By Siska S. Hutapea
Guam real estate activity in 2023 was severely affected by the interest rate hikes. Total real estate mortgage recorded as of Dec. 22, were down significantly by 38% compared to 2022. The U.S. Small Business Administration’s 4% annual interest rate loan associated with Typhoon Mawar helped small businesses in 2023, and if we include this in the mortgage activity, at $81 million, the total is only down by 26%.
Overall, Guam real estate sales volume was down by 23% in 2023 at $460 million. Limited supply due to high construction costs, high interest rates, and Typhoon Mawar have all contributed to this. Typhoon Mawar hit us hard on multiple fronts. It hit Guam’s infrastructure, our tourism market, and our economy overall. The military buildup mega construction activity only benefits a select few, and the real economic trickle effect will be felt if the tourism industry recovers.
Residential (single family and condominium) real estate activity was also severely affected by the interest rate hovering around 7% in 2023. Residential sales went down by 20% to $350.8 million in 2023. The single-family dwelling sector was down by 26% compared to 2022 at $229 million, as affordability was severely impacted by the interest rate. The condominium sector is down by 4.7%. Buyers who were outpriced in the single-family sector shifted to condominium units. The median price of single-family dwellings softened by 4%compared to 2022 at $401,500.
A policy to help development is really needed to ease the inventory issue, the biggest levers of housing affordability.
Creating positive policies is one of the very few things that are within our control. We have the H-2 workers housing issue that needs to be resolved. This temporary issue will need complex thinking, as we need to be able to adapt the use of the facility after the need dissipates in the next five to 10 years. The Additional Dwelling Unit bill by Sen. Chris Duenas needs support. The last part of this bill that requires a variance or conditional use permit from the Guam Land Use Commission prior to leasing needs to go, as this process can be so tedious as we have seen in any setback/variance request. FHA recently announced that it will lend first time homeowners fund to build ADU and count the ADU rental income to increase affordability. Last but not least, the building permit process needs to be streamlined and staffing needs to be added at the EPA and SHPO office.
Growth corridors for real estate developments are along Route 3 in Dededo and Route 15 in Mangilao. The return of former federal excess land along Route 3, zoning of the area into mostly M1, Light Industrial Zone and of course the proximity to Marine Corps Base have enabled this area to be the upcoming area of developments. Various residential developments are approved or in process at GLUC, so are many food and beverage outlets and other commercial developments are in the pipeline. We are assisting our clients to conduct feasibility study for development mix. Route 15 received attention due to the proposed medical complex and Army complex. There are also multitude of returned former federal excess land in this area. Similarly, commercial and residential developments are being proposed in the area in anticipation of growing demand.
I was not terribly excited about the top ten sales in 2023, although it could likely be a derivation of wisdom that comes with 25 years of experience. The top sale was the $16.4 million sale of 45 units at Ladera Towers; and there are two other bulk unit sales in this project.
The Hotel Santa Fe sale to the developer of Talo Verde Townhouses at $8.0 million took second place. The once boutique hotel is now converted into workers’ housing, available for rent. A true sign of the times. Smithbridge acquired the old Perez Brothers facility in Hamburger Road for less than $7.0 million. An existing tenant acquired the large concrete warehouse near Tanota Gardens for $6.0 million. A piece of Tumon beachfront land containing a gross land area of 2,334 square meters near Pleasure Island was acquired by a local family for $4.3 million. A Guamanian kid that made it in the mainland expanded her self-storage portfolio with the acquisition of the Guam Mini Storage at $4.0 million, adding a new healthy competitor to this flourishing sector. Another local family acquired a 14-unit condominium in Yigo for $3.3 million. The other sales include a financial institution building and the Government of Guam acquisition of a brand-new concrete warehouse.
Military expansion is going to continue in this region. I had the benefit of opening a new market in Pohnpei, Kosrae and Yap in summer 2023. The geopolitical threat is real, and the game is a long one. Guam has the capability of becoming a headquarters in this part of the region and expanding the economy through cooperation. The coming year will see Guam a play more significant role.
As my favorite writer C.S. Lewis said, “There are far, far better things ahead than any we leave behind.” I suppose this is the attitude that many of our real estate clients took. Looking at opportunities, changing the mindset, and just keep plowing on. Creative solutions to real estate investment need taking a hard look at expenses, increasing income by upgrading the product, automation of process, seller financing, and many others are the tools that are being used to make it happen in otherwise challenging times.
They are not afraid of leaving what used to be their cup of tea, because now they drink champagne.
Siska S. Hutapea is founder and president of Cornerstone Valuation Guam Inc., a real-estate valuation and advisory company. She is a member of the board of directors of the Guam Chamber of Commerce and the Guam Economic Development Authority.