What do leasehold and fee simple mean in Hawaii real estate?
Terminology is key to understanding Hawaii's real estate game.
Today, land can be bought and sold in Hawaii - in certain areas and following Hawaii real estate laws and regulations. Let’s explore the stories of owning land in Hawaii, from gaining title to Hawaii land today to the ahupua‘a of the past.
Anyone in the world can buy property in Hawaii. However, if you are not a resident of Hawaii, which is characterized as filing Hawaii state income taxes, then buying or selling land in Hawaii might have a few more complications.
If you are not a U.S. citizen, you cannot use the property as a permanent residence unless you have a green card or a visa. Non-U.S. citizens can use the property as an investment or a vacation home.
While anyone in the world can buy property in Hawaii, non-Hawaii residents will be subject to a tax of 7.25% on the sale price, when and if they sell the property, under the Hawaii Real Property Tax Law, or HARPTA. This 7.25% tax along with a 15% federal tax for non-U.S. citizens, known as FIRPTA, will be automatically withheld during escrow. There are various tax forms and regulations with HARPTA as well as with FIRPTA, so if you are a non-Hawaii resident wanting to sell your property in Hawaii, it is suggested that you consult an accountant.
Another difficulty of buying property in Hawaii if you are not a U.S. citizen is that financing can be difficult. An all-cash sale, of course, can easily be made, but financing through a local lender or even a foreign lender can have its difficulties, as documentation often differs between countries.
Land is limited in Hawaii. Land with improvements, or homes, is limited, and undeveloped land is also limited.
Today, where and what type of land you can buy in Hawaii has a lot to do with what the land’s zoning or use designation is. Each of the Hawaiian Islands has different land available as well as different zoning laws under the county. Here is a GIS map of all the islands of Hawaii with more information about each of their zones.
The City and County of Honolulu, or island of Oahu, has the following zoning that includes land designated for the following uses: preservation, agriculture, country, residential, apartment, apartment mixed-use, resort, business, business mixed-used and industrial.
Where can you buy residential properties on Oahu? This will be in most of the coastal cities, such as Kailua, Kaneohe, Honolulu, Hawaii Kai, Kapolei, and Waianae, and the few developed cities inland on Oahu, such as Mililani or Wahiawa.
If you are looking for undeveloped land, there are only a few places where land remains for sale on Oahu:
Some of the other islands, such as Hawaii Island, also known as the Big Island, have much more undeveloped land for sale - sometimes are relatively cheap prices by Hawaii standards.
Have you found an available piece of land for sale in Hawaii? If you don’t have the cash to outright purchase land in Hawaii, typically buyers will need to secure a vacant land loan. The good thing about most land loans is that buyers will typically only pay the interest for the first few years. Usually, you will also need to secure a construction loan. Once construction is complete, the land loan and construction loan can convert to a regular mortgage.
Cons of a land loan include needing to put more money down and more difficulties in qualifying for the loan than other home loans such as a conventional loan.
When you buy land in Hawaii, offers are made with the same Purchase Contract as other real estate transactions involving single-family homes or condos. Closing on land is also similar to closing on a home in Hawaii, except there will be no home inspections or termite reports.
Some real estate agents as well as mortgage brokers specialize in buying land in Hawaii, so we suggest consulting one if you are interested in learning more.
Buying undeveloped land in Hawaii might be the right option for some people, as there are a variety of creative ways to utilize land.
Some people might dream of purchasing agricultural land to start a farming business. Note that in Hawaii, there typically can be a “farm dwelling” on agricultural land which is defined per Hawaii Revised Statutes 205-4.5(a) as “a single-family dwelling located and used in conjunction with a farm…where agricultural activity provides income to the family occupying the dwelling.”
Some people might buy a piece of residential land to build their dream home. Constructing a custom home in Hawaii has a variety of costs. However, you might opt to build a modular home, a tiny home, or even a home out of a storage container. If you purchase residential land, make sure you ask questions about utilities, including water and electrical, as well as access to public roads.
Some people have dreams of buying a piece of land in Hawaii to do vacation rentals and to make a lot of money. Can you do glamping in Hawaii? Glamorous camping or glamping might be your entrepreneurial idea and you may want to construct yurts or fancy tents to rent out to tourists on sites such as Airbnb. However, realize that Airbnb is controversial in Hawaii with many new laws passed on each of the islands. Most likely any undeveloped land for sale would not qualify to serve as a vacation rental destination.
Today in time, any individual can buy land in Hawaii - if they have the means and can find a suitable property for sale. However, the idea of owning land in Hawaii once was unheard of.
The idea of owning land was not something that went through most native Hawaiians’ minds, as they had an organized system of land division where everyone’s housing and food needs were taken care of, for the most part.
