Yen for Paradise : Hawaii Hit by Wave of Speculation

As anxious homeowners arrived at the Maunawili grade school gymnasium for a protest meeting in late March, they could see the handwriting on the wall--quite literally.

There, handwritten on long scrolls of vanilla-colored paper, were the names of scores of familiar enterprises--Central Pacific Bank, Honolulu International Country Club--that had something significant in common: all had Japanese owners.

But what was really upsetting this leisure-dressed crowd was that the Japanese have shifted into a new buying mode and are snapping up houses by the dozen in middle-class Honolulu neighborhoods.

Though some in this mostly Caucasian gathering warned against being too critical of the Japanese for fear of being labeled racist, others were not so diplomatic. “Don’t be so timid about Japan-bashing,” said Ray Sweeney, sales manager of a local radio station. “Let’s get their attention.”

Usual Tolerance Disturbed

East meets West every day in Hawaii, but the get-togethers of late have not gone very smoothly in this rainbow society that normally boasts of cultural and racial tolerance. Japanese investors, from anonymous secretaries to a well-known billionaire, are spreading through Honolulu neighborhoods like an expensive perfume, and many who live there do not like the fragrance.

The Japanese are buying residential property all over this metropolitan area of 800,000 people--condominiums on crowded Waikiki Beach, luxury houses near Diamond Head, vacant hillside lots with spectacular ocean views, middle-class houses in suburban Kailua, where Maunawili school is.

“They are buying a piece of a dream in paradise,” said Yoko Tomita, a Japanese-speaking real estate agent. “It’s a status symbol for them.”

Properties Left Vacant

Though some buyers want vacation homes, many are speculators looking for fast profits. In either case, many of the properties they buy are left vacant much of the time, a painful condition in a city where housing is already in short supply.

They are also making golf courses out of farm land, which further fuels local anger because food prices on the islands are so high. “No one can eat golf balls,” one farmer was quoted as saying at a recent legislative hearing.

Nowhere in the United States has the impact of the rising value of the Japanese yen since 1985 been as dramatic and emotional as it has been here. Because the yen is now worth more in relation to the dollar, goods valued in dollars--including real estate--have become relatively cheap for Japanese investors.

Money from Japan is helping the Hawaiian economy flower, but it is also causing Hawaiians to make a painful reexamination of the wisdom of having their future so dependent on absentee owners and landlords.

“I’d like to keep this state Hawaiian,” said Japanese-speaking Nancy Haynes, whose husband, Myron E. Haynes, survived the Japanese attack on Pearl Harbor. “The Japanese have a way of changing things.”

By the end of 1987, investors from the Land of the Rising Sun owned $7.24-billion worth of Hawaiian real estate, more than in any other state, according to a survey by Kenneth Leventhal & Co., a Los Angeles consulting firm. Japanese investors bought 41% of the condominiums sold in Waikiki Beach and 27% of the houses sold in the tony neighborhood of Kahala last year, according to a real estate brokerage known as Locations.

What is happening here is worth watching because it may be a harbinger of Japanese investment patterns on the mainland. Japanese investors are already buying expensive condominiums in New York’s Manhattan as well as other residential properties in Los Angeles, Phoenix and other cities.

‘It’s Going to Spread’

“The rest of the U.S. must look closely at what’s happening here,” Honolulu attorney Anthony Locricchio said, “because it is eventually going to spread.”

It is the residential buying in middle-class neighborhoods that has touched a nerve here. Though some neighbors are delighted because their properties have ballooned in value, many worry about about how they will afford the increased property taxes when the new assessments arrive.

If looming tax hikes are not headed off, some warn, Hawaii may be in for a property owners’ rebellion similar to the one that shook California 10 years ago and led to passage of Proposition 13, the tax-limitation initiative.

The 1987 property tax assessments, which will not affect tax bills until next year, “are going to be bombshells,” attorney Locricchio said. “They are going to show how serious the situation really is.”

Residents anguish over whether their children will ever be able to buy homes here. The buying has made Honolulu housing, already among the most expensive in the nation, even less affordable. The average home price, now $280,000, has risen by more than 40% in 12 months.

