In the early part of 2005, the announcement by the governments of the United States and Japan that 8,000 Marines and their families would be relocated to Guam brought hope for the real estate industry which had been in a decade and-a-half decline. Eyes from Asia, the United States and the local community turned to the Guam market as a potential real estate treasure. The $10.2 billion to be spent on the relocation of the Marines beginning in 2010 is viewed as a boost to the local economy that will spark real estate demand. It was in 1989 and early 1990 that Guam last experienced a real estate boom. Investors from Japan and other parts of Asia began to purchase any type of property available as the Asian economy rose and investors looked to invest in Guam property. The price of Guam property skyrocketed and it was the opportune time to sell.
In 1990, the real estate market experienced the beginning of what was to become a 12-year decline in property sales on Guam. The collapse of the Japan Nikkei Index and downturn in the Japanese economy caused investors to pull out of Guam and invest elsewhere. The Persian Gulf War also caused the real estate market to suffer as property values plummeted.
The real estate sector suffered from 1990 to 2002 as property values declined annually with no apparent hope of rising in the foreseeable future. A piece of land in Tumon in 1989 sold for $3,000 per square meter and in 2002 sold for $300 to $500 per square meter, representing a major decrease.
The condition of the island’s real estate market was at the point where people’s homes were being foreclosed on because they were unable to make their payments. Banks could not refinance homes because most properties were valued less than what people owed on them.
In 2002, Guam’s real estate market had reached rock bottom. It was at a point where there was nowhere to go but up. Hitting the bottom caused the value of properties to decrease, therefore making it more feasible to buy at a low price and sell at a higher one. Christopher K. Felix president and principal broker of Century 21 Realty Management Co. says, “The value of the properties got down to the point where it made sense to start buying again…and it made sense for investors to start to invest.”
Investors, not only from Asia but also the mainland, began to take interest in developing and buying properties on island. As the news of the Marine relocation was beginning to spread, the real estate markets in Hawaii and California had reached the end of their seven-year cycle, prices were beginning to drop and investors had to look elsewhere to invest their money.
During this same period, the Korean government allowed Korean companies to invest their money outside of Korea for the first time. This gave Korean businesses the opportunity to take their money and invest it in Guam’s real estate. The purchase of land in Tumon and Tamuning by Korean investors meant more condominiums for not only the local and military market, but also for smaller investors in Korea who wanted to invest outside Korea. “These three things happened at the same time and our market [was] going crazy,” says Felix.
Today the real estate market is not where it was in 1989, however it is doing better than it was in 2002. According to a release from the Captain Real Estate Group of Companies, the first half of 2008 showed a 40% decline in sales activity compared with 2007 figures. Through June 2008, the company reported $409.3 million in annualized sales, down by more than 40% from the $686 million in sales reflected in 2007.
This significant decrease in sales is due, in part, to the recent development moratorium placed on developers by the Guam Waterworks Authority, to an increase in mortgage recordation fees, and utility connection charges and rate increases, according to the Captain release.
However, the most significant circumstance causing the 2008 slowdown is the “wide gap between buyer and seller expectations,” according to W. Nicholas Captain, president. Other factors noted by the Captain Group as contributing to the drop-off are the higher prices in the local market, competition for foreign investment as markets in the U.S. mainland have seen property values plummet, and fewer high-priced “trophy” asset sales, such as hotels and golf courses.
A comparison of the real estate market eight years ago to the first half of 2008, shows how much of an impact current world and local issues have affected the industry. “It’s exciting to know that the real estate factors in our economy have been showing an upward growth, and in turn assisting in values of [the] current market,” says Christopher Salas, office manager and realtor of Argent Estates Realty.
The May announcement of GWA’s development moratorium coming, as it did, as the island is experiencing one of the best real estate markets it has seen in a long while caused an uproar among realtors. “The development moratorium was a fatal blow to numerous potential developers considering investing on Guam,” Captain says.
The moratorium halted development in East Agana, parts of Hagåtña, Tamuning, Upper Tumon, Harmon and a section of Tumon Bay from the Pacific Islands Club heading south toward the Hilton Guam Resort & Spa. Properties whose water systems are connected to the Hagåtña Sewage Treatment Plant will be affected. This includes all single-family homes, condominiums, apartments and commercial buildings.
