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August, 2006 - Newsletter for the Maui Market
Don't forget; we provide a free Automatic E-mail Notification Service where an automatic email notification goes out when ever a new listing becomes available for a particular condominium complex. To subscribe to our Automatic E-mail Notification Service in the condominium complex that you own or that you are interested in, please send us an email at Won@JamesBFoster.com with your first and last name, your email address, and the condo complex you wish to be notified of.
Foster Hull, a Lahaina, Maui Broker, wrote the following letter to the local newspaper, “Much has been said and speculated about the real estate bubble. In 32 years as a licensed real estate person on Maui, I have witnessed the up and down swing of real estate on several occasions. There are reasons behind the down trend that cannot be controlled, such as a recession or extremely high interest rates, neither of which exist today. Yes, the feds have raised interest rates a little, but they remain way below what stopped the real estate market in 1980. Employment statistics rule out any sign of a recession. So what has changed the market? Sellers. Sellers are holding on to a price that the buyers are resisting. We have buyers, but they are sophisticated and willing to wait, not for the bubble to burst but just to let out a little air. We witnessed very strong appreciation of real estate in 2003, ’04 and ’05, which had to end eventually. Sellers are hanging on to the 2005 price. If they want to sell their property, they should back up a little. There is always going to be profit made from the sale of real property. It’s a matter of time and timing. This could be the time if you want to sell, but be realistic in your price.”
What is currently taking place in the Maui Real Estate market is a transition from a Seller’s Market to a Buyer’s Market. We are seeing more price reductions, longer periods of time required for selling, the necessity to stage or upgrade a unit when preparing it for sale and considerably more marketing expertise required in selling property. This trend is expected to continue. Many buyers of Maui real estate are from the West Coast and more specifically California. The median number of days it took to sell a single-family home in California was 46 days in June 2006, compared with 28 days for the same period a year ago. Home sales in California plunged 26.3 percent in June compared to last year while the median price of an existing home increased 6.2 percent and the Maui real estate market lags the California market anywhere from six months to eighteen months.
We will probably see continuing appreciation of Maui real estate over the next year or two in the 5% to 10%. The hyper appreciation experienced over the last five years has rapidly begun to moderate.
At the beginning of July, 2005 there were 165 condominiums for sale in the West Maui area and the total value was $159,356,997.00; August, 2005 there were 166 condominiums for sale with total value of $154,446,497.00; September, 2005 there were 176 condominiums for sale total with value of $163,215,390.00; October, 2005 there were 177 condominiums for sale with total value of $168,464,220.00; November, 2005 there were 199 condominiums for sale with the total value of $188,377,265.00; December, 2005 there were 231 condominiums for sale with the total value of $222,669,115.00; January, 2006 there were 226 condominiums for sale with the total value of $226,520,200.00;February, 2006 there were 280 condominiums for sale with the total value of $281,793,835.00; March, 2006 there were 297 condominiums for sale with the total value of $286,082,559.00;April, 2006 there were 350 condominiums for sale with the total value of $317,599,199.00; May, 2006 there were 354 condominiums for sale with the total value of $321,932,077.00; June, 2006 there were 362 condominiums for sale in the West Maui area and the total value was $333,616,070.00; July, 2006 there were 392 condominiums for sale in the West Maui area and the total value is $346,937,598.00; and at the beginning of August, 2006 there are 393 condominiums for sale in the West Maui area and the total value is $ 344,119,142.00. The condominium for sale inventory since July, 2005 has been as low as 165 and is up to 394 for August 1, 2006. The “for sale” inventory continues to increase.
