For sale: Two-bedroom Kaka'ako condominium in new high-rise for $340,000.

That's an example of what will soon be available from developer A&B Properties Inc. as it releases 63 condos at affordable prices in its 42-story tower under construction at the corner of South and Queen Streets.

A&B agreed to sell a portion of the new Keola La'i tower's 352 units at below-market prices in exchange for permission to build the tower higher than the height limit for the area.

While the prices are attractive, the sales are limited to Hawai'i residents who don't currently own a house and earn no more than $84,688 for singles, or $94,850 for a family of two or more.

Already, a steady stream of interested buyers — many of them priced out of the state's expensive real estate market — have begun to check out the offering of mainly lower-floor units for $275,000 to $375,000.

"It's hard to beat," said Handoyo Yahya, a real estate agent with Pacific Insights who was gathering information for his son, Roy, a recent University of Hawai'i graduate.

Ashish Das, an information technology worker who rents an apartment in Downtown Honolulu, said he looked at Keola La'i yesterday mainly because of the price. "This is the right price," he said. "Other places, it's very expensive."

A&B Properties is selling 14 one-bedroom units with 675 square feet on average priced from $275,000 to $309,800. Another 49 units with two bedrooms with 900 square feet on average are priced from $340,000 to $375,000.

A&B will take applications for the affordable units from 10 a.m. Nov. 26 until 6 p.m. Dec. 10.

Tracy Yamato, an agent with the project's broker, Coldwell Banker Pacific Properties, guessed that there could be 500 to 1,000 lottery entrants who meet all requirements and qualify for a mortgage. Yamato said about 300 people stopped by the sales office in the past two days to get information on the affordable units.

A lottery to select buyers is scheduled for Dec. 19 at 10 a.m. at the project's sales office at 676 Queen St.

The building is slated for completion in the first quarter of 2008 on the block bordered by South, Queen, Kawaiaha'o and Emily streets.

The state requires A&B to provide affordable housing for "gap group" residents who earn too much to qualify for government assistance but not enough to qualify for a loan for a market-priced home.

The Hawai'i Community Development Authority, which regulates development in Kaka'ako, allows developers to build above the area's standard height limit in return for providing 20 percent of units at below-market prices or a cash equivalent.

The agency's program has resulted in 1,300 below-market condos for sale or rent in the area. But the A&B project is the first to sell below-market units under agency rules since 1133 Waimanu was developed in 1996.

"This is a rare opportunity," said Rick Stack, vice president of development for A&B Properties, a subsidiary of Honolulu-based Alexander & Baldwin Inc.

Part of the reason no below-market homes were developed in the past decade under the agency's rules was the soft housing market that led the agency in 2001 to suspend its affordable housing requirement for three years.

During the suspension, three residential towers (Hokua and the twin-tower Moana Pacific) were approved with about 1,100 units at mostly high-moderate and luxury prices.

A fourth tower built in that time, Ko'olani, was part of a larger project that previously satisfied its affordable-housing commitment.

A&B chose to provide 63 below-market units, or 18 percent of the total units, plus $1.2 million, which the state will use to develop affordable housing.

Keola La'i's below-market units initially were priced 19 percent less than comparable units, though market prices have risen dramatically since the agreement was made more than a year ago.

At market prices, one-bedroom units have sold in the $400,000 range and two-bedrooms in the $600,000 range.

The 63 affordable units come with several restrictions, including a requirement that buyers are Hawai'i residents who haven't owned a home in the past three years.

Other restrictions include a prohibition on renting the units, and a right for the state agency to buy the unit back at a below-market price if the unit is sold within two years.

The state agency also is entitled to a share of proceeds from units sold by initial buyers regardless of time. The share ranges from $93,320 to $127,528 for one-bedroom units, and $92,611 to $216,050 for two-bedroom units.

Reach Andrew Gomes at agomes@honoluluadvertiser.com.