If you have ever wanted to see a Maui Council Member’s head explode, talk to Maui Council Member Mike White and mention the property tax disparity between properties assessed with the agricultural property qualification versus properties without the same property tax assessment. It’s enough that “My head just starts exploding.” said Maui Council Member Mike White. By real-world example, two identical neighboring 2.8 acre parcels of land worth millions of dollars each have an inequality that requires one property owner to pay $20,000 in property tax for the year, whereas the neighbor paid a mere $150 for the same time period. Yes, that is correct. Two identical parcels of land, side by side, one taxed at $20,000, the other at $150.
So, what was the difference between these two neighboring pieces of property that allowed for such a huge discrepancy in property tax bills? The property with the substantially lower tax bill was classified as a qualified agricultural parcel due to a small pen used for horseback riding. Because of this horseback riding enclosure, the property value for tax purposes dropped from $5.3 million to a meager value assessment of $100.
Council Member Mike White first noticed the issue when he bought his own parcel of land several years ago. Having paid more than $400,000 for his piece of Olinda Maui paradise, he was surprised when he received his first property tax assessment that valued his land at only $8,800. After being elected to council, Mike White started looking into the issue and found that multi-million dollar estates, assessed with a low agricultural value, were paying substantially less property tax than modest residential landowners, thanks to an assessment system established and unchanged since the 1950’s.
To assess a property’s value using the antiquated system, neither the price of property purchase nor current market value are looked at. Instead, the estimated rental value of the land as agricultural property is considered based on the soil quality of the property’s area. This system was set up in the 1950s by University of Hawaii agronomists and the value that a said piece of property could be rented for is based on what researchers determined a farmland could be rented for. Those values were established 60 years ago and have carried over since, even after 1981 when the county took over the task of assessing properties from the State government. Originally designed to encourage and protect agriculture, the differences in value assessments and tax bills have grown over time.
How can this gap between property tax values be rectified? Council Member Mike White said that the issues needed more thought. “I don’t know what the answer is, but it’s a question we’ve got to ask ourselves,” he said.
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Efforts are on the table and being considered that would bring about changes to make it much more problematic to operate and profit from an illegal unpermitted short-term vacation rental suite in Maui’s residential areas. However, instead of heavier fines and stronger laws, the suggested course of action is to place the burden of proof that there is no illegal short-term rental operation onto the property owner, as opposed to the present system of requiring the government agency to prove there is an alleged illegal unpermitted short-term vacation rental suite available on the property.
As it currently stands, the process of investigating a complaint about an illegal rental suite operation is to have a government inspector visit the residence. If no one answers when they knock, the agent will file a “No suspicious activity” report and be done with it. However, with a simple change in current procedure requiring a bit of online research, it is very possible to find an ad for the alleged offending property and build a proper case. Though private renters traveling to Maui may be both unaware of the illegality of their stay and actually be gone from Maui once the proceedings are underway, changes allowing the government inspector’s “hearsay” as admissible evidence would make requiring the actual renters’ presence at proceedings a moot point. Removing the burden of proof from the government and placing it upon the property owner, allowing inspector hearsay to be admissible, and continuing the $1000 a day fine would go a long way to getting illegal short-term rental property owners to seek the proper channels to make their operation legal and above-the-table.
Deputy Corporation Counsel and Board of Variances and Appeals adviser James Giroux says that stronger laws and heavier fines are not needed. Rather, simply providing proof that the owners were offering short-term rentals over the specific period of time of the complaint, whether the property owners had takers or not, is all that is needed. Trying to catch renters is secondary when online ads featuring full descriptions and addresses are available to be scoured regularly. When such evidence is presented, it will be the property owner’s requirement to prove they were not operating an illegal unpermitted short-term vacation rental suite in Maui’s residential areas, removing the task of having to prove such matters from the government.
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The July statistics for Maui Sales Volume totaled 162 units sold, which breaks down to 65 homes and 97 condos sold. This represents a decline in sales volume over the total for June 2011. The median prices for homes also declined to an average of $410,001, whereas the total average value of condo sales rose to $400,000.
The average Days On Market (DOM) for residential homes was 144, and for condos it was 203. When it comes to DOM statistics, one has to consider whether or not it was NEW or OLD stock that moved, as this will skew the statistics one way or the other, as OLD inventory sales will move the average upward and NEW inventory will move it downward. Another consideration to take into account is that short sales will extend the market’s average DOM, as short sales can take 4-6 months to close.
