How to choose Philippine real estate that will increase in value
3 Key Points to Profit from Philippine Real Estate Investment
Choose a condominium in an extremely good location
There are two conditions that make it easy for foreigners to win condominium investments in the Philippines: first, the location must be in a big city where there are many luxury condominiums, and second, the location must have differentiating factors that make people want to live there even after 20 years.
The reason why you should choose a big city is that the bigger the city, the more information you will receive and the more you can make an investment decision after carefully examining the information in advance. The reason why you should choose a big city is because the bigger the city is, the more information you can get and the more you can make an investment decision after carefully examining the information in advance. The cheaper the property is, the less information is available.
The Philippine real estate industry is growing rapidly, and there are many condominiums that are of higher quality than the towers in Japan. The only thing that will allow the condos of 20 years from now to compete with the condos of today is location.
For example, in the Philippines, there are many areas under development, but after 2020, there will be a few areas where development will be completed due to the size of the lots. It is easy to imagine that the scarcity of properties around completed development areas will increase because additional properties cannot be built there.
Select a condo that is at least 2 years old and used
Compared to newly constructed properties, pre-owned properties offer a less risky investment. It is said that newly built properties generally tend to increase in price, but it is not uncommon for the price to drop sharply after a boom passes after an increase. Compared to newly built properties, used properties are less subject to uncertainties such as “price,” “property workmanship,” and “tenants’ atmosphere,” allowing you to take exit strategies (capital gain strategies) and rental strategies (income gain strategies) that are more in line with the actual condition of the property. Used properties tend to be difficult to sell because the “fair value” of the property has been assessed once in the market and the property has been traded at that price, making it difficult for a large price collapse to occur.
Even after two years, the price of a used property is often higher than that of a new property, but this means that there are investors who are willing to buy even at a higher price, and we believe that it is the right investment decision to buy even if it costs a little premium in terms of the future potential of the property.
Choose properties with scarcity and added value.
The overall Philippine real estate market declined temporarily as a result of Corona. At this time, designer condominiums were very little affected by the decline, or prices were rising. For example, Century City has a number of properties that are collaborations with high brands, such as Century Spire with Armani, Trump Tower with Hermes, and Milan Tower with Versace. Such properties are unique and in extremely limited supply, so they are unlikely to lose their value as they age.
Condominiums by hotel brands and fashion brand collaborations can be particularly value-added properties.
Common Problems and Failures in Philippine Real Estate
Case Studies and Measures to Avoid Unexpected Problems
While Philippine real estate has high potential, there is also the possibility of a small amount of trouble when investing in real estate. What kind of troubles exist, and what should you do to avoid them? We will explain what kind of troubles exist and what you can do to avoid them.
Uncompleted problems that delay the construction of the property or prevent the property from being delivered
In the Philippine condominium investment market, there is a method of purchasing condominiums called pre-build investment, which allows you to purchase a property at a lower price than the list price instead of purchasing a property that is still under construction. Pre-built properties are available at a lower price, but there are completion risks such as construction completion dates being delayed or the construction itself being halted in the middle of the project.
Defective problems where the property itself is defective
In the case of used properties, it is not uncommon to find small defects in the property itself, such as damaged walls due to lack of proper ventilation, a broken air conditioner, or the smell of a cat that was kept by the previous tenant and has seeped into the property. Even in the case of newly built properties purchased pre-built, inexpensive condominiums may rarely have small construction errors. You can avoid problems by going directly to the site for handover, or have a reputable real estate company hand over the property on your behalf.
There was a case of a video call handover in which the owner was unaware of the defect and when he went to the property he found that the door was broken and the door was not locked, but he had to pay for the repair himself because the handover had already been completed.
Vacancy problem with no tenants despite advertisement for rent
Vacancy risk” is the biggest risk when you aim for income gain by renting out a condominium in the Philippines.
The causes of vacancy can be divided into three categories: the rent is not commensurate with the market rate, the property itself is not in demand, and the management company is not motivated or does not have the know-how.
- The rent is not commensurate with the surrounding market price: In order to make the yield look good, the real estate company offered a rent that was far from the actual market price at the time of purchase, and when they tried to actually attach a lease, no tenants were able to move in.
- The property itself is not in demand: A pattern in which a family-type 4LDK is purchased in an area where many singles live, and tenants cannot be found.
- Management company is not motivated: It is not uncommon for a Japanese company to not be familiar with the local area, and to fail to advertise on portal sites, SNS, etc., and to fail to find tenants for a long period of time.
While rents can be detected to some extent before purchase relative to the surrounding market, it is difficult to detect in advance that the management company is unwilling to do so, and this is tricky because it is often overlooked.
In the Philippines, it is common for brokers to look for tenants through their own connections and SNS (Facebook, Instagram).
Some companies often do not have the know-how to distribute rental offers to Filipinos, and often find it difficult to get tenants even though they are paying a management fee. Before hiring a condominium management company, be sure to ask the management company how many local networks they have and how many local companies they have partnered with.
Local management companies are divided into two groups: those that handle luxury condominiums for foreigners and those that handle apartments and mid-priced condominiums for locals. For properties with rent below 35,000 pesos, local Filipinos are more likely to live there than foreigners, so it is important to have a “localized network.
Real Estate Fraud Problems in the Philippines
Philippine real estate is not entirely free of scams. Here are some of the most common scams in Philippine real estate.
- Fictitious real estate investment scams: Cases in which the broker offers to invest in pre-built condominium projects that do not exist, or even in condominiums that do exist but have nothing to do with the broker, only to run away with the money.
- Land deals: Cases where the broker offers to purchase land on behalf of foreigners who are legally unable to purchase land in the Philippines, and then disappears.
The most common scam in the Philippine real estate market is the absconding with money, but it can be prevented by making sure that you “do not leave your money with a third party until you sign a contract,” “make sure that the broker you request is licensed in the Philippines,” and “gather information in advance.