For many Filipinos, their 20s is an exciting time in their lives. They’re starting their careers and earning their first wages. With those first wages, they can afford to go out and have fun, engage in retail therapy, travel, and buy cool gadgets. They also have the chance to move out; for this purpose, many choose to move into condominium units. But even if you’re not living independently, it could still be worthwhile to own a condo in the Philippines — especially as a source of investment income.
It’s hard for many young people to think about, but there’s a lot of practical sense in investing your money. Time brings challenges, and you may find that your salary isn’t enough to help you cope. There are plenty of opportunities to get passive income from the stock market or mutual funds, but if you want to invest in a real asset, then condo properties are a good way to go in the Philippines. Here are a few best practices to consider when investing in the condo property market.
Don’t just trust the floor plans
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Maybe it’s because of their youth or inexperience, but many millennials don’t think about the due diligence that comes with property investment. They know that basing a smartphone purchase on the manufacturer’s published specs alone isn’t wise; they also turn to user reviews as well as reviews from well-respected tech publications. But when it comes to investing in a condo unit, they’re much more willing to trust the marketing materials that a developer comes up with — and that includes the floor plan.
Developers have no shortage of models and brochures to try to convince people to invest in their properties. These normally give you an idea of where the property is located, the square footage of each unit, and the layout of the unit. You can go over these with the condo sales representatives you’ll typically find at high-end malls. But unless you have tremendous geographical knowledge of the city and a keen ability to visualize space based on diagrams, those materials will probably only give you a rough idea of what to expect. To ensure that you’re investing in a good space, an ocular inspection is always best.
Consider the market and the timing
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Even when you’re fairly sure the property is decent, your job’s not done. Remember, prices are affected by supply and demand. Demand differs depending on target markets; you have to think about what people living in a certain area need and want, and whether that will be fulfilled by the features offered by a particular property.
With the worsening conditions of traffic in Metro Manila, workers are increasingly interested in renting properties that are close to central business districts; the same line of reasoning applies to students, who typically rely on their parents to cover rent. Since property prices near CBDs tend to be sky-high, many will be happy renting units that are close to major lines of transportation. Premium facilities, such as gyms, pools, and naturally lit common areas, tend to command a higher price. You can also choose to compete based on price, but you have to be careful; remember, you still have to consider the costs of ownership such as interest payments on loans (we’ll talk about loans in a bit) and property taxes.
You should also consider that demand isn’t constant; it changes over time, so your property must be available when prospective tenants are shopping. For instance, if you think your unit is best suited for student tenants, it’s best to start putting your unit up for rent around graduation time, when parents are already thinking about their children’s living arrangements for the next school year. However, finding buyers in the property market isn’t as convenient as selling stocks on an exchange. You won’t automatically get tenants, so you may have to be prepared to promote your condo on multiple channels.
The cost of joining the game
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One of the first things you should think about in condo investment is the cost of acquisition. In Metro Manila, mid-range condo properties can cost anywhere from 80,000 to 185,000 pesos per square meter, according to recent research from Jones Lang Lasalle. The vast majority of Filipinos don’t have millions of pesos on hand, so chances are you’ll have to acquire a condo property through leverage — that is, you cover a down payment from your own pocket and pay the rest through a loan. You’ll find that developers are easing their requirements to let more people access the market. Some are offering flexible payment terms; most offer in-house financing, which is convenient in terms of approval, but tend to be pricier than bank loans. If you already qualify for a housing or real estate loan from your bank, that’s usually preferable especially since it’s also an opportunity to build up your credit score.
Financing terms are typically lighter for pre-selling units, especially since pre-sellers are eager to get cash to fund the development. But then again, there’s also a possibility that a project doesn’t get finished on time, which can be a serious issue if you’re investing in a property to get ongoing rental income. If you’re dealing with an established name in the property industry, of course there’s a reduced risk of that happening, but you don’t have that luxury when it comes to newcomer developers. Property investment is a very serious game, so you have to think carefully about how you should enter the playing field.
Choose your prize: Capital gains or rental income?
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Owning a condo is a financial advantage as long as you know what you want from the start. Are you aiming to get capital gains from the property? That’s reasonable, especially since shelter is a basic need. Some people might be afraid to invest in a property because they see how condo supply keeps rising, which might depress prices down the line. But in many urban areas, the amount of available living space is decreasing, so that should provide a sustainable lift.
Aiming for capital gains makes sense especially for those who are willing to wait for the payoff, and such people are usually interested in buying a better-valued property later on. But most property investors tend to look for ongoing cash flow from rental income; not only does it address ongoing ownership costs, but it’s also a way to accumulate wealth — after the initial investment cost has been recovered, of course.
How quickly can you recover your initial investment? That depends largely on the rental yield, which is the ratio of the rental income compared to the cost of a property. In the Philippines, rental yields tend to average between 6% and 7%. According to some recent figures from Zipmatch.com, the best properties in Manila, which include developments from DMCI, offer rental yields ranging from 7% to 11.78%. The properties that yield over 10% tend to be in Makati, but there are also some hidden gems in Mandaluyong and Pasig.
The 20s are just the start of adulthood. As you get older, you’ll encounter many milestones and crossroads. You could get promoted, switch jobs, get married or even start a family. These are exciting experiences, but they’re not easy, so it’s important to plant the seeds of income and wealth as early as possible. Opportunities only add up over time. The younger you are, the more chances you will have to experience the financial advantages of condo investment.
About the Author
Boom Rizal is an investor, a property consultant, a researcher and a writer. She finds helping other OFW’s in making good decisions when investing in various businesses and/or real estate properties as part of her daily life. She also loves to take research in property innovation and writes articles advising readers on how to invest in a property.