The Micro View – What happened in Kahala in 2018?
The year-on-year statistics show that in 2017, there were 45 Single Family home sales in Kahala as of December 10, 2018. 31 of those sales were under $3 million, 9 sales were between $3 million to $4 million, 4 sales were between $4 million to $5 million, and there was one $5.6 million sale.

In 2018, there were 32 Single Family sales in Kahala as of December 10th. 20 of those sales were under $3 million, 5 sales were between $3 million to $4 million, and 2 sales were between $4 million to $5 million. Additionally, there was one $6.9 million sale, one $7.2 million sale, one $10 million sale, one $16.25 million sale, and one sale for $17 million.

Comparing 2018 to 2017, there were fewer sales overall, specifically under the $3 million, $3 million to $4 million, and $4 million to $5 million price ranges. However, it is important to take note of 2018’s 5 sales above $6 million, compared to 0 sales in the same price range in 2017.

The Broader Statewide View
As reported in the Wall Street Journal on November 9, 2018, the record for the largest residential transaction in the State of Hawaii is now $46.1 Million by Hawaii Life’s HL1 Director, Neal Norman, who represented both the buyer and seller. The seller was a trust created by one of the CEOs of Morgan Stanley’s Asia Pacific region. [View Wall Street Journal article here: http://choi.hawaiilife.com/wp-content/uploads/2018/12/11-9-18-WSJ_Neal-Normans-46.1Mil-Sale.pdf.] The property is on Kauai, where Silicon Valley clients have been buying vacant land up to the $100 million price range.

So what does this have to do with Kahala? First, let me explain the structure of the umbrella organization that The Choi Group joined a year ago. Hawaii Life is made up of approximately 250 agents Statewide. There are 24 high end brokers who have the HL1 designation, and 8 Directors. Neal Norman and Patricia Choi are both Directors of this HL1 group of extraordinary brokers, as they have been the #1 Brokers in the State on a number of occasions. Neal’s Silicon Valley and West Coast connections dovetail nicely with The Choi Group’s efforts in Silicon Valley and Asia. Between the HL1 Directors and members, we have an extensive overview of the demand for luxury real estate. Part of forming an opinion on what is in store for Kahala in 2019 requires having an eye on luxury sales Statewide, as well as keeping up with significant local sales, such as the $23.5 million sale of a Park Lane Grand Penthouse that closed on December 7, 2018.

The Macro View by Christie’s International Real Estate
Our affiliation with Christie’s International Real Estate allows us to get an even broader view of the economy and provides clues on where the luxury real estate market is headed. For those who like a lot of statistics and information, we invite you to view Christie’s “Luxury Defined 2018 White Paper” report, which evaluates data from 80+ luxury markets worldwide: http://choi.hawaiilife.com/wp-content/uploads/2018/12/LuxuryDefined2018_CIREWhitePaper.pdf.

Following are a few excerpts:
“Since the beginning of 2017 and into the first four months of 2018, several key themes and findings have emerged:
• Worldwide luxury residential sales recorded robust 11 percent growth in 2017, buoyed by a revitalized global economy, stock market strength, and rising consumer confidence…[this was] the highest year-on-year growth levels since 2014.
• Second-home resort markets rallied in 2017 and into 2018 after stagnant growth in 2016.” [Foreword & page 9]

“Although fewer homes sold above the ‘billionaire’s benchmark’ of $100-million last year (three in 2017 versus 10 in 2016 and four in 2015), the trophy home market across the globe remains active. With strong trophy sales already recorded in 2018—including record-breaking local-area sales of $110 million in Malibu, California, and $42 million (A$52.5 million) in Melbourne, Australia—both new builds and resale homes with provenance alike are showing continued upward momentum.” [pages 29 & 31]

Our Best Guess
One would be wise to accept that no one has a crystal ball. If anyone suggests that they “know” what is going to happen, you should probably seek other counsel.

Our best guess is that the market will continue to soften in terms of numbers of transactions, but we expect to see more outliers of astonishing record sales. The record $46.1 million home sale and the $23.5 million condominium sale gives us an explanation for the $16.25 million and $17 million sales of homes in Kahala in 2018.

So, we remain cautiously optimistic about the Kahala market for 2019. The $23.5 million sale of the Park Lane condominium is probably the most instructive. For the past 3 years, the Kahala market was overlooked as high end buyers purchased new condominiums in Kakaako with per square foot prices of up to $3,000. The average price for Kahala homes in 2018 was about $961 per square foot. While condominiums are simple to maintain and offer amenities not available in the typical Kahala home, the differential in cost makes it clear that you get more in Kahala. Couple this with the fact that almost all of the new luxury Kakaako condos have already been sold (there are only 3 Park Lane units left), which will likely lead to more buyers looking at Kahala.

The Choi Group looks forward to a Healthy, Happy and Prosperous New Year!

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Through networking with high end clients and brokers, Choi International, Christie’s exclusive affiliate in Honolulu, represented the Buyer/Seller in 11 of the 20 Single Family transactions over $4,000,000 this year (1/1/15 – 8/20/15).