As of July 2006, the total condominium sales for West Maui during the month of August, 2005 were 52 and the total value was $31,852,104.00; for the month of September, 2005 total condominium sales were 58 and the total value was $39,539,021.00; for October, 2005 total condominium sales were 38 and the total value was $23,503,291.00; for November, 2005 total condominium sales were 48 and the total value was $35,051,564.00; for December, 2005 total condominium sales were 47 and the total value was $26,101,467; for January, 2006 total condominium sales were 42 and the total value was $28,574,643.00;for February, 2006 total condominium sales were 48 and the total value was $32,995,078.00; for March, 2006 total condominium sales were 40 and the total value was $32,199,584.00; for April, 2006 total condominium sales were 43 and the total value was $41,898,525.00; for May, 2006 condominium sales were 51 and the total value was $39,644,886.00; for June, 2006 condominium sales were 40 and the total value was $ 32,533,500 .00;and for the month of July, 2006 as of 8/1/06 in the MLS data, total condominium sales were 30 and the total value was $ 26,212,000.00 The total condominium sales for August, 2005 was 52; September, 2005 was 58; October, 2005 was 38; November, 2005 was 48; December, 2005 was 47; January, 2006 was 42; February, 2006 was 48; March, 2006 was 40; April, 2006 was 43; May, 2006 was 51; June, 2006 was 40; and July, 2006 was 30.
For previous condo sale details, go to our web site, www.JamesBFoster.com and click on Condo Sales. For the time period of 1/1/2006 to 6/30/2006 the average price for a home on Maui was $1,001,310.00 which is up 1% from a year ago for the time period of 1/1/05 to 6/30/05 when the average price was $995,282.00. For the same time period the average price for a Fee Simple condo on Maui was $781,829.00 which is up 53% from a year ago for the same time period when the average price was $510,284.00 according to the RAM statistics.
We have gone in to the MLS database and pulled information for 2000 through 2006. In 2000 - 654 condominiums sold in the West Maui area for a total value of $209,064,010; in 2001 - 605 condominiums sold for a total value of $271,681,337; in 2002 - 730 condominiums sold for a total value of $240,178,915; in 2003 - 737 condominiums sold for a total value of $319,748,466; In 2004 - 700 condominiums sold for a total value of $375,033,467; and in 2005 - 682 condominiums for a total value of $408,582,315.00. To date for 2006 (January thru July) 298 condominiums have sold for a total value of $235,750,716.00.
Mortgage Rates as of 7/24/06 from Town Island Mortgage, LLC – Hse/Condo: 6.25% 30yr fixed 2.0 pts ( 6.48 APR); 6.5% 30yr fixed 1.0 pt ( 6.63 APR); 6.875% 30yr fixed No Pts (7.4 APR). No Docs: 6.6 25% 30yr fixed No P ts ( 6.75 APR). Hse/Condo: 6.125% 15yr fixed 1.0 Pt ( 6.29 APR) $1M Loan 6.875% 30yr fixed No Points (6.93% APR) Interest Only 6.5%, 7/1 ARN 1.0 Pt. (6.72 APR) No Income, 100%, & Stated Land loans (Pts incl. origination)
If you would like to view the most current sales statistics for Maui or West Maui Condominiums, you can go to my web site www.JamesBFoster.com and click on Condo Sales in the upper left corner of the home page. If there are any specific condominium complexes that you wish to be notified by email when a condominium becomes available for sale, send me an email as I check the MLS data about four times daily, and if a new listing comes on the market, I immediately notify any clients who have requested that information. Many owners also like to track what the units are selling for in the building where they own which they can do from my site.
Some recent news about what is going on in Maui.
Medical Facilities on Maui – There were three scheduled hearings for the Certificate of Need (CON) for the proposed Malulani Health and Medical Center in South Kihei; one was scheduled for Maui and two for Honolulu. At the Maui hearing the panel voted in favor of the CON but at the second hearing held in Honolulu the panel voted against it. On Thursday, July 27th – Dr. David Sakamoto, administrator at the State Health Planning and Development Agency, was to make the final decision. Governor Lingle felt so strongly that Malulani should be allowed to serve Maui that she appeared in person before the state advisory council at the hearing. Dr. David Sakamoto whose email address is SHPDA@DOH.Hawaii.Gov will make the final decision this week. As there are no tax dollars required and the entire cost is coming from private funds, we are hoping the Certificate of Need will be approved so construction can start in 2007. For further details, go to the website at www.Malulani.org
Traffic on the Honoapiilani Highway, DOT and the Lahaina Bypass – Scott Ishikawa with the State Department of Transportation said the state is evaluating a request by a State House candidate to declare a state of emergency in West Maui due to traffic problems. Angus McKelvey, who is a Lahaina resident and running as a Democratic candidate10th District House seat, sent a communication to Governor Lingle which state, “the West Maui road situation is literally to the point of complete gridlock,” and requested she make an emergency declaration to speed up major highway projects in the region.