Each island, or mokupuni, was divided into several smaller parts, or moku. On the island of Oahu, for example, there were six moku:
Each moku was then divided into ahupua‘a. These were wedge-shaped land divisions that ran from the mountains to the sea and often followed natural boundaries such as rivers or mountain ridges. The name ahupua‘a is derived from the two Hawaiian words of heap (ahu) and pig (pua‘a), alluding to how the boundaries of each division were marked by a heap of rocks with an image of a pig or an actual pig, which would be given as a tax to the ruling chief.
Each ahupua‘a was not the same size, as they were divided depending on the resources available on that side of the island, ensuring the people who lived in that ahupua‘a had all they needed - from access to the ocean for fishing to fertile grounds for growing taro, sweet potatoes and other native plants for building or food.
In the Kona moku on Oahu, it included the following ahupua‘a, which many towns and sites of today still bear the names:
Each ahupua‘a was ruled by an ali‘i or local chief, who was ultimately under the king. The ali‘i used konohiki, or headmen/managers, who helped administer the land and fishing rights for the ali‘i. Within the ahupua‘a, the ali‘i also had two or three plots of land delegated to him, which was called an ‘ili. Mo‘o were the farmable sections of the ‘ili.
Apart from the chief’s lands or ‘ili, there were even smaller land divisions within the ahupuaa called kuleana, which were used by the common people, or maka‘ainana, to grow their food. The size of the kuleana typically depended on the land’s fertility and availability within the ahupua‘a.
Every maka‘ainana had a specialized trade, which would often be passed down from generation to generation. Makaʻāinana were farmers, fishermen, house makers, weavers, canoe builders, and other trades which worked together to meet the needs of everyone living in the ahupua‘a. They would often trade, ensuring everyone had everything they needed.
Also one of the roles of the konohiki was to help to disburse resources to everyone living in the ahupua‘a. Another role of the konohiki was to collect taxes, which were often goods used to support the ali‘i. Often the makaʻāinana and konohiki and ali‘i respected one another; however, there are stories of the makaʻāinana getting together to fight against konohiki or even makaʻāinana leaving ahupua‘a to other ahupua‘a that they believed were regulated better.
During this time, an individual could not own land in Hawaii. However, land tenure was stable, with people having places to live in settlements, and resources being regulated to be used sustainably so that everyone had what they needed. Hawaiians often enjoyed abundance with time for leisurely recreational activities, such as surfing and martial arts, and time for the arts, such as kapa printing, featherwork, dances, and chanting.
After Kamehameha the Great unified the Hawaiian Islands through conquest in 1795 and after James Cook spread the word about Hawaii after his landing in the islands in 1778, leading to missionaries and other foreigner arrivals - along with diseases - Kamehameha III decided it was time for the Hawaiian people to own land.
Kamehameha III’s mahele divided all land in Hawaii among the mō‘ī, the ali‘i, and the government lands which were intended for the maka‘āinana. The māhele was a transaction that began on January 28, 1848, and ended on March 7, 1848. This land redistribution is recorded in the Buke Kakau Paa no ka mahele aina i Hooholoia i waena o Kamehameha III a me Na Lii a me na Konohiki ana, most commonly known as the Māhele Book.
Other acts and laws during this time further changed the status of land ownership in Hawaii. Under the Kuleana Act of 1850, commoners or maka‘āinana could petition for title to the land they lived on and own it as fee simple property. However to qualify they have to have lived on that land since before 1839. These land claims were allowed to be filed by 1854 with complicated paperwork and a land survey. As land ownership was a foreign idea, the majority of Hawaiians did not claim the land, causing the remaining unclaimed lands to go to the government, some of which were later sold to the major Hawaii landowners of today. At that time only around 1 percent of the land in Hawaii went to the maka‘āinana, who were the vast majority of the population.
Another major law paved the way for how land ownership exists in Hawaii today: the Resident Alien Act of July 10, 1850, which gave foreigners or non-Hawaiians the right to buy land in fee simple, meaning individuals from anywhere could buy and sell land or pass it on to heirs.
From the time of kings ruling each island to the Kingdom of Hawaii to the Republic of Hawaii to a U.S. territory to statehood, land ownership in Hawaii has changed. The Native Hawaiian people once did not even recognize land ownership as a necessity since they enjoyed sustainably using and sharing the lands in an organized and prosperous ahupua‘a system.
However, the controversial history of the Mahele, or land distribution, and later the overthrow of the Kingdom of Hawaii, has led to the ability for individuals from all over the world to purchase land fee-simple in Hawaii. Today, if you have the right resources and perhaps a little bit of luck, a piece of land in Hawaii paradise can be purchased.
Terminology is key to understanding Hawaii's real estate game.
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