Being month-to-month timeframe reports do not mirror longer timeframe trends, it is important to do year to year comparisons to realize the bigger picture. When comparing January-July 2011 with the same time frame for 2010, residential sales rose +4% with an average sold price of $780,238 which is an uptick of +2%, an average median price of $441,500 representing a slight downward turn of -6%, but the overall dollar volume of sold units totaled $396,361,086, a +6% upswing. This average includes a bump in last year’s sales due to the 2009-2010 Federal Tax Credit programs, so 2011 numbers may catch up in the months ahead. Sales of condos increased +1% for the same time period with an average sold price of -30% at $510,735, a median price of -23% at $325,000, for a total sales volume of $379,476,462 (-23%). Total sales for the immediate past 12 months are 835 homes and 1154 condos.
Market inventories have declined by 13-20% over the past 12 months, possibly due in part to Act 48, which was signed into law May 6th 2011. With interest rates near record lows, potential Buyers may be motivated to make a purchase if they qualify. With property prices and interest rates so low, now is the time to step up and see what the market holds for the first-time home buyer.
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Maui has always been, and will always be, a very popular destination for vacationing Canadians, but 2011 has seen it become even more popular, with an increase in July 2011 of well over 15% in the numbers of travelers from Canada when compared to July 2010. This increase offset the decrease in Japanese tourists (-18.9%), visitors from US East (-4.4%) and US West (-1.5%). While the overall numbers are down slightly for the season, Canadian tourists have brought a welcome boost to the economy with each and every plane that lands.
The year started off with a boost in the number of vacationing tourists from the US East and West, but those numbers fell off in the second half of the year. Japanese visitors slowed down slightly, and have remained down, following their horrible earthquake and tsunami catastrophe in March 2011.
With the Canadian currency riding strong, Maui Visitors Bureau Executive Director Terryl Vencl said Canadians are “wonderful visitors for us.” With consumer confidence low in the US, friendly cash-laden Canadians are taking up the slack and arriving with money to spend. The Maui Visitors Bureau is “pounding the pavement, if you will, in Canada,” to keep that flow of Canadian tourists streaming into Maui.
For those curious about the actual numbers, July 2011 (213,723 visitors) totaled at 392 fewer visitors than July 2010 (214,115 visitors). This is a drop of 0.2%. However, for the first seven months of the year, the total has been an uptick of +5.6% overall, with 1.32 million this year compared to 1.25 million during the same period last year. Across the state, air travelers fell 1.9%, but it is reported that the folks arriving are staying longer (+5.3% at an average of 7.88 days) and spending more (+5.2% for a total average of $173 per person per day). While statewide arrivals were down by close to 2%, the Canadian traveler numbers jumped a whopping +28.6%, making July the 13th month of double digit growth from the Canadian tourism market.
Overall, regardless of the global economic uncertainty, Hawaii’s tourism economy continues to do well, and continued growth through the fourth quarter and into 2012 is anticipated. HTA President and Chief Executive Officer Mike McCartney said, “With continued interest in new routes to Hawaii, the HTA is working with airlines to maintain and grow airlift to our islands to meet demand.”
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Act 48 was passed into law May 6th 2011 by the Hawaii Legislature and signed by Governor Abercrombie. The intent of the law was to give lenders and property owner occupants the opportunity to negotiate the terms of the loan when payments exceed the ability to pay. The reality of what the law has brought is more congestion to an under-staffed, over-worked and under-funded court system. By example, effective immediately upon the passing of Act 48, Fannie Mae directed that all its foreclosures must be commenced as judicial foreclosures, and any non-judicial foreclosures that have not proceeded to sale are to be dismissed and converted to judicial foreclosures. as one can imagine, this immediately caused the backlog to grow, and it will only become worse as the days move forward.
There are two types of foreclosures a lender may pursue: Judicial and Non-Judicial. The main difference between judicial and non-judicial foreclosure proceedings is that a deficiency judgment against the borrower can happen, but this would not be the case under a non-judicial foreclosure process. Non-judicial foreclosures have two forms, Part 1 and 2. Part 1 is a fast, low cost option for lenders that does not require court or judicial proceedings. Unfortunately, Act 48 has put the brakes on Part 1 until at least July 1st 2012. Part 2 non-judicial also bypasses the need for a judicial proceeding but was not widely used as it required the borrower to sign and return a conveyance document. However, Act 48 did away with this signature requirement, and Part 2 non-judicial proceedings may still go ahead.
The immediate issue with respects to the fallout of Act 48 will be the sudden reduction in bank-owned property available to the market. We have already seen a huge reduction in the number of such listings in the Hawaii MLS and this will only become more so. Existing inventory will be bought up by those buyers looking for bottom of the market pricing. As the inventory becomes more scarce, the prices will go up for the available bank-owned properties.