“Will my children be able to live here in the year 2000 and will I be able to live here in the year 2000?” asked Annetta Kinnicutt, a homeowner in the Kailua neighborhood. “Will I want to live here in the year 2000?”

Though her husband works three jobs, Donna Wong complains that her family still can afford only 10-year-old cars. “If this keeps up,” she said of the Japanese buying spree, “the quality of life has got to be less.”

Mayor at Meeting

Wong and Kinnicutt helped organize the Maunawili school meeting, which was attended by Honolulu’s colorful Republican mayor, Frank F. Fasi, and received front-page attention in the Honolulu newspapers.

Glib and dapper, his silver hair swept back, the 67-year-old mayor played the crowd expertly with promises of action and expressions of sympathy. His words drew warm applause.

Fasi had fanned the fires of the controversy just a few days before that meeting, when he called for a ban on foreign investment in Hawaiian farmland and residential property unless the buyers plan to live in the state more than half the year.

“No position in my 38 years in politics has generated the interest, in terms of letters and phone calls, that this subject has,” Fasi said in an interview.

He told of one young couple who had saved for more than two years to buy their dream house, for which they expected to pay perhaps $250,000, only to have a Japanese investor buy it for $1 million. “This is the impact (Japanese) are having,” said Fasi, the father of 11 children.

Though Fasi’s message has been well received in the neighborhoods, state politicians and others have accused the mayor of overreacting and of straining ethnic relations.

Governor’s Viewpoint

“The mayor is a good politician, but as usual (his proposal) is way out of proportion,” said Democratic Gov. John Waihee.

“You shouldn’t have to burn the house to roast the pig,” said Tadayuki Nonoyama, the Japanese consul general here.

Most agree, however, that the speculation in residential property must be curbed. The favorite villain appears to be Genshiro Kawamoto, a billionaire whose real estate buying binges have made him far better known in Honolulu than he is at home in Tokyo.

Not all the Japanese buyers are as wealthy as Kawamoto. Some are people of modest means--teachers, secretaries--who buy condos in Waikiki and rent them out for most of the year, local real estate brokers say.

Yet it is Kawamoto who stands alone at the center of the controversy. He has spoken publicly about his intentions, while other Japanese investors have avoided publicity at all costs.

A 55-year-old bachelor who made his money as a landowner in Tokyo’s entertainment districts, he has stalked Honolulu neighborhoods in a black limousine dubbed the Kawamoto-mobile. According to one story, homeowners hear their property values rise when the Kawamoto-mobile drives by.

Bought Up 100 Houses

In all, he is believed to have bought more than 100 homes, including an ocean-front estate once owned by Henry J. Kaiser, the late industrialist and Hawaii real estate developer.

Kawamoto has clearly pained some of his image-conscious countrymen. “I’m afraid he’s not quite sensitive to the effect of what he’s doing in some of those areas,” Consul General Nonoyama said.

Though Kawamoto was not available for an interview, he has insisted publicly that he is buying the house as a long-term investment. In local newspaper interviews, he also claimed that he bought these properties with “pocket change.”

Most Hawaiians agree that the state could not thrive without outside investment. Capital from Japan, for instance, has helped keep Hawaii’s unemployment rate below 4% and pumped high-octane fuel into a Honolulu housing market that had been dormant for years. One Japanese hotel company recently bought 44 condominiums in one building for nearly $6 million.

As a result of increased tax revenues generated by the economic boom, Hawaii’s state’s treasury now expects to have a surplus of $400 million. “For the most part, Japanese investment has been very positive for the state,” Gov. Waihee said.

Moreover, Hawaii is accustomed to foreign investment. Hotels, shopping centers and resort properties have been favorites of Japanese investors since the 1960s.

First Japanese Presence

Japanese investment dates to the early 1890s, when a Yokohama bank opened a branch in Honolulu to help Japanese migrant workers send money to their families back home.

That it was the Japanese who bombed Pearl Harbor in 1941, thrusting the United States into World War II, seems only a distant backdrop to today’s events. Some note that the Japanese seem to be doing economically what they could not do militarily more than four decades ago.

