Digging into anything and everything that makes the CNMI tick beyond politics...

Monday, November 16, 2009

A look at CNMI’s real estate

This is a photo I took of the ruins of La Fiesta Mall in Tanapag which remains as a mute witness to
Saipan's days of glory. Photo taken from the 15th floor lobby of Palms Resort hotel.

MORE than a decade ago, Saipan was an island bustling with activity. Economy was at its peak, with new buildings and establishments sprouting all over the island. Houses, apartments and commercial buildings were filled and bursting at the seams.

About ten years after, the last of over 30 garment factories closed its doors and ended the era of what can be considered as Saipan’s “glory days.”
People are leaving the island in droves looking for better opportunities in other places, leaving residential and commercial buildings to ruins.
For the past years, “For RENT” signs mushroomed in buildings all over the island, adding glumness to the already bleak economic atmosphere.
Ronnie Hodges, a licensed real estate broker and auctioneer in the commonwealth said that the CNMI has “crumbled to the worst real estate in America, and arguably among the world’s worst, possibly edging out Antarctica for the title.”

Downward factors

Hodges said that the real estate market is considerably worse than five years ago although it’s tough to gauge in such a stagnant market.
“We have worsened economically for a myriad of factors that are well known by everyone here,” Hodges said.

Financing issues

He pointed out that financing issues is one factor, with the local banks taking depositor’s money and reinvesting it in Hawaii and Guam to stimulate their economies with commercial and residential developments.
“Perhaps the banks are jaded with our land alienation laws and history of protectionism,” he said.
Citing an example, Hodges said that when a bank does loan money here, and the borrower doesn’t pay his mortgage, there is a right of redemption.
In other words, this means no one can buy the land to start with, and if they loan money on it, the lending institution will have an incredibly long and expensive ordeal to repossess the property. He added that the lack of accurate appraisal may also be a factor in banks apprehensions about lending. Hodges added that maybe the banks are fed up and have now wised up.

Abundance of junk housing

Hodges said that the islands have a huge glut of junk housing that could be considered somewhere “between cheap and free” and most should be condemned and destroyed.
“We have limited quality housing and most of that is owner occupied and either not for sale, or very expensive,” he said.
On Saipan, Hodges said the ANAKS apartments in Puerto Rico may be the most expensive residential units or condos that offers long term lease between 75k and 250k depending on size and view angle. Residents of these apartments pay a monthly rate somewhere between $1,000 to $1,700, not including power and utilities from $700 to $1,000 but they have the advantages of security, potable water, location, and other amenities.

Risky investments

Hodges said that these factors and more make it difficult to build and make your investment productive as well.
He said that for example, when an individual borrows $200,000 to lease land and build a home, the general formula means his monthly payment is $1,000 per $100,000 borrowed. This means that he would need to rent that house at $2,000 per month to break even for time, trouble, and risk he spent on the investment.
“That is why we have little construction here,” Hodges said.
He added that Article 12, the controversial land ownership issue, is the most sensitive economic obstacle to success.
“Our economy will never improve until it is changed,” he said.

Declining homestead values

Hodges said that another local real estate concern is the steep decline in values in our homestead areas.
He said that wealthy people or affluent tourists generally will not reside in problem areas.
“Between the stray dog problems, crime and poor aesthetic appeal of our impoverished homesteads, the values have gone down,” Hodges said.
He added that the local people who have been penalized by the island’s protectionism are the locals who did the right thing by building nice improvements and maintaining their property. But these improvements suffered because their neighbors built tin shacks and plummeted every property in the areas value.
“Until that is addressed, our homestead residents will suffer from low property values,” Hodges said.

Chance to recover

But Hodges said that although the CNMI’s real estate portrays a bleak picture, there’s still a chance to recover.
“The future is in our own hands, now more than ever before. We have a few advantages – our uniqueness, geographical location, being small, and some degree of autonomy,” Hodges said, adding that some, like Bermuda for instance, have managed those same qualities into unimaginable wealth for their indigenous populace by exploiting their strengths.
He added that those qualities can be explosive but bureaucracy, corruption, and protectionism never create prosperity.
He said that the commonwealth’s strength should be an ability to adapt and change quickly to a rapidly changing world.

(First published HERE)