Act 48 was a good idea on paper that felt apart in a real world application. An already over-taxed court system has now become even more plugged up, delaying judicial foreclosures by up to 5 years. Delinquent homeowners can rest easy knowing it will be a long time before anyone comes knocking to make them pay or leave. The options for lenders to collect on their dues have been limited by Act 48 and will be further hampered by the court system’s backlog. With no budget to remedy the staffing issues of the courts, foreclosures will sit stagnant for years on end until a proper solution to this present situation is figured out and put into action.
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The July 2011 Sales Volume for Maui Land Sales is a lot like it was for June 2011. The number of lots sold is the same, at 13, with a median price rise to $400,000. The average Day On Market (DOM) was 242. DOM numbers are based on the average DOM of properties that SOLD, so if predominantly Older inventory made up the majority of sales, the indicator would be moved upwards, whereas Newer market inventory would result in moving the indicator downwards. These DOM numbers are derived from information provided by the Realtor’s Association of Maui, who calculate Days On Market from List Date to closing Date (not Contract Date), and include the 60 day average required for escrow. Another consideration, when applicable, is that Short Sales usually require 4-6 months to close, which would extend the market’s DOM.
To gain a greater insight of the marketplace’s longer timeframe trend, it is important to look beyond a month-to-month comparison and do a year-to-year comparison. With that in mind, it is also necessary to consider that Land sale statistics may not be a reliable indicator of the market, as the sample size is typically small. That said, there was a decrease in Land Lot sales in January-July 2011 compared to January-July 2010, coming in at -5%. The average price of a sold lot was up +18% at $620,277, whereas the median price fell -27% to total $330,000. Overall total dollar volume was up +13%, coming in at $50,862,751. When looking at a full 12 month trend, there were 123 Land Lot sales in the past year.
With interest rates at some of the lowest rates ever seen, there has never been a better time for a first time Buyer to get into the market. Workshops are available that will teach the first time Buyer how to get their first piece of the market by familiarizing them with the process. Many owners never thought they would qualify before attending a workshop and discovering that ownership is within their ability to achieve. If you are looking to get into the market for the first time, attend a workshop and see what options and possibilities are available to you.
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The June sales statistics for Maui land sales had an UP and a DOWN. The DOWN was a slight decline in total volume of land sales at 13 units sold, but with an UP median value of $299,000 for those sales. The average DOM for land units on the market is right in the middle of home (141) and condo (147) sales at 145 DOM for land units.
Comparing the land sales statistics from Jan-June 2011 with Jan-June 2010 shows that Land sales decreased by -3%, with an average price jump of +20% at $643,744. The median price was down -30% for a value of $315,000, finishing up at a total dollar volume of +17%, or $44,418,351. Keep in mind that Land sales property class samples are too small to provide a truly reliable indicator.
For the past 12 months 124 units of land found new owners.
More detailed information is available at the Realtor’s Association of Maui’s newsletter, which was used as the source of this article’s information.
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The June sales statistics for Maui real estate are in and, as expected, there have been some UP and DOWN.
In the Maui real estate’s UP department, sales of residential properties gained for a total of 81 homes sold at a home median price of $429,000, a value that also represents an upswing. The average Days On Market (DOM) for homes was 141 days, though this statistic can sway either way, depending on whether homes that have been on the market for a long time sell more than newer listings in a given time range.
On the other end of the scale, condo sales took a dip, finishing at 101 sold units at a median price drop of $295,000, a slight decline. The average DOM for condos was 147 days, according to the Realtor’s Association of Maui (RAM), which calculates DOM from Date of Original Listing to Closing Date. [Because of this formula for calculating, the DOM also represents about 60 days of escrow, and Short Sales can add up to 6 months to the individual unit’s DOM, skewing the overall average of the marketplace’s DOM.]
Comparing the Residential sales statistics from Jan-June 2011 with Jan-June 2010 shows that residential home sales had a boost of +4%, but at a slight value decline of -4%, for an average home SOLD value of $732,569. The median price of $445,000 is indicative of a -5% decline in value over the year, but the total dollar volume sold fell a mere -1%, settling at a value of $324,528,034. (2011 sales numbers will most likely catch up as the year goes on, as this number represents a jump the previous year due to the 2009-2010 Federal Tax programs.)
With respects to Condo sales for a year to year comparison, there was a decrease of -3%, with an average SOLD value of 4527,534 (-30%), and a median price of $325,000, a -24% decrease. The total Condo dollar volume fell by -33%, tallying up at $320,259,146.
For an overview of sales for the past 12 months, there were 830 residential units sold and 1125 condos changed hands
A month-by-month year-by-year breakdown comparison chart of the unit sales numbers is available at the Realtor’s Association of Maui’s newsletter, which was used as the source of this article’s information.