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2009 – $623,360

2010 – $727,973

2011 – $730,318

2012 – $798,573

2013 – $781,700

2014 – $863,225

2015 – $950,194

These increases are due to the substantial growth in high end or luxury sales.  Choi International is in a unique position to analyze the market as the leading luxury broker in Honolulu.  Choi International has sold 6 of the 9 properties over $5 million (January 1, 2015 to May 31, 2015), including the 2 Highest Priced properties islandwide during that same time period.

Statistics on the average price of Condominium apartments do not reflect the true picture of the prices that are being obtained by Luxury Condominiums scheduled to be finished in about 18 to 24 months.  The average cost of those condominiums is about $2,500 per square foot (p.s.f.) and will define the high end market for many years.  The singular trophy condominium – Hokua Penthouse Ali’i B – is listed by President & Principal Broker Patricia Choi for $35,888,000 at approximately $6,500 p.s.f.

Buyers from mainland U.S. and Asia have made the market jump, and that should continue at least for another 3 years, according to local economists.

Similarly, the increasing interest from Chinese buyers in particular has been noted in the “Honolulu Market Spotlight” in Christie’s International Real Estate’s 2015 Luxury Defined research report.  The new 10-year visa program between China and the U.S. is expected to continue to boost the demand of affluent Chinese visitors for Honolulu luxury properties. Click here to view the complete Luxury Defined report, which explores over 80 of the top luxury real estate markets worldwide.

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As you will see, for us at Choi International and for Christie’s International Real Estate there is a difference between the real estate market in general and the high end market.

Here is an overview from the report (page number in parentheses):
In 2012, the high end of the luxury market came back and in 2013 the rest of the market above $1 million experienced “broad based home sales across all levels of the luxury market.” “Luxury real estate shows a strong correlation with the top end of the fine art market as opposed to the general housing market.” “This market momentum can be attributed partially to substantial wealth creation in 2013, fueled by an improving global economy and surging stock market prices, resulting in more billionaires and millionaires than ever.” (2)

Luxury Real Estate is a relative term. In Honolulu, we use $1 million+ to define the entry point to the Luxury Market, while in London the entry point is an incredible $7.8 million. 2013 saw a growth over 2012 in Luxury Property sales in most Luxury Markets:
62% – San Francisco – Entry point of $3+ million
40% – Los Angeles – Entry point of $5+ million
29% – Sydney – Entry point of $1+ million
27% – Miami – Entry point of $2+ million
22% – New York – Entry point of $5+ million
20% – London – Entry point of $7.8 million – 50% foreign buyers
-15% – Hong Kong – Entry point of $2+ million – a change in tax laws is noted.
26% – Honolulu – $1 million and up (2013 – 576 sales vs 2012 – 456 sales).

Following are the average per square foot prices in the 3 most expensive markets:
London – $4,683
Hong Kong – $2,578
Cote d’Azur – $2,133

London, the Cote D’Azur and Los Angeles had record high prices of over $6,000 psf, with Hong Kong topping out at $16,285 psf. (4)

Asian buyers continue to turn to cities like LA, NY, SF and Sydney. “According to a recent Bain & Company/China Merchants Bank study, three out of five wealthy mainland Chinese are looking to emigrate, with ‘quality of life’ and ‘children’s education’ as primary motivators.” (8)  “. . .luxury residential real estate tends to correlate more closely to luxury goods than it does to the general housing market. Fine art, the category led globally by Christie’s auction house, is the luxury goods sector showing strong synergies with the prime property market, as both are assets of passion and lifestyle.” (Exhibit 8 on p. 10)

The market for real estate in general is predicted to slow per Robert Shiller, Yale University economist and founder of the Case-Shiller Index – “Home prices will probably go up (in 2014), but not like they have been. It’s going to slow down.” Conversely, at the high end, real estate remains an important place for high-net-worth individuals to safely invest their wealth, and will continue to be so in the near future. (11)

Our Perspective on The Global Market and Hawaii
So, what does this all mean for high end properties in Hawaii?

In our view, the world-wide demand for unique properties will continue, as long as the broad economic conditions that have fueled the high end real estate market continue.

Our affiliation with Christie’s auction house provides insight into the luxury art, wine and collectible markets. The performance at auctions of irreplaceable items will correlate closely with the luxury real estate market. Christie’s also provides us with a source of highly qualified clients.

Of the potential clients, China will obviously be the most important. We are just beginning to see their influence here in Honolulu. “A remarkable 80 percent of Chinese high net worth individuals are looking to send their children to study abroad, with the UK and US as countries of choice”. “I predict that in the next five years, real estate purchases from China will dwarf the rates of today”, according to Rupert Hoogewerf, Hurun Report Chairman and Chief Researcher. The Hurun Report is like a Forbes list of wealthy Chinese, however, the list is not entirely complete as some wealthy Chinese choose not to be in the report.

We have been going to Asia for the last 5 years and our company will continue to pay special attention to China, Korea, Singapore and Japan. We have learned that Honolulu offers much of what Asian buyers want – clean air, water, food sources and great education. All of this is wrapped in a City that is welcoming to Asians and a perfect entre into American culture.

Thank you for your interest in our view of the Luxury Real Estate Market. We are truly excited by the future of high end real estate in Hawaii and our relationship with Christie’s.

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