Vacation Rental Bill was rejected – The Maui Planning Commission on Maui, Lanai and Molokai rejected a draft Vacation Rental Bill prepared by the County Council. Previously a study by the Kauaian Institute (funded by the Realtors Association of Maui) found there were fewer than 1,000 vacation rentals on Maui.
Hawaii BioEnergy to pursue alternative energy crops that are renewable – Not only does Maui have a functioning $70 million wind farm and another $200 million one on the way but an international consortium which includes three of Hawaii’s largest land owners are pursuing renewable energy crops that could mean a viable bio-fuel industry that could yield huge economic benefits to the state. Brasil Bioenergia is participating and is a world leader in ethanol production and has assisted Brazil in becoming energy independent this year.
Fiber Optic Cable Cut – A private work crew digging along Hono’apiilani Highway in Olowalu cut and severed a fiber optic cable causing telephone users in Lahaina with the prefixes of 661 and 667 to lose all telephone and DSL service. Businesses lost thousands of dollars worth of business. Banks, stores, restaurants and many others could not service their customers and many closed for the day as a result. If you were trying to call someone in that area or communicate via email, that was the cause of the problem. Service was not restored until around 7:00 PM.
Affordable Housing on Maui – The Kihei Community Association paid $60,000 for independent consultants with the Urban Land Institute to prepare a study with recommendations as to what can be done to produce more affordable housing. Aspen, Colorado mandates 70% affordable housing component but the consultants recommended starting with 30% and other alternatives. Maui’s need is critical because it’s main industry, Tourism requires a tremendous number of service personnel, typically at lower wages.
Kaanapali 2020– Kaanapali Development Corp. executive recently laid out plans for 4,850 new housing units on the company’s West Maui lands at an annual community meeting on the company’s plans. The original plans provided for 60 percent of the units to be affordable under federal housing guidelines for median income families but Kaanapali Development is seeking to have the requirement reduced back to 50 percent.
Royal Lahaina Hotel– The hotel constructed in 1962 was one of the first hotels in the Kaanapali Beach Resort. It is on 27 acres with a mix of buildings, including the main 12-story hotel tower surrounded by lower-rise cottages and a three-story hotel building, a ground-level parking lot and 10 tennis courts. The redevelopment will replace the cottages and create a new facility with a multilevel parking lot serving 330 hotel rooms and 125 condominium-hotel villas. Existing structures within a 150-foot shoreline setback for the property will be removed, including a complex of two-story beach cottages. The tennis courts have been reduced to four. The redeveloped resort also will provide 26 beach parking stalls for public access.
Kapalua Bay Hotel – This redeveloped project will have two parts, 84 condos priced from $4 million & up, and 62 two- and three-bedroom units in The Ritz-Carlton Club, in Kapalua Bay. These will be sold in one-twelfth fractions at prices from $300,000 to $700,000. Time share sales started this month. Of the 84 condos to be sold whole, Exclusive Resorts has taken 28, for its vacation home membership club. Much of the material is being recycled and donated to the Maui Economic Opportunity (MEO), Lahaina-Honolua Senior Citizens Club and Maui Habitat for Humanity. Other groups receiving donated items include Maui County Environmental Resource Center, West Maui Little League, Girl Scout Council of Maui, Lahainaluna High School and Kahului Music School. MEO received more than 30 different types of goods, ranging from dining tables, chairs and mini-refrigerators to towels, bed sheets and artwork.
