Types of Philippine Real Estate Investment
Foreign investment restrictions limit the investments that foreigners can make.
House and land investment in the Philippines
In the Philippines, strict foreign investment regulations do not allow individual foreigners to own land. Individuals are not allowed to purchase detached houses either, since the building and the land are registered together. Real estate investment in the Philippines can only be made in apartments or condominiums (residential complexes).
There is also a scheme to establish a local corporation and hold the land as a corporation, but when establishing a Philippine corporation, a Filipino citizen must account for 60% of the capital (Filipinos are the actual owners), and it is always necessary to find a reliable Filipino.
It is not uncommon to hear stories of Filipinos who have borrowed money from other Filipinos to set up a Philippine corporation, but then absconded with the funds.
Apartment Investment in the Philippines (Tower House)
Apartment investments can be started for less money than condominium investments. It is not uncommon to find properties in the 3 to 4 million yen range even in the heart of Metro Manila. However, a low purchase price means a low rental price, and in many cases, you will have to solicit local Filipinos for rentals.
Many apartment brokers and condominium brokers are separated from each other, and since many condominium brokers deal with foreign clients, it is common for them to speak English, and in some cases, Japanese and Chinese. However, apartment brokerage firms are local-based and serve Filipino owners and Filipinos, so they often speak only Tagalog or are not accustomed to foreigners, making it difficult to communicate with them.
When investing in housing complexes, there are also restrictions on foreign investment, limiting individual foreigners to owning less than 40% of all units. In other words, foreigners cannot invest in a single apartment building, so they cannot aim for economies of scale, which is a major attraction when originally investing in apartments.
Condominium Investment in the Philippines
If you are considering investing in real estate in the Philippines, your first choice would be to invest in condominiums. There are two types of condominium investments: buying a newly built condominium and buying an existing condominium.
Advantages and disadvantages of condominium investment
Should I choose used or new construction?
Advantages and disadvantages of pre-built (new construction) investments
- Property prices can increase significantly: It is not uncommon to hear of pre-built properties that have doubled or tripled in value. As an actual example, Park Terrace, a luxury condominium in Makati, has sold for 2.5 to 3 times the price of the new building at the time of pre-build. Pre-builds are characterized by their ability to generate large profit margins, as long as you are able to identify the properties.
- Easy to make a profit in a short period of time: Pre-builds are bought at a discount of 20-30% off the list price in exchange for signing a contract before completion, so there are cases where you can make a profit by selling immediately upon completion. Pre-built properties are more likely to be profitable in a one to three year span, whereas used properties often have a gradual price increase after purchase.
- Loans are available: When purchasing a pre-built property, you can choose to purchase it with cash or with a loan. In many cases, we have partnered with banks and developers in the Philippines that offer loans, and you can easily get a loan secured by the property.
- If you have cash, you can buy more cheaply: If you buy with cash without a loan, you may be eligible for discounts, such as a 10% discount off the property price.
Disadvantages of pre-built (new construction) investments
- Disadvantage of pre-built (new construction) investmentRisk of image discrepancy: Since pre-built properties are not yet completed, there is often a discrepancy between the image you had in mind before purchasing the property and the actual property. While a discrepancy in design image is still a good thing, “the biggest mistake is the discrepancy between the expected and actual tenant demographics,” which directly affects rental income.
However, in reality, it is a condominium that is occupied only by young people who are in high spirits, and there are no tenants at all in the family type. However, it is not unusual to find that only young, enthusiastic people are actually moving into a condominium, and that there are no tenants at all in the family type.
Have you ever had the experience of visiting a station building that had been much talked about before its completion, only to find out when you actually get there that it was nothing special? This is often the case with pre-built properties.
- Completion Risk: In Philippine real estate, it is common for construction completion dates to be delayed. It is not unusual for the completion date to be a year later than scheduled. If you have a loan, you will have to continue paying interest even if there is a delay in the construction schedule, which may result in unexpected expenses. In addition, if the developer goes bankrupt, there is a risk that the property will not be completed and you will incur losses.
- Possibility of decrease in value after occupancy: Newly built properties are like new cars: once someone moves in, the value of the property decreases. Some owners choose not to have a single tenant until they sell in order to maintain the premium value of a new construction.
Pre-built properties are said to be “a good deal because you can buy them at 20-30% off,” but that means they are less expensive than buying them after completion based on the price of a new property, and when they are used, you have to consider the possibility of a temporary decline in value anyway.
Advantages of investing in an existing condominium
- Lower risk than pre-built properties: Pre-built properties are characterized by lower short-term volatility than pre-built properties because they have been “priced correctly” based on market conditions at the time they were put on the market. In addition, since you can directly view the property before purchasing, you can make an investment with less uncertainties.
- Easier to obtain a property at a lower price than a newly built property: In the case of pre-built properties, the price is set by the developer, so the price is the same as long as the same square meters and type of property are used. A seller who wants to let go of a property immediately due to some circumstances such as a business tipping over or a change in lifestyle may sell it at a discount from the market price. Also, to the extent that someone has already occupied the property, it is likely that you can purchase the property at a discount because there is no new construction premium on it.
- Income-gain strategies can be tailored to the property: Past rent data, recent development in the area, and the demographics of the residents can be used to set rents based on actual conditions. In the case of a pre-built property, rents and yields are set based on images alone, and tend to be based on theoretical theories.
The concept of investing in a used condominium in the Philippines is to purchase a property at a price slightly lower than the fair value, and then aim for income gains and capital gains, believing that the property value will increase as a result of economic growth and property added value.
Disadvantages of investing in an existing condominium
- Less information circulated: In the Philippines, the infrastructure for advertising and real estate transactions is not as well developed as in Japan, and in many cases, information is exchanged only through horizontal connections among real estate brokers. Although some portal sites have recently emerged, the information that individuals can access is still limited, as the information may be outdated or incomplete.
- Difficulty in buying good properties: As with domestic real estate, good properties tend to sell quickly in the Philippines. In order to obtain information on good properties, it is necessary to work with a real estate agent who has a good eye for identifying good properties and strong connections with local brokers.
Summary of types of real estate in the Philippines
Which is better, used or new?
If you want to invest in Philippine real estate, you should choose “condominium investment”.
The Real Estate College of the Philippines believes that investing in used condominiums is a more reasonable investment choice, as they offer low-risk, middle-return opportunities rather than high-risk, high-return pre-built properties. However, real estate agents who handle pre-owned properties need to have outstanding knowledge, proposal and negotiation skills, and there are still very few companies that offer such services.