Foreclosures are Hurting the Hawaii Condo Market
A recent article in the StarAdvertiser explained why the foreclosure problem is hurting Hawaii condos even more than single family housing. There are 2 main reasons. When an owner stops paying the association fees, this hurts all owners in the project, and may force the complex to raise fees. Also, when units sell for low prices - some even for $1 at auction - it lowers the values of all the homes in the complex.
The foreclosure crisis is especially worrisome here, because Hawaii has the highest concentration of homes in condo and community associations of any state in the country. Roughly 30% of Hawaii's housing stock is in such associations, according to state and federal data.
While no one compiles reliable condo foreclosure statistics, anecdotal evidence suggests the problem is widespread, affecting low-end and upscale properties, especially those with a high percentage of investor-owners. Adding to the growing foreclosure problem are financially strapped condo owners who have mounting delinquent maintenance fees but are not yet in foreclosure.
Attorneys and property managers who represent condo associations say most projects are struggling to find ways to offset foreclosure-related budget shortfalls, deferring maintenance, raiding reserve accounts or increasing monthly fees, essentially making the paying homeowners pay more.
Some projects have raised fees by double-digit percentages or are planning to do so in the next budget cycle. When fees are increased, more homeowners tend to fall behind because of the higher payments, putting additional pressure on condo boards to raise fees again. That can trigger a snowball effect.
The problem is statewide, and by no means worse in our Hawaii Kai associations. But, because of the age of many of our buildings, the crisis is worse than for newer complexes. Many projects, built in the late 1960s or 1970s, are at an age when major renovations, such as costly structural repairs, are needed. Yet just when the money is needed to do the work, more homeowners are not able to pay their bills.
Condo associations in Hawaii were given the authority in the late 1990s to use the nonjudicial process, which occurs without court oversight. But they didn't start aggressively using it until the last few years. While some nonjudicial cases can be completed within 90 days, others last months, with each delay adding to the delinquency tab, according to condo groups. Some cases aren't resolved for a year or two.
When condo groups foreclose on units that are "under water," no one other than the association typically bids at the auction because of the negative equity of the homes. In a nonjudicial process, the association usually bids $1 to get ownership and, after making repairs, rents the foreclosed condo to a short-term tenant. Until the lender initiates its own foreclosure action to take back the home, the association is able to generate revenue from a property that otherwise would be a financial drain.
But if encough units in a project sell for $1, obviously values in that complex will be adversely affected. Call or email me if you are considering purchasing a condo in Hawaii Kai, and I'll discuss with you the strength of the association and the number of owner-occupied homes. I've been selling real estate here for more than 20 years, and know many of the managers personally. Hawaii Kai condos are still a great buy, but we need to carefully study the financial documents during your decision process.
Barbara Abe, Realtor
808-226-2537
barbara@barbarashawaii.com
www.movetohawaiikai.com
www.barbarashawaii.com