Superferry Discussions – Maui County Council members unanimously passed Chairman Riki Hokama’s resolution that opposed the proposed commencement of the Superferry at Kahului on July 1, 2007, until an update of the harbor master plan and an environmental impact statement can be completed. It will be voted on again August 14, 2006.
The Committee For More Equitable Taxation (COMET) – COMET is working on a petition to state that the Maui taxpayers have a right to vote for a bill on tax reform. The proposed acquisition-based tax system would not only shift the property tax burden from longtime homeowners to new buyers and real estate speculators, but also generate an estimated $15 million in additional county revenue. Assessments would be conducted at the time of the real estate transaction, with the value being the sale price. Currently, assessments reflect a property's value anywhere from 12 to 24 months after the sale. In an appreciating market, that means lost tax revenue. There would be a 4 percent cap on assessments to rein in large tax increases, as well as a maximum decrease of 4 percent. In addition, assessments would be based on 2001 levels, unless a property's title passed since then.
Real Estate Tips
An excellent idea for owners is to have a Net Proceeds Statement prepared as property values change. This outlines the various costs a seller has at closings and is an important item to have in your files. If you would like to know what your net proceeds would be if you sold at a particular price, let us know and we can prepare one for you and email you the document in an ADOBE pdf format. If you are not a Hawaii resident, you will have to deal with the Hawaii Real Property Tax Law HARPTA when you property sells and 5% of the selling price is withheld unless you do a tax deferred exchange or have transferred title to a Hawaiian registered entity such as a Limited Liability Company. HARPTA is not a tax . This is a common misunderstanding. HARPTA was enacted to provide a means for the state to collect capital gains taxes from absentee owners. HARPTA is very similar to laws passed by several o ther states as well as to a federal law that applies to non-US citizens that sell real estate. These are items to discuss with your attorney and accountant.
One of the easiest ways to minimize the tax impact when selling is to do a tax deferred exchange. If you are considering selling your property in Hawaii, a tax deferred exchange will exempt you from the 5% HARPTA withholding and also the Federal Capital Gains Tax. Planning in advance for the disposition or acquisition of assets is always a wise decision.
For a seller to qualify for an IRC 1031 tax-deferred exchange, the qualified property must be held for investment or business purposes. After renting investment homes for 6 to 12 months some investors move in and convert it to their principal residence. Then, after owning and occupying the principal residence at least 24 of the 60 months prior to its sale it can qualify for the IRC 121 principal residence sale tax exemption up to $250,000 (up to $500,000 for a qualified married couple filing jointly). What some are not aware of is the October 22, 2004 tax law change that requires the acquired property be owned at least five years before the principal residence can qualify for the IRC 121 $250,000 to $500,000 sales exemption. The sales date is what matters; the date of acquisition is irrelevant.
In addition to the typical exchange, a reverse exchange and a construction exchange. A replacement property or the property you are exchanging for can be in Hawaii or any other state, within the United States. You can exchange unimproved investment property for a condominium in Maui for investment purposes. There also is an alternative referred to as a Tenant In Common Interest or often referred to as TIC. A Tenant In Common (TIC) Investment is for investors who are engaged in 1031 tax exchanges looking for a suitable replacement property. The investor becomes a fractional owner in a residential or commercial property. Here, each Tenant In Common investors possess an undivided - or 'common' interests in the property or designated interests of differing sizes.