While Residential and Condo sales have shown an increase over the past six months, the next few months will determine whether or not this will be an ongoing trend. With interest rates remaining at an all-time low, potential Buyers may convert if they can qualify. With interest rates threatening to start inching upwards, pre-approval for Buyers will allow them to shop with the assurance of a secured loan ready to go.
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Hawaii June 2011 foreclosures are down a whopping 66% compared to June 2010. One year ago, Hawaii was faced with 1000 foreclosures, but June 2011 saw only 344 filings for foreclosures, the lowest foreclosure rate in Hawaii since January 2009, a dramatic drop by any assessment.
January 2009 saw the paperwork filed for a total of 337 foreclosures, at a time when the hill of troubled mortgages was growing into a mountain. Well, it seems the mountain has peaked and, thanks largely to Hawaii’s new foreclosure law, Act 48, which was put into action this past May, lenders are now required to make every effort to negotiate loan modification plans with borrowers. Lenders and borrowers will be able to negotiate these loan modification plans with the state Department of Commerce and Consumer Affairs’ mediation program, a program that will be operational October 1st. Until then, the state Department of Commerce and Consumer Affairs will not be accepting any new out-of-court (non-judicial) filings. Being the majority of Hawaii foreclosures are routed through the faster and less-expensive non-judicial process (when compared to the cost and lack of speed through the court system), Act 48 has effectively stalled any more foreclosures from being filed through the non-judicial process. Instead, lenders have started to file more cases in Circuit Court. However, even with the filings in judicial foreclosures having increased, the total number of foreclosures in Hawaii is down by over 45% when compared to the same month last year.
Judicial foreclosures numbers are derived from new foreclosure filings. Due to the fact that the data numbers include residential and commercial property foreclosures, the numbers do not reflect the exact number of home foreclosures. Of the 344 foreclosures filings for June 2011, almost half were lender repossessions which occur when the property fails to secure a buyer at auction.
The drop in foreclosures have had the added benefit of moving Hawaii from a nationally “12th worst” (May) for foreclosures to the much more palatable “16th best” (June). Nationally, according to RealtyTrac, there is 1 foreclosure filing per 584 households. In Hawaii, the number is at 1 foreclosure per 1500 households, a significant difference against the national average. Also helping the foreclosure numbers is the processing and procedural delays that are causing delays of a year, or even more, against foreclosure filings. “Recovery is unlikely to happen until the current and forthcoming inventory of distressed properties can be whittled down to a manageable number.” James Saccacio, RealtyTrac chief executive officer, said. Thus, anything that can help space out foreclosure filings to allow the process to work through the pile is a good thing with respects to helping get the market back under control.
By facilitating more loan modifications to prevent foreclosures while still allowing lenders to repossess where there is no chance of payment at even with a reduced mortgage, Act 48 will go a long way with helping resolve the foreclosure mess that Hawaii is managing to get control of.
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In June 2011, the Maui County Council Budget and Finance Committee voted unanimously to lower Maui’s homeowner property exemption to 2005 levels. Homeowner exemptions give homeowners a tax break by reducing the assessed value of a home occupied as a residence. If approved by the full City Council, the Committee’s recommendation would mean that the exemption, currently set at $300,000, would be reduced to $200,000. This reduction would take effect in July 2012 and would provide the county with an additional $5.3 million in property taxes if the tax rate were to remain the same.
Since 2003, Maui’s homeowner exemption was raised several times in an attempt to provide relief from skyrocketing property values. In fact, the exemption increased from $50,000 to the current $300,000 in just three years. However, Maui real estate values are now declining and are expected to continue to do so by another five to 10 per cent over the next year. Since declining property values result in lower tax revenues, a reduced exemption would help to offset the lower property values.
However, even when reduced to $200,000, Maui’s homeowner property exemption would still be the highest in the state, with the next highest exemption of $80,000 available in Honolulu. Kaui and the Big Island offer even lower homeowner exemptions, with their basic exemptions set at $48,000 and $40,000 respectively. In addition to offering the highest homeowner exemption, Maui also has the state’s lowest tax rate at $2.50 per $1,000 of assessed value. Again, Honolulu comes in second with a tax rate of $3.42 per $1000 of assessed value.
While Maui’s homeowner property exemption, even if reduced to $200,000, compares very favorably to the rest of Hawaii, it also compares favorably to the rest of the country. Los Angeles and San Francisco, for example, offer maximum homeowner exemptions of $7,000. With a maximum of $12,000, Chicago offers a higher exemption than California’s major cities and yet still falls far below Maui’s exemption. While it is possible to find higher exemptions on the mainland, such as the State of Idaho’s maximum exemption of $92,040, Maui’s exemption still remains significantly higher, even with the recently recommended reduction.
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