Military expansion to boost Guam's property market
March 15, 2010
In 2009, Guam’s property market declined sharply, amid the global crisis. Demand from foreign investors fell especially sharply.
The median price of single-family homes declined 7% in 2009 from a year earlier, according to the Captain Real Estate Group. When adjusted for inflation, the median price dropped by about 9%. Similarly, the median price of condominium units fell by around 11% (-12% in real terms) over the same period.
Guam’s housing market is expected to recover by the second half of 2010, as the military buildup starts. The planned military expansion in the island is the result of an agreement between the US and Japan to relocate around 8,000 US Marines and their dependants from Okinawa to Guam.
In 2010, total real estate sales are expected to reach US$300 million, up from US$251 million in 2009. “The island’s real estate market saw overall sales dive last year, but by the second half of this year, the industry will see things start to rebound”, says Nick Captain of Captain Real Estate Group.
In 2009, the median price of single family homes was about US$200,000, down from US$215,000 in 2008. The median price of condominiums dropped to US$140,000, from US$125,000.
There are some restrictions on foreign property ownership. Guam is a territory of the US and its people have U.S.citizenship. Non-U.S. citizens who have not declared their intent to become permanent residents (green card applicants) can only buy one house or condominium in their personal names, which must be owner-occupied.
For investment purposes, however, a foreigner can form a Guam corporation with at least one local shareholder/director. The corporation can then buy as much property as it wants.
Volatile housing market
Guam’s housing market is sensitive to external shocks. This is not surprising given the dependence of Guam’s economy on tourism and US military spending.
In the late 1990s to early 2000s house prices stagnated. Then from 2004 to 2007 there was a four-year housing boom, spurred by speculative investments from foreigners and U.S. military spending, according to the Guam Comprehensive Housing Study (2009). In addition, declining mortgage interest rates fuelled demand.
House prices rose faster than local household incomes, which actually fell - the average household income dropped in 2008 by 2.7% to US$45,786, from US$47,062 in 2005, according to Guam’s Bureau of Labor Statistics.
On the other hand, the median price of single family dwellings rose 54% from 2004 to 2007, while the median price of condominium units rose 58%.
Property sales fell by 32% to US$251 million in 2009, the lowest level since 2004, according to the Captain Real Estate Group, having already fallen 46% in 2008, following a peak sales figure of US$480 million in 2007.
Sales for single family dwellings in 2009 fell 21% to about US$130 million. Condominium sales plunged by about 50% to US$25 million, while land sales dropped 55% to US$50 million.
Despite falling sales, the 2009 Guam Comprehensive Housing Study estimated pent-up demand at about 3,665 households, mainly low and middle-income households. About 2,068 of these are would-be buyers, while the remaining 1,597 households are would-be renters.
Around 25,000 households are currently renting their home, 45% of them occupying single-family dwellings, 15% duplexes, 26% apartments, and 7% condominium units.
Guam’s population at end-2008 was 176,401, and its median income was US$49,900, according to the US Department of Housing and Urban Development (HUD).
The construction of residential dwellings in Guam peaked in 2003, when about 1,031 permits were issued. Since then, residential construction permits have been steady, with an average of 470 units from 2004 to 2008. In 2008, 524 residential construction permits were issued, up 10.3%, according to Guam Department of Public Works. Figures for residential construction permits for 2009 are not yet available, but it is believed that there was a decline, due to lower foreign investments.
Despite the increase in the number of permits issued, the value of residential construction permits in 2008 dropped 24% to US$69.7 million, reflecting a move toward building low-cost houses.
The homeownership rate in the island in 2009 was 50%, one of the lowest in the US, based on the 2009 Housing Demand Survey.
HOUSING STOCK, 2009
|Total housing units||53,673||100.0|
|Occupied Housing Units||44,548||83.0|
|Vacant Housing Units||9,125||17.0|
|For seasonal, rec. use||183||2.0|
|Single Family Dwelling||35,216||79.1|
|Number of Bedrooms|
|Five or more bedrooms||3,074||6.9|
|Source: Global Property Guide|
Military housing market
The military build-up, scheduled to start in mid-2010, is a result of an agreement between the US and Japan to relocate around 8,000 US Marines and their dependents from Okinawa to Guam. The relocation is projected to be completed in 2014, and to cost over US$10 billion.
The move should create significant construction and infrastructure opportunities. Guam’s population is projected to increase by 20%, or by approximately 30,000 people, creating demand for additional housing. Two years ago, foreign real estate investment rose sharply in anticipation of the military buildup.
Military households make up about 13% of total households in Guam, but the military housing market is independent of the local housing market.
Nevertheless, the military presence does impact the local housing market, in the following ways:
- Some military personnel choose to live off-base
- Military dependents may have to live off-base, or choose to do so
- Housing for construction workers
- Housing for civilian workers
- The military buildup results in improved economic prospects for the island
Though Japan’s newly-elected government has signaled that it is no longer so sure it wants to comply with the US-Japan bilateral agreement, the U.S. has affirmed that the program will proceed as planned. In May 2010, Japan will announce its decision.
Large rental market
Guam has a large rental market. About half the total housing stock is renter-occupied. Unlike other tourist destinations, Guam’s rental market does not exhibit seasonal characteristics, and the number of advertised rental dwellings is evenly distributed across all months.
Most residential leases are for one to three years.
Most rental units are in north Guam. In 2009, about 57% of all advertised rental units were in the northern region, primarily in Dededo and Tamuning; 42% in the central region; and the remaining 2% of advertised rental units were in the southern region.
From 2003 to 2006, advertised rentals rose by about 20%, peaking in July 2006. Since then, rents have fallen.
According to the Guam Comprehensive Housing Study, monthly rents in 2009 were as follows:
- The median rent for studio apartments was US$486
- One-bedroom apartments had a median rent of US$540 per month
- Two-bedroom apartments had a median rent of US$689 per month
- The median rent for three-bedroom homes was US$1,566
- The median advertised rent for two-bedroom townhomes was US$1,307 per month
- Three-bedroom townhouses had an average monthly rent of US$1,574
Tourism contributes about 60% of Guam’s total revenues. The island’s second largest source of income is US military spending, which generates about 30% of revenues.
In the past two decades, tourism has expanded rapidly, causing a boom in the construction of hotels and golf courses. About 1 million visitors come from Japan annually and 150,000 from Korea. Guam’s tourist hub, Tumon, features the Pleasure Island, large hotels, an indoor aquarium, and other entertainment facilities.
In 2008, there were 1,140,499 tourist arrivals in Guam, down 7% from a year earlier, according to the Guam Visitors Bureau.
Most food and industrial goods are imported into Guam, with 75% of the imported goods coming from the US.
Guam is an unincorporated territory of the US. The Governor is the head of government, and there is a multi-party system. Guam elects one non-voting delegate to the US House of Representatives. Guam has no votes in the Electoral College.Despite Guam being a territory of the US, it has no real influence on the American political system. Guam residents are not allowed to vote for the President of the United States.
- Military expansion to boost Guam's property market - March 15, 2010