Many investors buy real estate to capitalize on appreciation costs over time or to flip property. Some instead, choose to buy land and build their own property for a profit. According to Locations Hawaii, the state is currently seeing historic times of real estate development and prosperity. Major housing developments, such as Koa Ridge and Ho’opilii, are being implemented across Oahu [1]. These housing developments are massive, consisting of thousands of newly built homes, large shopping centers, recreational areas, and more. But with the cost of land plots, permits, taxes, infrastructure, and even lawsuits, an investor may wonder if the payoff is even worth all the effort.
Hawaii’s real estate market has gradually grown in value over the past several decades. Real estate values did see an average drop of $50,000 after the 2008 stock market crash, which has since surpassed its original value before the crash [2]. The Hawaii State Department of Business, Economic Development and Tourism (DBEDT) reports that housing in Hawaii is expected to grow throughout 2025 [2]. The U.S. Census Bureau has confirmed that Hawaii’s population is increasing, citing higher birth rates than death rates and international migration as the two main causes [3].
International migration has played a big part in Hawaii’s real estate market. Being one of the most desired places to travel and vacation at, many foreigners fall in love with Hawaii, prompting them to consider moving to Hawaii or buying a vacation home. According to Title Guaranty, Hawaii real estate is most sought after by the Japanese, buying 438 properties and spending a total of $578.7 million in 2017 alone [4]. Thereafter, the top 2017 foreign investors were Canada ($140.3M), China ($40.7M), Hong Kong ($84.0M), South Korea ($26.8M), Singapore ($35.6M), Australia ($12.0M), Taiwan ($5.3M), Guam ($11.5M), and Germany ($0.8M) [4].
To further break down the real estate bought by foreign investors, out of the 438 homes bought by Japanese nationals, 411 properties are on Oahu alone. Out of the 411 properties, 355 are located in Honolulu, 32 on the Windward side, 18 on the Leeward side, and 6 in central Oahu [4]. Honolulu by far was the most popular location, with 445 homes purchased overall by foreign investors [4].
As for stateside investors, over $12 billion was spent in real estate purchases in 2017. Locals spent the most on real estate totaling $9.4B in 2017 [4]. Thereafter the top spenders were, California ($1.5B), Washington ($1.5B), Florida ($181.8M), Texas ($153.9M), Oregon ($102.2M), Colorado ($96.5M), Arizona ($64.3M), Nevada ($94.5M), and New York ($56.9M) [4]. Again, Honolulu was the most desired location. However, it seems Americans preferred Leeward and Central Oahu, buying more real estate in these locations, than Windward [4]. Some real estate was also purchased on North Shore, though these purchases were exclusive to American Buyers [4].
Housing demand is on the rise according to the DBEDT, and with more money being spent on real estate than ever before, now is the time to invest. To meet this increasing demand, there must be adequate supply. That is what new housing projects such as Ho’opilii in West Oahu and Koa Ridge near Mililani aim to provide. Ho’opilii is planning to add approximately 11,750 new homes and Koa Ridge aims to add 3,500 new homes [1]. These housing projects intend to offer numerous amenities, such as shopping centers, offices buildings, and parks. They also intend, to be quite lucrative for their investors.
According to most real estate agents and Masterpiece Construction LLC, the average cost per square foot to build a new home in Hawaii is about $250 [5]. This includes high quality fixtures and furnishings. However, a developer can reduce that price by at least a $100 per square foot [5]. To build a home that is 1,500 sq. ft., it would cost roughly $225,000. The infrastructure and land for that property would cost roughly $105,000 (Land bought in Bulk). In total, one home can cost as little as $330,000 to build and prepare for sale. A 1,500 sq. ft. single family home on Oahu is selling on average for $650,000, after taxes, escrow, and additional fees, that means a potential of up to a $200,000 return on investment. Multiplying this return by the large number homes in the above-mentioned projects and it becomes clear that the investment is very profitable.
Considering the profit per house for these large-scale projects can be so high, any hassle is worth the effort. Contractors and builders have been purchasing land with the hopes to find the right investors, while the market is on the rise in addition to the demand. But contractors and builders aren’t the only ones who can turn a profit by building. Homeowners can also save by building their own custom home versus buying a new one. While vacant lots in Hawaii can be expensive, keeping the building costs low is possible, with the right contacts.
As mentioned above, the average building cost is $250/sq.ft. for a typical home. However, with proper planning and the correct guidance from a knowledgeable contractor like Masterpiece Construction LLC, it is possible to lower this cost. Even lowering this cost by $50/sq.ft. can be enough to make building your own home a cheaper option. In addition to saving money, you also have control over the layout and appearance of your new home, and you can easily add custom touches. To ensure profitability on your development project here in Hawaii, please contact Masterpiece Construction LLC early on for your design and build needs.
[1] https://www.locationshawaii.com/learn/market-reports/market-insights-report-2018/
[2] http://files.hawaii.gov/dbedt/economic/reports/2015-05-housing-demand.pdf
[3] http://files.hawaii.gov/dbedt/census/popestimate/2016-county-population-hawaii/County_Pop_Fact_2016_Final.pdf
[4] http://www.tghawaii.com/q4-2017/
[5] https://www.alohatony.com/blog/buy-a-house-or-build-one-in-hawaii/
