The Basics Of The Hawaii Real Estate Market

The Hawaii estate market, like the island itself, is truly unlike anywhere else. If you’re considering purchasing a home on the beautiful Big Island of Hawaii, you need to be aware of some of its unique real estate characteristics.

Hawaii Real Estate Market Factor #1: Limited Space = High Prices

One major factor to keep in mind when buying property in Hawaii is the influence of land on real estate prices. Being an archipelago in the middle of the Pacific, it goes without saying that land is a very finite resource on the Hawaiian island chain. The state of Hawaii is only about 11,000 square miles total, and while the Big Island is by far the largest island, much of it is unavailable or unsuitable for building. This shortage of land drives property values up, making Hawaii much more expensive overall than much of the mainland.

Hawaii Real Estate Market Factor #2: Leasehold vs. Fee Simple

The history of these islands also has a profound influence of the Hawaii real estate market. Long before it became the 50th state about a century ago, Hawaii was an independent kingdom ruled by a monarchy. During the transition from monarchy to US state, much of Hawaii’s land was handed down from the royal family to various private trusts. This land is known as “leasehold” land.

When you purchase a home or condo built on leasehold land, you do not actually own the land itself as you normally would on the mainland. Instead, you are just buying the actual structure and are entering into a leasehold agreement with the trust that owns the land. About 40 percent of all Hawaiian land is “leasehold” land, which includes many popular neighborhoods and condos.

Another 37 percent of the land in Hawaii is categorized as “fee-simple” land. This land can be purchased in the same way as anywhere else in the US. When you buy a fee simple property, you own the land outright and can hold onto it as long as you want.

There are pros and cons to purchasing both leasehold and fee-simple land in Hawaii. Leasehold property, for example, tends to be cheaper than fee-simple property, giving buyers more bang for their buck. Buying a leasehold house or property, however, does come with some drawbacks that you need to keep in mind:

  • You cannot pass leasehold property on to your heirs after you die.
  • Lease agreements can last decades, but if you purchase a property that has a nearly-expired lease, keep in mind that the landowner is not obligated to renew the lease, and may raise the lease payment.

The Hawaii real estate market offers some unique challenges that you won’t find anywhere else in the US. Before you start house-hunting on the island, it is important that you take the time to educate yourself and find a reputable local realtor to help you navigate the process.