Talk to almost any professional in the real estate market, and you will hear a familiar refrain — the single greatest influence on Guam's real estate market today (and yesterday, and tomorrow) is the proposed U.S. military buildup.
Although other factors, like the global economic downturn, have also played a role in the state of real estate on Guam, the military buildup remains heavily on the minds of realtors and other real estate professionals. Most recently, the delay and rescaling of the Marine relocation has had a dampening effect on the market within the last year.
"There was a lot of indecisiveness as far as not knowing what's going to happen because of the military buildup. And there were so many delays put on it and investors," says Robert L. Peryon, vice president, Robert & Robert Associate Appraisers. "On the real estate side of things, some of the deals that I had done prior, like in 2010, for rentals — we did a lot of rentals — a handful of them offered the owners to get out, paying them one lump sum. Several of them scaled back, several of them just said, 'We'll be back; when things happen, call us.' So it was a very iffy kind of year. And it brought that into 2012, too."
Elizabeth C. "Liz" Duenas, associate broker at ReMax Diamond Realty, also saw this phenomenon play out at her firm. "Right at the beginning, when they talked about the buildup, it created energy and excitement and all these companies were coming in. And a lot of them came in and invested their money, their time, and their effort. And some of them hung in there a year or two, figuring that it'll pay, then only to have to pull the plug on their residential leases, on their commercial leases. So it did affect the community."
The market statistics bear this out, according to a Captain Realty Advisors "2011 Year in Review" report released in February. "Market sentiment regarding the buildup downsizing by up to 70% varies, but the shock of a massive scale back in expectations remains reverberating among local and foreign investors. As downsizing news spread by late 2011, real estate sales in the fourth quarter tanked to pre-buildup 2004 levels of around $50 million. Many recent investments designed to capitalize on the buildup, especially worker housing and industrial property, have suffered from weak demand."
The overall numbers for 2011, however, provide a more complete picture of real estate activity. Although fourth quarter total real estate sales were down, 2011 year-end figures showed a 25% increase over 2009, to $307.1 million in sales volume, although that number is still low compared to sales from 2006 to 2008.
The report also notes that "market stability in 2011 was highlighted by Guam's residential sector. Single-family home sales reflected $141.3 million in 2011, down a smidge from the $141.7 million recorded in 2010. The condominium sector reflected $31.4 million in 2011, off slightly from the $32.2 million reflected in 2010."
These figures may reflect stability, but as the Captain Realty report explains, total housing sales are still relatively low. "The flat residential dollar sales in 2011 [occurred] along with shrinkage of 8% in the number of houses sold, which reflected 542 units in 2011. Unit sales volume peaked during 2006 to 2008 with over 700 houses sold annually. The 2011 unit sales volume reflected the slowest pace in a decade."
The slow pace of sales is due mostly to an oversupply of housing, spurred on by the initial announcement of the military buildup. "We got the first word of the military buildup [and] everything went crazy as far as investors. A lot of contractors started buying up land; the 400-home Paradise Estates subdivision went up," says Peryon. And in the back of my mind I was kind of concerned about this, because I thought, even if the military buildup does happen we're going to have an oversupply of houses. So here we are, first quarter of 2012, and that's already happening. We've got a lot of available homes in the $350,000 on up to $500,000 [range], [and] not a lot of qualified buyers.
As a result of the slow sales market, developers and owners are increasingly turning to leasing as an option. "So what's happening is that if the developer can't sell it quickly, then it's better to get the income generated [through renting] so at least they're not losing anything until the market gets better for them to sell it. [So] I'm seeing owners, if they can't sell it quickly, they may be more apt to put it on the market and rent it," says .
Christopher Felix, principal broker at Century 21 Realty Management Company Inc., says that his company has had to adapt to both assist owners looking rent rather than sell, and to make up the revenue from lost sales. "We are able to survive [in the] current market, but [with] about 20% decrease in [our] commission income. Property management, however, has increased as sellers who cannot sell use property management services."
Not everyone has experienced this slowdown in residential home sales, however. Anthony Godwin, broker/realtor at Today's Realty, says that his company is already exceeding 2011 sales figures across the board, and expects the trend to continue.
"We're selling" says Godwin. "We're doing [home] staging and brand marketing to adapt, but our job is to match buyers with houses. Our main concerns are price, quality and financing."
Godwin says that the financing aspect of the real estate business has become more challenging in recent years. "The money's out there, it's just who can get it and how." He says that he works with clients to get pre-qualified and pre-approved for mortgages, so that they have a better idea of what kind of home they can afford.
That Guam's financial institutions largely missed the mortgage crisis of 2008 speaks to the strict lending practices alluded to above, and Guam's relatively low rate of home foreclosures since. And while most of the island's financial institutions have maintained their high lending standards, low mortgage interest rates have kept the public's general awareness of low-cost opportunities to buy, and in particular, refinance, family homes relatively high.
According to figures tracked and provided by Kim Anderson Young, president of Security Title Inc., there were 1,607 mortgages recorded in 2011 for a total dollar value of $505.07 million. That was down from 1,790 mortgages worth $894.35 million in 2010.
