By John Sylvester V. de la Torre
Investing in the Philippines has been increasingly interesting since a few years ago. Investors who know their numbers can readily compare the upbeat feeling to other areas of the globe where the real estate industry has been pretty much stable during the last few decades.
The upsurge in the Philippine economy has also been observed by financial bodies abroad. For example, S&P has cited that the Philippines is among the most accelerated economy in terms of growth in the ASEAN region. While the numbers deviate by a few notches from the earlier projections, there’s no denying that things are coming up roses for the Philippine economy.
Bloomberg has noted that in 2015, the Philippine economy is the second fastest growing economy in the world, behind super power China. The Philippine numbers are even higher than the tiger economies of Asia like Taiwan, Korea and Japan.
However, to profit from the real estate investment boom in the Philippines, it helps to educate yourself with the do’s and don’ts to minimise risk and maximise return on investment.
Some caveats:
- Buying cheap properties from some unknown developers
New real estate developers would usually offer the most flexible payment schemes or even lower monthly amortisations to catch the attention of buyers. However, the risk of investing on a new player in the industry is just too high and may prove to be unstable.
- Offering attractive furnishing packages for pre-selling properties
Some developers give generous packages including furnishing usually between 3 to 4 years before a property is finally completed and turned over to a buyer. By then the furniture and appliances that went with the package would probably be out of style, if not, obsolete.
- Foreigners may not be allowed to own certain properties
The laws of the Philippines prohibit foreigners from buying real estate properties specifically land. However, they may buy 40% of condo units with Filipino citizens owning 60% of it.
Filipinos who are now citizens of another country may be able to purchase a land not exceeding 1,000 square metres in urban areas, or up to one hectare if the land is located in a rural area. They may also own 100% of condominium properties.
For a detailed explanation of the complexities involved in foreign ownership of a real estate property in the Philippines, visit the Hoppler Real Estate Blog.
Dual citizens, however, share the same rights as citizens of the Philippines as far as property acquisition is concerned. So Australian-Filipino citizens can buy as many properties in the Philippines as any Filipino citizen in the country.
- Buying a property based on unit type instead of price per square metre
Not all studio, 1, 2 or 3-bedroom units are the same. For instance, a studio-type unit offered by a middle or high-end condominium outfit provides a bigger space than the same unit type on affordable or low-end ones.
Surprisingly, checking on the price of a per square metre will prove that there is negligible difference from the price per square metre of a high-end development option considering the value difference provided by the accompanying landscape, fixture and finishing including amenities and common areas.
So, choosing a property on an upscale market may generate a higher return on investment because of a higher property value when you eventually sell your property.
Some extremely helpful tips to be considered before buying an investment property
- There is a need to be thoroughly informed and oriented by the Maceda Law which provides protection and rights to property buyers, especially those who buy property on installment basis. Read about the Maceda Law on this link: http://philpropertyexpert.com/defaulting-payments-know-your-rights-under-republic-act-6552/
- “Location, location, location” is no longer the prime reason in buying a property. A reputable developer that conceptualises and creates a business district and a community with all the most modern and sustainable lifestyle always proves to be a lesser risk than acquiring properties in developed areas without any business or urban development plan.
- The Philippines’ Provident Fund provider PAG-IBIG charges higher interest rates than banks for longer mortgage payment terms.
- Pre-selling properties have a higher margin for resale than ready-for-occupancy (RFOs). Buying off-the-plan properties provide several advantages than RFOs. Buying a property on a pre-selling basis right at the very start of the development affords a buyer better and higher chance of getting an appreciation value of at least 25 per cent during the next four years prior to the project turnover.
This figure is supported by the average historical increase for some top developers in the Philippines. A property offered on pre-selling usually has a few years of development and construction period before final turnover.
Most developers provide flexible terms of only 30 to 50 percent payment before the scheduled turnover, leaving the buyer with only half of the property price which can be paid through bank financing. This becomes self-liquidating if the buyer decides to have the property leased out after the turnover.
This scheme creates a property value appreciation of a minimum annual average of 6 to 7 per cent through the 4-year period from the start of the development. This, along with the prospect of property leasing income on the 5th year up to, at least, 10 to 12 years can potentially double one’s investment with lesser or minimal risk compared to putting up a business that requires full-time and much greater efforts.
- In case of options involving financing of a property, one gets the most stretched amortisation schedule of a 5, 10 or 15 term. Always avail of the lowest bank loan interest rate for either an annual, two-year, or three-year terms.
Why? Because one can always cancel whenever one is ready to pay in full, or propose to pay-off a bigger portion of the principal value without paying a high interest rate.
- Always check the track record of a developer. Choose one with the highest recorded historical value appreciation and progress in terms of development. Make no mistake. Extra vigilance always pays off, Go for the option with the lowest risk.
- For Aussies wanting to invest in the Philippines, it may be worth consulting an accountant on how to utilise your “super fund”.
The author, John Sylvester V. de la Torre is an experience Property Investment Consultant based in the Philippines. Contact him on email johnsylvester.delatorre@gmail.com or call +63 9176 500 210.
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