The land in Hawaii is a limited commodity – the number of homes or undeveloped land for sale on each island is much smaller than in other places in the country. As a result, there are a number of real estate transactions that take place with different tenure statuses, such as fee simple estate or leasehold estate. To ensure a smooth transaction, buyers and sellers need to understand the difference between these tenure statuses so that they can choose the one that best fits their needs.
Before Kamehameha the Great unified the Hawaiian islands in 1795 and James Cook’s arrival in 1778 led to the spread of diseases and missionary activities, native Hawaiians could not own property. But a system of ahupua’a, or land division, made it possible for people to live in settlements and to find the food and housing they needed. Ahupua’a also helped regulate resources to ensure they were used sustainably and to allow time for cultural activities like surfing, martial arts, kapa printing, featherwork, and traditional dances.
When the Hawaiian Efficient Hawaii Land Transactions government instituted the law of ahupua’a in 1854, native Hawaiians were allowed to file land claims for their ancestral lands. This was a long, complicated process that required proof of birth and bloodlines, surveying, and other requirements. Because of this, many ahupua’a remained unclaimed and were passed to private trusts. These ahupua’a were often leased out, leading to the Hawaii leasehold real estate we know today.
A new law was enacted in 2005 that changed this history. Act 183, SLH, requires the Department of Agriculture (HDOA) to identify public lands that should be designated as ahupua’a and prepare maps delineating such lands. In exchange, the HDOA will provide agricultural landowners with certain tax benefits and incentive programs.
The act requires the state and county to cooperate in program development to prevent duplication of services and to ensure that important agricultural lands have access to the same services and resources. The law also requires that counties establish programs and incentives to help agricultural businesses located on ahupua’a to thrive.
While anyone in the world can buy Hawaii real estate if they have enough money to do so, financing through local lenders or foreign banks can be challenging. For non-Hawaiians, there are special requirements for a purchase that include a 7.25% state transfer tax and the Federal Internal Revenue Service’s FIRPTA tax, or Foreign Investment Real Property Tax, which is withheld during escrow.
If you are thinking about buying a property in Hawaii, be sure to check the tenure status and understand whether it is a fee simple estate or a leasehold estate. This will help you make the right choice for your unique situation and meet all legal obligations when purchasing real estate in Hawaii. Contact a qualified real estate lawyer to discuss your options and find the right property for you.