Despite the sharp decrease in 2011 over 2010, Anderson is positive about future prospects. "The market is what it is. We cannot use the high points of 2005 [to] 2008 as normal for today. What is normal is happening right now. Current interest rates are driving commercial and residential refinancing, and I am optimistic that year 2012 will surpass 2011, if not 2010."
Laura-Lynn V. Dacanay, senior vice president and Guam and CNMI Region manager of First Hawaiian Bank, mirrors Anderson's assessment. "Due to federal monetary policy, mortgage rates have slowly declined to their lowest levels in over 50 years," she says.
"This has created unprecedented demand in the mortgage area, both for the refinancing of existing mortgages as well as the purchase of new homes."
"We continue to see many requests for refinances, and the number of applications for purchases is growing. The number of applications is beginning to taper off, but still relatively stable," says Richard Northey, chief executive officer of Coast360 Federal Credit Union.
"We are seeing a generational shift where those who were once considered the 'younger generation' are now coming in to purchase or refinance their real estate holdings. This is requiring that we also shift our operations toward their needs such as advancing our technology and processes to meet their standards," says .
Northey says that Coast360 is working to improve its online offerings, such as the addition of an online mortgage application, to appeal to an increasingly younger clientele. "Coast360 employs the use of technology and, more particularly, the Internet. With the generational shift with younger borrowers now getting into the borrowing arena, we need to poise ourselves correctly with those who are more technologically savvy. Otherwise, those who do not prepare themselves for this will lose out from a growing market."
Coast360 isn't the only institution seeking to expand its technology services and practices to the millennial generation. Anderson says Security Title is also trying to upgrade its business practices as safety allows. "Technology affects just about every part of our business, from online accounting support to our escrow and title technology including the closing tracker which allows all parties to a deal log on to our centralized site to check the exact status of their transaction 24/7. Our current goal is to go paperless as soon as is feasible. We are moving in that direction cautiously as we ensure our virtual vaults are secure and confidential."
Technology has profoundly altered the virtual landscape of the realty market in other ways, starting as early in the process as the property appraisal. "As far as appraisals, all of our appraisal requests come through the Internet," says Peryon. "We upload the [completed] appraisals to a secure site, and then [the clients] get an email and a link and they download the appraisal "it's all done on computers, we do all the maps on computers, everything is one report. It's all integrated, so as far as that aspect, it's really streamlined our appraisals."
Likewise, thanks to the Internet, buyer and renters are more empowered than ever in their property searches. "Our buyers are tech-savvy. They're looking on the website and they're looking for properties, even before they call you. We give them our website and say, 'here – this is how you would search.' We can kind of help them through the process. Some of them want you to just send [listings] to them regularly, some of them just want to do their own search. They're so savvy now – and everything is there," says Duenas.
"It's the most state-of-the-art [system], and thanks to the Internet and all of that instant communication we're able to utilize stateside [tools], where 20 years ago we were [at] the end of the food chain out here. So we're now into the fast-paced world and we're in real life in real time. So it's very interesting," says Felix.
There seems, however, to be no general consensus about the future of the Guam real estate market.
"I believe our major strength comes not from the hopes of a military buildup, which would definitely boost our economy, but from reinvestment by locals into our local economy," says Anderson on the major considerations for the future.
"Basically, what affects our customers, affects us. If the hotels are full, shops are selling their goods, restaurants are making money, houses are being built, surveyors, appraisers, contractors, plumbers, painters and electricians working their magic; realtors selling the houses, banks loaning to buyers purchasing houses — everything works. When even one link in the chain is suffering, it affects us all. All businesses in our small community are inter-connected, our business cannot be successful if [Guam Premier Outlets] and Micronesia Mall are losing money."
Dacanay also endorses the idea that the real estate market's future is local. "Real estate is basically supply and demand. As long as there is a demand there will be properties for sale. Fortunately, demand has not contracted as drastically in Guam as it has in some areas in the continental United States or Hawaii. For this reason, we remain very bullish on Guam and remain highly optimistic that the island's economic expansion will continue, irrespective of what happens with the military buildup."
For many, though, all roads lead back to the military relocation. "It's going to be on the military buildup. If the military buildup happens, we're going to boom, just very simply. And if it doesn't happen, we're going to slide down to the economy — the economic condition has to adjust to that. So if the economy picks up, the market will pick up, which is the military buildup. If the military buildup doesn't happen, then the properties will continue to slide back to where they were 2004-2005, back to pre-exciting days. And where we go from there will depend on our economy. As Asia goes, the world goes [and] the U.S. economy, all that affects us now," says Felix.
Peryon says that the rescaling of the buildup might have a positive effect on the island's prospects in the long-term. "I think that's going to put a lot of confidence back into investors, because it was to the point where, the way I was seeing it, people were, investors were saying, 'this may not happen at all, we may just have to go home and cut our losses.' But I think it's a much better thing for Guam, if it's on a smaller scale, or if they do it gradually."
"I can only say that I'm an optimist, and I'm optimistic that Guam is just going to get better; but in order to get there, you have to go through your highs and lows," says Duenas. "It's just a matter of perception. You could create your doomsday approach and you'll get no business if you [do that]. Or then you could come up with, 'Hey, it's a matter of rolling up your sleeves, diversifying, doing whatever it takes,' and things always work out that way."