When Ray Kawabata moved into Plantation Town Apartments two years ago, he believed all his neighbors would be, like him, local residents with low or moderate incomes who fulfilled a dream of homeownership.

But in recent months a couple of Kawabata’s neighbors have been investors who bought into the Waipahu affordable-housing condominium that was developed with state assistance.

The change came after state and county officials loosened rules on who can buy the units. Originally, to qualify, buyers could not earn more than 120 percent of Honolulu’s median income and had to be Hawaii residents. They also were prohibited from renting their unit, and had to share any equity gain with the state if they resold their unit within 10 years. As of this year, new buyers do not face any of those restrictions.

The shifting makeup of Plantation Town residents is not sitting well with Kawabata and some of his fellow owner-occupants who bought earlier and are still prohibited from renting out their units. They feel the changes in ownership rules hurt the property’s value.

"I don’t think it fair," Kawabata said. "I thought this is owner-occupant apartments, not vacation apartments."

Project officials say the change was necessary because market conditions are depressed, and note that prices were raised $5,000 this year to mitigate any negative impact on property values and to be fair to initial buyers.

The repositioning of Plantation Town shows how market forces can affect one of the state’s models for expanding the supply of affordable housing: having private developers build condos on state land.

Designed with 330 units divided between two towers, Plantation Town was a $71 million project by Plantation Town Apartments LLC, a firm headed by local developer Michael Kimura.

Kimura’s proposal was selected through a request for bids issued in 2005 by the Hawaii Housing Finance and Development Corp., a state agency, to occupy six acres of vacant state land.

Sales efforts kicked off in September 2006, just as Oahu’s real estate market was nearing the end of a superheated boom.

At the time, Gov. Linda Lingle proclaimed in a statement, "This collaborative effort between the public and private sectors will enable the dream of homeownership to come true for 330 Hawaii families."

Prices ranged from $131,500 for 362-square-foot, one-bedroom units to $302,000 for 643-square-foot, three-bedroom units. At the time, the prices reflected below-market values made possible in part by the state’s land contribution, though buyers had to meet the special ownership conditions.

Though affordable housing was in high demand, Plantation Town sales proceeded relatively slowly as the real estate market cooled. By the end of 2007, the income limit was increased to 140 percent of the median to expand the pool of potential buyers.

Construction was completed in July 2008, and initial residents moved in. Yet by July 2009 only 185, or 56 percent, of Plantation Town units had been sold.

Project officials said demand was strong but that tightening mortgage standards kept many low-income prospective buyers from qualifying for loans. So HHFDC and the City Council in December approved removing restrictions on units, including any income limit and the shared-appreciation provision for resales. The owner-occupant restriction, however, was maintained by the developer.

Then in March with sales still flagging, project broker Hawaiian Island Homes Ltd. announced that it had begun marketing Plantation Town units to investors and that the last restrictions—requiring that buyers be Hawaii residents and that they live in the units—had been lifted.

The HHFDC said the changes were necessary and appropriate because the developer had $19 million outstanding on a construction loan that had been extended once, while recovery for the local real estate market is forecast to be slight and slow.

Since March about 25 units have been sold, and another 18 are in escrow.

Peter Savio, founder and principal broker of Hawaiian Island Homes, said only two of the sales since March have been to investors based on information from mortgage documents, and that Kimura, the project’s principal developer, is trying to sell as many units to owner-occupants as he can.

"Mike is being very responsible," Savio said. "He does not want to sell to investors."

Savio said Kimura sought HHFDC permission to remove shared appreciation and rent prohibition provisions for early buyers, but the agency was against altering prior contracts.

Under the modified terms of Plantation Town unit sales, half of the $5,000 price increase is to be deposited into the project’s homeowners association to be used as the association sees fit, which Savio said benefits all owners.

Douglas White, a Plantation Town resident since 2008 who serves as association president, said he understands the reason for the changes but is upset that the requirements were changed without informing or consulting residents.

White expressed his frustration during an HHFDC board meeting in May, and said in written testimony that the agency should have tried other ways such as a rent-to-own program that maintained the rental restriction to ensure the project remained 100 percent owner-occupied.

He added that rental units, though they were sold for $5,000 more to investors, might not hold their value as well given that owner-occupants tend to have a greater pride in maintaining the property.

"Indirectly, it’s going to drive down the value of our units," he told agency directors.

Betty Lou Larson, an HHFDC board member and an affordable-housing and homeless advocate with Catholic Charities Hawaii, suggested at the meeting that the impact on Plantation Town unit values would be worse if unsold units went into foreclosure. White said he understood the rationale for the changes but believes residents should have been informed about decisions that affect their homes.

Kawabata said, "To me it’s not fair. They should give a concession (to those) who bought at the original price."