Viewpoint: Analysis and Observations from Kahala Associates Oahu Luxury Real Estate Remains a Stable Investment in 2011 Executive Summary Oahu s luxury real estate market has unique attributes that has enabled it to withstand the recent recession and, over the past five years, retain home values when the rest of its comparable markets were experiencing a deep contraction. Currently, the Oahu luxury real estate market is slowly, but steadily improving. Unique Market Attributes Oahu is the 3 rd largest island in the U.S. Hawaiian Islands, and is situated 2,500 miles from the U.S. mainland and 3,800 miles from Tokyo, Japan. Poised at the crossroads of East and West, this idyllic island community maintains a dramatically distinct sense of place and a luxury real estate market that is the envy of its comparable peers in other national and international locations. Oahu s unique market attributes provide a set of conditions such that a bear market in the East can be buffeted by a bull market in the West, or vice versa. Other factors like a limited supply of inventory, steady demand and life in paradise add up to a market that rarely trends in step with any other. Indeed, while measurable loss of equity began in many comparable luxury markets in 2008 and continues today, luxury market values on Oahu have largely remained within a single digit percentage point of their 2005 values; the last market peak (see Table 2). Owning real estate that has retained its value or is appreciating during the current cycle is a luxury in itself. Happily, demand for luxury homes, which had been slowly declining each year since 2005, made a turnaround in 2010 (see Table 1 - % Changes in Number of Closed Sales). More luxury homes were purchased in 2010 than in 2009 across all luxury segments; an upward tick for this indicator for the first time in over five years. As if ocean views and tropical weather weren t enough of an attraction, a stable market which has held its value and which is now past its shallow 2009 recession provides Oahu with a very bright outlook in 2011. Kahala Associates: Viewpoint 1 January 2011
The Luxury Single Family Home Market For a deeper look at market activity, we track three important indicators across four distinct price segments: Market Indicators Closed Sales Median Sales Price Months of Inventory Market Segments Sales from $1 MM to $2 MM Sales from $2 MM to $3 MM Sales from $3 MM to $5 MM Sales over $5 million Table 1 - % Changes in Number of Closed Sales The 2010 turnaround in number of closed sales is a clear indicator of market turn around in 2010, a trend mirrored in the overall Oahu market as well. Kahala Associates: Viewpoint 2 January 2011
Table 2 - % Changes in Median Sales Price Only the $5 million + segment shows % changes broader than +/- 10%, more a reflection of the depth of that segment (see Table 3 Closed Sales Over $5 Million). Table 3 Closed Sales Over $5 Million (Detail) SalesPrice ClosedDate Neighborhood Region SoldTerms $22,000,000 09/15/10 Kahala Area Diamond Head Cash $17,500,000 07/26/10 Kahala Area Diamond Head Cash $7,800,000 05/20/10 Koko Kai Hawaii Kai Conventional $7,350,000 03/08/10 Beachside Kailua Conventional $7,000,000 09/10/10 Paiko Lagoon Diamond Head Cash $6,900,000 07/09/10 Beachside Kailua Cash $6,650,000 12/23/10 Black Point Diamond Head Conventional $5,850,000 09/08/10 Koko Kai Hawaii Kai Cash $5,350,000 11/24/10 Diamond Head Diamond Head Cash $5,000,000 02/23/10 Lanikai Kailua Cash Kahala Associates: Viewpoint 3 January 2011
Table 4 - % Changes in Months of Inventory 2010 months of inventory reductions across all luxury segments are another key indicator of increased demand. Months supply of inventory is an indicator of how long it will take for all of the homes on the market to be sold, based on how many homes are currently on the market and the rate homes have sold in the past. Table 5 Months of Inventory (Detail) 1 2 Million 2 3 Million 3 5 Million 5 Million + 2005 8.0 13.4 13.5 35.3 2006 9.7 15.3 14.1 30.5 2007 9.2 16.3 17.2 27.7 2008 14.4 22.3 32.4 22.7 2009 10.9 25.4 25.2 41.5 2010 8.2 17.0 23.5 26.5 Kahala Associates: Viewpoint 4 January 2011
The Luxury Condominium Market For the best snapshot of condominium market activity, we look at the same three indicators across two price segments: Market Segments Sales from $800,000 to 1 MM Sales over $1 million Table 6 - % Changes in Closed Sales Kahala Associates: Viewpoint 5 January 2011
