicking in next year or so. It's not a real estate tax, it's a dividend, capital gains, tax that will be starting next year, as I said, for people who make over $250,000. So you know, it's just a rumor, I'm hearing a lot about it, everyone is talking about it right now but fortunately there is no 3.8% tax issue.

B: Well let's just hope there never is.

D: Probably will be eventually, but not at least until the economy has improved.

B: No, I agree with you. I keep hearing that and trying to research it all and it really doesn't seem like we're getting anything credible. Any of these things that get rumored are a little bit scary but I think it's hard if we all start being afraid of what might happen. We've got enough to worry about that's already happened. So I think let's just stay on top of the things we can control and the things out of our control let's just put them off for a while. That seems like a good idea to me. Hey Dean, any other properties you're thinking about right now that you might want to toss out there as some quick picks?

D: Well it's all about my one new listing for me. I just got a brand new house, 6,700 interior square feet which is a brand new house right on the beach in Kapalua. It's the most amazing property that I've ever seen, it's unbelievable, it's listed at $21 million or $20,800,000 or 21 we can call it. But it's the most amazing property that I've ever seen. You can see it on our website, we'll have new photography coming on this week but statewide this is one of the premier ocean front properties, and beach front properties in Maui, well not only on Maui but the entire island. We're getting brokers from Oahu coming over to look at it, they do not have any new beach front homes on the market on Oahu. We have in Maui just two or three. This is an end of the market that is still fairly active. There's a lot of great qualified candidates for these kinds of properties out there and this is going to be one of the special properties that Maui's had in a long time.

B: I think the point is well taken Dean that if you go island wide, I mean in all of Hawaii, Hawaii wide, you cannot find a better property than this. And because there hasn't been much new construction ocean front much of the land that's the land where you would want to be is already taken so you're only going to find a few properties like this that are actually brand new, so it is one of a kind so I think that we're going to find people from around the world, and so far the people that have actually looked at it have been, we've had people from a variety of countries ? from Japan, Korea, China, and I think we're going to keep seeing that ? mainland US. I still think probably the buyer will come from the mainland US. But I think that it'll be interesting to see exactly who steps up and people are trying to look at it and I think it is something that if someone is looking for ocean front I think it is going to be one of the properties that every broker on Maui is looking to show when they've got that special buyer.

D: Right, there's just not that many people that are crazy enough to be doing $21 million bank loans and I hope my client is not listening to this.

B: Yes, that's right there aren't many people crazy enough but having said that he built a home that is absolutely the best of the best and it will sell. So if you want to take a look at it, give us a call and we'll get you out there to see it. And another thing we've talked about a lot Dean and we're kind of getting ready, already winding down, but you know it's the fact that right now we do have a lot of properties that are priced right and we have interest rates that have never been better. So it's kind of like these two things have collided and it's not going to happen again. So if you've been thinking that you want to buy something, it is now. Call us, we will help you. If you're looking to have your first home, or if you're looking to get out of a condo that you've had give us a call. We've got a number of opportunities that are available, we've got a couple of properties at Kapalua that somebody owns a home that would take a condo in exchange and we're seeing so many different ideas. So call us (808) 669-0070, that's (808) 669-0070 or SakamotoProperties.com or check out Dean Otto's website.

D: Absolutely, my website is DeanOtto.com it's a brand new website.

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