Ray Emory, a sailor who survived the Japanese attack on Pearl Harbor, is one who links the two events. “I fought for this goddamn country,” he said. “They were interested in China during the war. Why don’t they go over and buy them?”

Yet, clearly visible from Pearl Harbor is a mammoth twin-tower housing project known as Century Park Plaza that has been a costly failure and caused a tangle of litigation for its American lenders.

Earlier this year, unidentified Japanese buyers agreed to buy the 600-unit complex, a deal that is expected to be closed shortly. “A lot of projects here,” said Bert Dohmen-Ramirez, a financial adviser, “have been bailed out with Japanese money.”

Tourism at Stake

Some warn that if a backlash against Japanese investment ever gets truly ugly, it could endanger tourism, Hawaii’s most important industry.

With its night life and golf courses, Honolulu and the rest of the island of Oahu beckon to big-spending Japanese tourists the same way the tropical Bahamas lure Americans from the East Coast and Midwest. More than 1 million Japanese visited Hawaii last year, and that number could double by the early 1990s, Nonoyama said.

“We keep going with this anti-Japanese attitude, and suddenly Australia is going to be much more popular with Japanese tourists,” said Jerry Sprinkle, head of the Century 21 office in Kahala. “. . . I’m concerned we’re really going to do a number on tourism.”

The governor also views the growing ethnic tensions as more worrisome than the investments themselves. “We have to focus on the speculator and not on specific ethnic groups,” said Waihee, who is the first person of Hawaiian ancestry to be elected governor.

Meanwhile, this city is agog about the Alice-in-Wonderland real estate prices on its posh east side--31 waterfront homes in east Honolulu have been sold in the past 12 months at an average price of $6.3 million, including one that belonged to entertainer Dolly Parton.

Values Skyrocketing

Appraiser Robert C. Hastings said the value of his waterfront home, bought 16 years ago for $116,000, has gone up about 40 times in value. “The price du jour is about $4.6 million,” he said matter-of-factly.

Kahala, a swank neighborhood that is only a 10-minute drive from Waikiki Beach, has the appearance of a combat zone as construction crews tear down old houses and put up new ones. Many other homes in the neighborhood are for sale with multimillion-dollar price tags.

Japanese-speaking real estate brokers and agents are reaping windfalls from clients who do not speak fluent English. Last year, real estate agent Tomita at the Conley Dew brokerage sold seven houses at more than $1 million each. Fasako Mukasa Grant at Century 21 reaped sales commissions of $432,000.

Foreign money has also been pouring in from other places in Asia, such as Korea, Taiwan and Hong Kong. Hawaiian real estate is likely to be a particular favorite as capital flees Hong Kong, the British Crown colony that will revert to Chinese control in less than 10 years.

One Korean investor, Frank Hahn, bought several of the oceanfront homes, including Parton’s. Hahn is also president of Pax Realty, a brokerage firm set up mainly to cater to wealthy Asian buyers.

Lots Under Development

Developers of the hillside community of Hawaii Loa Ridge recently sold 112 lots in three weeks, many of them to Asian investors. “They see Hawaii as a safe place to put their money,” project developer Jim Ohlman said.

The buying frenzy has had its light moments. One customer, told he would have to pay cash, bought a piece of property with $400,000 in cash that he had carried from Japan in a suitcase. “It scared the hell out of the escrow people,” Ohlman said. “They had to go into a vault and count it all out.”

In the first wave of buying last year, foreign investors paid premium prices for property--sometimes sight unseen--after the Japanese yen soared in value. Comparable prices for residences in Tokyo were eight to 10 times what they were in Honolulu when the buying began in earnest, Tomita said.

“They were just like a person coming into a candy store who craves sugar,” said real estate broker Barbara Dew, Tomita’s boss. “They just bought everything.”

“They basically walked into the market and prices looked cheap to them,” said Michael A. Sklarz, research director at Locations. “They didn’t see any reason to negotiate.”

There are indications, however, that the wave of speculation is beginning to ebb. Prices on luxury houses now for sale have been cut as much as 10%.

“It’s a bubble,” Dohmen-Ramirez said, “and, like all bubbles, it’s going to burst, perhaps by late this year.”