“GWA is asking any big projects hooking up [to the treatment plant] to pay $1 million. For residential homes, just to hook up to GWA is $8,000,” says Arnold Jose, principal broker of Jose Realty and president of Guam Association of Realtors. ‘We are going through an adjustment period, investors both on Guam and in Hawaii are being cautious because of this capital outlay and returns are diminishing. Now people are going to rethink their investment.” He adds that the moratorium is a capacity issue, “It’s something that we don’t like. But, what can we do about it?” Since the moratorium took affect, investors and developers are beginning to feel its impact. “Because the government failed to meet certain standards [regarding wastewater control] they are now penalizing developers,” says Felix. The investor who wanted to begin development in Tamuning is going to pull back because of the moratorium; he is going to lose money, Felix says.
“Any hindrance of any development has a negative impact on our growth no matter where it is,” says Salas. “I think we should all work toward a solution to ensure our economy is not drastically affected, but at the same time still respect the land and ensure we will not have extreme environmental consequences by ignoring it.”
Though the moratorium presents a significant obstacle for the real estate community, there is some positive effect. “On a positive perspective, we see it as an opportunity for investors to look outside of the box,” says Salas. “Swaying investment dollars to other undeveloped or less desirable areas of Guam will help improve those communities.”
Still, with problems arising from the moratorium to the increase in construction and the cost of properties, the real estate industry on Guam will continue to develop and grow as these changes occur while searching for an end to the moratorium. “We look forward to a resolution of the moratorium issue as quickly as possible,” the Captain release says.
Salas says he believes the moratorium probably won’t last for more than three years, “With the many strong voices we have in the market, I believe this moratorium won’t last as long as it is expected.”
Home sales on Guam have fluctuated during the past few years. At the beginning of 2000 the number of apartments sold had decreased 33.3% from 1999; the sale of single-family homes decreased 21.5%; and condominium sales rose 5.1% compared to the previous year.
During the first half of 2008, the number of apartments sold dropped 44% from the previous year; single-family home sales dropped 7.5%, and condominium sales also declined 28.4% on an annualized basis compared to 2007.
During the last nine years, the median price of a single-family dwelling has gone from $150,000 in 1999 to a low of $114,995 in 2003 and up to $199,100 in mid-2008. The median price of condominiums in 1999 was $121,000; it dropped to $73,000 in 2003 and is currently $130,000, though it reached a high of $144,850 in 2007, according to figures from the Captain Real Estate Group.
Location is of primary importance in the value of a residential property on Guam. Many people want to be able to have the luxury of shopping and entertainment districts at their doorsteps which is why investors have found more value in developments in the Tumon-Tamuning district. Others, however, prefer to have property with a yard and an option to expand.
Investors are also concerned with the infrastructure of the areas in which they are purchasing. “People always want to build near sewer lines [because] you can subdivide the property and maximize your investment,” said Elizabeth Duenas, Re/Max Diamond Realty associate broker.
Single-family homes on Guam range from about $100,000 to $200,000 for starter homes and for lower income families, from $250,000 to $300,000 for middle-income families and from $400,000 to $800,000 and more for families with high incomes, according to figures from The Captain Group.
The median price of a single family dwelling during the second quarter of 2008 was $199,100, according to the Captain release. The 203 houses sold during the second quarter of 2008 reflected the strongest quarter in more than a decade. Captain reported that high-priced residential property sales are especially weak due to the wide gap between seller and buyer expectations. That is, sellers anticipate high property values caused primarily by anticipation of the military buildup and buyers are not yet ready to pay the higher prices.
Military real estate investors are about evenly divided in their preference for single-family dwellings or condominiums. “[Half of my military customers] want a condominium where they don’t have to mow lawns,” says Felix. “The other half are the ones with a wife and kids. They want a yard for the kids to play in.”
Investors who are new to the residential real-estate market have come to realize that most single-family home developments on Guam are different from the mainland. On the mainland, most homes are located in cul-de-sacs with neighbors and in some places, even a security officer. “On Guam we’re talking about buying a $400,000 home and being able to have a chicken ranch right next door,” says Felix.
Though traditionally homes on Guam have been different from those in the U.S. mainland, the island is being introduced to a new, modern type of subdivision.
The majority of subdivisions on island have been around for decades. From the Kaiser subdivision in Dededo to the housing area of Hyundai Santa Rita, the need for new housing developments was inevitable. On the mainland, gated communities for families are popular and provide a sense of security for homebuyers. “Gated communities are the new Guam neighborhoods for executives,” says Felix.