GUAM – While the Guam military buildup is certain to bring changes to the real estate market, many technical aspects of the transfer of the U.S. Marines from Okinawa are still uncertain and may affect the island market, according to Chris Murphy, owner and principal broker of The Real Estate Professionals.
Add the fluctuations in the regional economy, local government decisions and rising costs for labor, material and vacant land and real estate investment in Guam can become an even harder bet, Mr. Murphy told GuamBuildupNews.com.
“Clearly one of the most important items to follow will involve the availability of construction materials and labor,” Mr. Murphy said. “As more and more projects come on line, finding qualified contractors and laborers will become a major challenge, and if you do find them, be ready for an increase in both material and labor costs.”
While the Department of Defense is organizing the transfer of at least 8,600 Marines and their dependants and support staff from Okinawa to Guam no sooner than 2016, contractors involved in the buildup estimate at least 10,000 workers will be needed, mostly for the construction. The more than $10 billion to be spent on the transfer may also affect costs of everything from lumber to cement to hammers and nails.
A March 24 “pre-decisional” policy document authored by U.S. Marine Corps Pacific Division policy director Bryan Wood and obtained by GuamBuildupNews.com also hints that the final elements of the buildup could be in place only after 2016. It also raises the possibility of increasing the number of troops to be transferred to 9,700 and says the $10 billion price tag will probably rise.
A delay in the buildup, Mr. Murphy said, would hit hardest the developers who have focused on high-end real estate.
“Projects currently in the ground or recently completed would be challenged to meet the carrying costs necessary to maintain the property until the market warrants its sale or rental,” if the buildup is delayed by a few years past 2016, he said. “Depending on the staying power of the developer, prices may reflect substantial reductions should lenders require a reduction of their outstanding debt. Developers of high end properties need contingency plans in place.”
Any change to military off-base housing allowances, although less likely, would have a dramatic effect on the Guam real estate market, Mr. Murphy said. Housing allowances run from $1,918 to $2,700 a month for military personnel living off base, plus utilities and other allowances, and are set to raise rental rates on Guam which, for single-family homes, average about $1,900 a month.
Any change in military off-base housing allowance policy stemming from the increasing military presence on Guam could have a sharp impact.
Between 20 percent and 28 percent of military personnel will likely live off-base, according to a real estate study by the Guam Housing and Urban Renewal Authority. Mr. Murphy said off-base living trends are subject to change and more military personnel may opt to live off base.
“Understanding the current military presence on Guam and the trends involving off-base living (both rental and purchase) are critical to making the right investment decision,” he said.
“Another indicator will be the cost of vacant land,” Mr. Murphy said. “As we approach the so called buildup date, property owners looking to cash in will increase the cost of vacant land, which in turn, will make it impossible for developers to build affordable housing in the price range of $250,000.00 to $350,000.00.”
Besides the military, investors should watch the local government to “determine what new guidelines and rules are being implemented that would have a direct impact on the development of both residential and commercial properties throughout the island. Issues here include approval processes, infrastructure costs and fees, and government incentive programs.”
And “investors looking to get involved with Guam’s future development should continually monitor the Asian markets,” Mr. Murphy said. Japan and Korea, in particular, have been drivers of both investment and tourism on Guam.
“All of that could result in higher development costs and higher prices for the end user, which may leave more people out of the housing market in the future,” he said.
GuamBuildupNews.com monitors the marketplace for real estate insights and opportunities related to the military buildup. In the coming weeks, the site will debut a new Guam Real Estate section dedicated to news and information that will help property owners, buyers, renters, investors, developers and realtors make better, more timely decisions.
Image used in this article courtesy Salvatore Vuono / FreeDigitalPhotos.net