"Affordable Housing" is and always will be a hot topic in Hawaii. Oahu has one of the most expensive housing markets in the country and the combination of limited amounts of developable land and a never-ending supply of outside investors keeps prices sky high. This results in large amount of locals being priced out of the housing market, especially in Honolulu.
So what is the state's answer to the problem? The HHFDC Affordable Housing program.
What is the HHFDC?
HHFDC stands for the Hawaii Housing Finance and Development Corporation. The HHFDC is the state's primary agency charged with overseeing housing, financing, and development in Hawaii.
What do they do?
They work with real estate developers to provide housing in new condominium projects at "below market" prices to those who meet eligibility requirements of the program.
What are "below market" prices?
Market price means what a home or condo would sell on the open market. Real Estate Agents and homeowners usually base this on what comparable homes have sold for in the same neighborhood within the last 6 months.
Let's look at the prices at the latest HHFDC project The Central Ala Moana which went for sale in late 2018.
As you can see, there were significant price discounts for 1,2 and 3 bedrooms totaling almost $300K off "starting prices" for three bedroom types.
(1 Bedroom Affordable Floor Plan, The Central Ala Moana)
Are there any differences between the two units?
This is an interesting question because it may vary from project to project. For The Central, square footages and finishes are advertised to be the same whether you buy through Affordable or Market rate.
The key difference was in location. Almost all of the Affordable units on the Makai (Ocean View) side of The Central are located on the lower floors (2-20). The majority of the market rate units are located on the higher floors (20-43). In Hawaii, buyer's always pay a premium for view, so this logically makes sense.
What is the required deposit?
When you enter into a real estate contract, a buyer will always need to put down some form of cash deposit to show good faith to the seller that you will fulfill your obligations as a purchaser. This is the same when buying new construction. The deposit is held by the developer while the building is being built, then later on applied to the remaining balance due at closing.
A typical deposit for market-rate new construction projects in Hawaii is 10-20% of the sales price, which can be quite a lot of cash. A key benefit for HHFDC programs is that they typically only require you to come up with a 5% deposit. They also do allow for you to receive that in "gift funds". So if you have family members willing to help you out, that is totally acceptable.
Ok, I want an "Affordable" condo, what are the HHFDC eligibility requirements?
In order to apply for the program there are some rules. You must:
- Be a citizen of the U.S or resident alien
- Be at least 18 years of age
- Be a legal resident of the State of Hawaii
- Physically reside in the unit to be purchase. (You cannot rent out the unit, more on this below)
- Not own a majority interest (50% or more) in a fee simple or leasehold property anywhere in the world.
- Be prequalified for a loan if receiving financing to complete the purchase.
- Meet the income eligibility requirements (see below)
This is the 2018 Area Median Income (AMI) chart the HHFDC follows. Income limits can vary from project to project. The basic rule of thumb is that you must make under 140% for your household size in order to qualify.
The Central Ala Moana was the first HHFDC project that had a "minimum income requirement". In order to apply, you needed to make between 80%-140% AMI. This may be the new guideline that developers follow from now.
Can I sell the unit for profit or rent it out?
Yes, but not for another 10 years after you close. If you purchase a unit through the HHFDC program, you must agree to the "Buyback Program". This basically states that you will be the primary occupant of your unit for 10 years time.
If you need to sell your unit before 10 years time for whatever reason, the HHFDC reserves the right to buy back your unit for the same price it sold to you for. You also cannot rent out your unit during this time frame.
After 10 years you are free to sell it for whatever you think it's worth, or rent it out for profit.
This is done to ensure people are not gaming the system for profit. And to keep inventory available for the HHFDC programs.
Any other rules?
Yes, the other rule is called the SAE (Shared Appreciation Equity) program. This is very important. It basically says that you owe a percentage of your appreciation to the HHFDC. When you are buying a unit for $200-300K below market pricing, you are almost guaranteed to see appreciation, especially in 10 years time (Buyback Program).
You must agree to share a percentage of the appreciation (what you will profit off the purchase) with the HHFDC. The percentages are not set and can vary depending on the unit type, view, etc. The percentage is calculated at closing.
The formula is:
Original Fair Market Value (determined by HHFDC's appraisal at closing), minus Original Purchase Price, divided by Original Fair Market Value, and rounded to the nearest one percent.
When do I pay the SAE to the HHFDC?
You can actually pay it off anytime after closing, this is the interesting part. If you have the extra cash, you may want to think about paying it off right after closing. As your unit appreciates over time, the percentage will always remain the same but the dollar amount you owe will increase.
For example, if your SAE calculated was 20% (this is purely for examples sake!) and your appreciation was $50,000 at closing. Then you would owe $10,000 to the HHFDC.
Now let's say that you didn't pay it off at closing and your unit appreciated $200K after 10 years. You would now owe 20% of that which is $40,000.
The SAE will always stay in the deed until it is paid off, so if you pass it along to your kids someday they will have this attached to the deed as well.
Ok I'm eligible and agree to the rules, how do I apply?
Timing and awareness is key. Often times many people are unaware of HHFDC programs or are unprepared and miss out on the application period. By being aware of which projects are coming up that offer HHFDC programs, you can get yourself prepared to apply. Condo Kakaako has helped many locals apply for the HHFDC programs and would love to help you do the same.
Working with a Realtor who keeps you up to date with new projects and HHFDC programs can be invaluable. Please get in touch with Isaiah Block (RB-21893) today if this program interests you and would like to hear more.
Ph: (808) 721-3747