Some tax tips for Vacation Rentals or Second Homes – How frequently you rent out your property is how the IRS will classify it for tax purposes. If you use your home fewer than 14 days a year or less than 10% of the days rented to outsiders each year, whichever is greater, then your home is an investment property. If you use the home 15 or more days or more than 10% of the days rented to outsiders, it’s a second home. If you can declare it as a second home you can collect 14 days rents without paying taxes on it. If it’s an investment, you have to declare the income to deduct for business expenses on the home (advertising, cleaning, maintenance and etc.) In calculating the days you use the property, “work days” don’t count toward the 14 days – 10% test. Keeping a Guest Book will help in the event of an IRS Audit. If a second home the owner can deduct mortgage interest. As a second home, the owner is believed to treat it almost like a primary residence and can deduct mortgage interest. You cannot take a loss if expenses exceed income. Tax laws since 1986 allow those with up to $100,000 in annual adjusted gross income up to $25,000 in losses from rental properties annually. If losses exceed $25,000, they may carry the sum over to future years as long as their income is still at or below $100,000. As incomes rise, the $25,000 cap is reduced: with $100,000 to $150,000 income only 50 cents for every dollar in losses up to $25,000 can be claimed, over $150,000 no loss allowed. Owners of an investment property can take a loss on the sale of their homes, second-home owners can’t. To prepare for an eventual sale, get an appraisal during the year you convert from personal to income-oriented us. If when sold the price is below the appraisal value, you’ll have documentation to support your loss. Appraisals for 2004 taxes can take place up to April 15, 2005. The astute investor will coordinate these matters with the account or CPA.
I recently had a person who was interested in our selling property and that she and her sisters had inherited the property from their mother. They wanted to know if they were subject to the Federal Capital Gains Tax and Hawaii Real Property Tax Act (HARPTA). As they received a new "stepped-up basis," which is the market value on the date of the decedent's death (or valuation date used by the deceased's estate), the heirs can sell the inherited property immediately with no capital gains tax to pay. The reason is the heir receives a new "stepped-up basis" of the property market value on the date of death (or alternate valuation used by the deceased's estate). However, if a dying person deeds real estate as a gift, the donee takes over the donor's usually low adjusted cost basis and does not receive the major benefits of a new stepped-up basis on the date of death. T here generally is no need to hurry and sell inherited real estate as you will have a new stepped-up basis for the property. You will owe capital gains tax only on the increased net sales price above the stepped-up basis.
Useful Internet Sites:
http://www.gethuman.com/us/ This free website is run by volunteers and is powered by over one million consumers who demand high quality phone support from the companies that they use. They have built a growing list of secret codes to get you out of the sometimes endless and always frustrating maze of clicks you encounter every day trying to reach and talk to a real person on the phone. This site provides bypass codes to get you past the phone mazes of just about all of the major banks, cell and phone companies, credit card companies, PC manufacturer support lines, shippers such as FedEx and UPS plus many more. The codes can be sorted and searched in a number of ways and contains the company name and phone number plus the short cut to by pass the insanity and go directly to a human being.
www.ceruleanstudios.com/learn/ This easy to set up and use program expands your ability to easily communicate with others and not be saddled with spyware or popups.
http://www.dummysoftware.com/gzapper.html Google stores cookies on your computer to create reports, track you search habits and test features. This simple tool helps you protect your identity and search data. It reads the Google installed cookies placed on your computer, shows the date it was installed, and how long your searches have been tracked. With this tool you can delete or entirely block the Google search cookie from future installation.
http://dealnews.com/ Go here to locate up to 400 of the best deals available on computers, technology, gadgets, and other items. They say that each deal they list is the absolute lowest price available on that item from a reputable merchant.
http://www.archive.org/ This great place allows you to visit archived versions of web sites going all the way back to the early days of the web. Here you will find more than 10 billion pages archived so, by entering a URL, you can see what that site looked like for a span of many years.
http://www.Pandora.com/ If you love music, use this site to enjoy the type of music you identify – exactly as you ordered it. No downloads – no cost – just a little advertising. Type in the name of one of your favorite songs or artists, a “station” appears that plays songs that are musically similar to the song title or artist you provided. This site is one of the best! Try it!
http://www.Komando.com/ This is a great site for staying current on new technology, new software and internet issues.
Kindest Regards,
Jim Foster
Chase 'N Rainbows Real Estate, Inc.
P.O. Box 10398
Lahaina , HI 96761
Toll Free 888-661-7994
Direct Line 808-661-7994
Cell 808-870-5858
Fax 808-667-2957
Real Estate for Sale www.jamesbfoster.com
Vacation Rental www.chasenrainbows.com
Email jim@jamesbfoster.com
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