Table 7 Condominium Highest Sales Top 10 (Detail) Building Name City Closed Date Sales Price Year Built Nauru Towers Honolulu 8/9/10 $4,750,000 1990 3019 Kalakaua Ave Apt Honolulu 2/18/10 $3,900,000 1961 Trump Tower Waikiki Honolulu 6/3/10 $3,696,900 2009 Hokua At 1288 Ala Moana Honolulu 2/26/10 $3,500,000 2006 Diamond Head Apts Ltd Honolulu 5/6/10 $3,440,000 1957 3003 Kalakaua Honolulu 11/24/10 $3,300,000 1962 Trump Tower Waikiki Honolulu 6/2/10 $3,288,000 2009 Hokua At 1288 Ala Moana Honolulu 8/19/10 $3,200,000 2006 Trump Tower Waikiki Honolulu 9/15/10 $3,075,900 2009 Hokua At 1288 Ala Moana Honolulu 1/8/10 $2,950,000 2005 Table 8 Condominium sales over $1 million (Summary by Building) # of Sales Building Name City Year Built 20 Hokua At 1288 Ala Moana Honolulu 2006 6 The Vanguard Lofts Honolulu 2010 6 The Watermark Honolulu 2008 6 Trump Tower Waikiki Honolulu 2009 5 Beach Villas at Ko Olina Kapolei 2008 5 Koolani Honolulu 2006 4 Hawaiki Tower Honolulu 1999 4 Nauru Towers Honolulu 1990 3 Courtyards At Punahou Honolulu 1993 3 Waikiki Beach Tower Honolulu 1983 2 3003 Kalakaua Honolulu 1962 2 Coral Strand Ltd Honolulu 1961 2 Diamond Head Apts Ltd Honolulu 1957 2 Kalele Kai Honolulu 1993 2 La Pietra Honolulu 1970 2 Waikiki Landmark Honolulu 1992 1 3019 Kalakaua Honolulu 1961 1 3056 Kalakaua Honolulu 1968 1 Alakea Corporate Tower Honolulu 1993 1 Colony Surf Ltd Honolulu 1959 1 Ilikai Apt Bldg Honolulu 1965 1 Kainalu Honolulu 1958 1 Keola Lai Honolulu 2008 1 Lanikea At Waikiki Honolulu 2005 1 Ocean Villas At Turtle Bay Kahuku 2005 1 Oceanside Manor Honolulu 1974 1 Queens Court At Kapiolani Honolulu 1984 1 Regency At Kahala Honolulu 1969 1 Waikiki Shore Honolulu 1960 Kahala Associates: Viewpoint 6 January 2011
Table 9 % Change in Median Sales Price Table 10 % Changes in Months of Inventory Kahala Associates: Viewpoint 7 January 2011
Annual Update Single Family Condo Closed Sales 1-2 MM 2-3 MM 3-5 MM 5 MM + 800K - 1MM 1MM+ 2005 505 88 47 15 136 139 2006 427 67 35 19 312 290 2007 436 62 42 15 160 110 2008 289 41 25 21 89 82 2009 216 26 22 9 54 56 2010 306 40 23 10 64 94 Median Sales Price (in millions) 2005 $1.30 $2.32 $3.50 $7.98 $0.86 $1.43 2006 $1.28 $2.46 $3.60 $6.10 $0.88 $1.40 2007 $1.24 $2.28 $3.67 $6.25 $0.87 $1.44 2008 $1.28 $2.35 $3.68 $7.15 $0.87 $1.31 2009 $1.25 $2.40 $3.64 $5.50 $0.85 $1.43 2010 $1.25 $2.45 $3.60 $6.90 $0.88 $1.52 Months of Inventory 2005 8.0 13.4 13.5 35.3 6.9 9.2 2006 9.7 15.3 14.1 30.5 4.7 4.8 2007 9.2 16.3 17.2 27.7 6.5 15.6 2008 14.4 22.3 32.4 22.7 16.1 25.1 2009 10.9 25.4 25.2 41.5 11.4 26.1 2010 8.2 17.0 23.5 26.5 10.5 13.5 4th Quarter Update Single Family Condo Closed Sales 1-2 MM 2-3 MM 3-5 MM 5 MM + 800K - 1MM 1MM+ Q4 2008 61 7 9 1 14 14 Q4 2009 78 9 11 1 22 17 Q4 2010 91 12 3 2 15 35 Median Sales Price (in millions) Q4 2008 $1.20 $2.33 $3.70 $5.00 $0.88 $1.29 Q4 2009 $1.26 $2.40 $3.39 $5.50 $0.88 $1.55 Q4 2010 $1.23 $2.45 $3.60 $6.00 $0.88 $1.39 Months of Inventory Q4 2008 14.4 22.3 32.4 22.7 16.1 25.1 Q4 2009 10.9 25.4 25.2 41.5 11.4 26.1 Q4 2010 8.2 17.0 23.5 26.5 10.5 13.5 Kahala Associates: Viewpoint 8 January 2011
Summary In addition to its year-round tropical weather, Oahu s luxury real estate market has remained more stable than other comparable markets for three main reasons: Hawaii s limited geography / supply has helped it withstand recent housing market turmoil. There is simply only so much space to build new homes thus creating a limited supply. Oahu attracts a diversity of buyers including local buyers but also mainland U.S. and Asian investors attracted to Oahu s luxury homes primarily as second-property investments. Hawaii is uniquely positioned, geographically and politically, for buyers from China, Japan, South Korea and Thailand who are interested in luxury homes in Hawaii as an entry point to the United States for personal as well as financial reasons. Moving forward into the first quarter of 2011, Kahala Associates sees confidence building in the market and continues to experience an increased number of clients looking for opportunity in the Oahu luxury real estate market. That confidence comes from trust in the stability of Oahu real estate. Kahala Associates: Viewpoint 9 January 2011
The Largest Luxury Network Kahala Associates is a charter member of Luxury Portfolio International, the largest global network of premier locally branded companies dominated by many of the world's most powerful independent luxury brokerages. The Top Hawaii Luxury Home Specialists Kahala Associates is honored to have the highest number of Certified Luxury Home Marketing Specialists in Hawaii, documenting performance in the top 10% of the market. Based on information from the Multiple Listing Service of the HICentral MLS, Ltd. and 10K Research. Information is deemed reliable but not guaranteed. Kahala Associates - Hawaii Real Estate Licensee(s) 4211 Waialae Avenue, Suite 8090 Honolulu, Hawaii 96816 (808) 735-7500 info@kahalaassociates.com Kahala Associates: Viewpoint 10 January 2011