Even after following a slowdown of GDP growth during the 1Q14, the Philippine real estate sector remained buoyant as a result of the high demand for premium residences and the increasing land values.
In fact, 37,095 licenses to sell were issued by the Housing and Land Use Regulatory Board (HLURB), a 22.3% increase from January to June 2014, and over 30,000 units are still expected to be turned over by 2017 throughout the Makati, Fort Bonifacio, and Ortigas Center central business districts (CBDs).
The Philippines is enjoying a surge in the real estate market, and because of the booming economy, now would be an excellent time to consider investing in a preselling property.
Yet, despite the increasing supply of properties and a weak growth forecast for the succeeding quarters, the industry remains upbeat, and experts agree that it is nowhere near a bubble. The Philippines is enjoying a surge in the real estate market, and because of the booming economy, now would be an excellent time to consider investing in a preselling property.
What is Preselling?
Preselling or off-the-plan properties, mainly condominiums and townhouses, are units sold before the completion of the project, while they are under construction, or during their planning stages.
This practice allows real estate developers to finance the construction of their project and enables potential investors to purchase the property at a much cheaper value.
This is a wise form of investment, whether you’re looking to realize an immediate return or simply to settle. Yet, there are considerations to be made, as investing in a preselling property has its pros and cons.
The Pros
1. Low introductory price and flexible payment schemes
As the demand for residential units continues to escalate, lending institutions offer more and more financing options and lower borrowing costs. And with the absence of a concrete entity, real estate developers offer preselling properties at a much lower introductory price, which is about 30 percent lesser than a unit that is no longer just a perspective. To further attract potential buyers, developers also offer discounts and promotions as well as flexible payment schemes that can go for as low as 10%, which can be payable in a short three years.
2. Having the luxury of choosing the best located unit and enjoying new features and amenities
Another benefit enjoyed by most buyers of preselling properties is being able to select their preferred unit and floor plan. Customizing and inspecting their accommodation at the end of every construction phase also applies, depending on the pre-sale contract. On top of that is the perk of living in a community that offers state-of-the-art amenities.
3. Quick ROI by the turnover date
What will be the projected demand for your property and its location in ten years? And, if you invest in a preselling property now, what will its value be by the time of its completion?
Whether you are investing for a quick return or simply buying a unit to call your own, these are questions that need to be considered before deciding to plunge into a deal.
While pre-selling properties can make promising investments, given that their value increases as the years pass, their location is also vital. Provincial properties, for instance, are more affordable than those in developed areas, mainly because most are not strategically located near commercial establishments, central business districts, and educational institutions.
As a buyer, it is wise to consider the neighborhood, as it is a factor that will define your ROI. Remember, your down payment today will be of higher value in five years or more. So the trick is to find a preselling property in a prime location.
The Cons
1. Failure of full completion, delay in turnover, and changes without prior notice
Investing in a preselling property is an ideal scenario as long as the developer is able to finance the completion of the project. One way of avoiding this possibility is choosing a trusted developer with a solid portfolio and that has a history of delivering on time. Verify if the developer has a license to sell and if the preselling condo project is registered under HLURB.
Expect a delay clause in your pre-sale contract, which permits your developer extra time to deliver for up to a year or more. In such case where the project fails to push through, or the developer no longer has the finances to construct, comes the likelihood of you not getting a refund.
Anticipate as well that adjustments may be made during the construction phase. Unit sizes, floor plans, and amenities are subject to change, and as a buyer, you should be prepared.
2. Failure of the developer to comply with the requirements of government agencies
Under Presidential Decree 957, or the “Subdivision and Condominium Buyer’s Protective Decree,” developers, owners, or dealers are restricted from selling any property without a license to sell from HLURB, a national government agency that regulates the real estate industry, and that lacks specific HLURB requirements.
To inhibit preselling scams, HLURB imposed tighter rules in 2012. Developers are required to submit a contract to sell, a contract of purchase and sale, an exchange, an attempt to sell, an option of sale or purchase, a solicitation of a sale, or an offer to sell, directly or by an agent, or by a circular, letter, advertisement, or otherwise.
3. Getting the service of a corrupt broker
There have been cases where brokers and agents have taken advantage of their buyer’s absence. This applies to overseas Filipino workers (OFWs). If you are buying from abroad, it is advisable to have a representative in the Philippines who can assess and check the construction progress of your property once in a while.
While there are drawbacks in buying a preselling property, it is a solid form of investment. The key is to study the market well and choose a developer that has an excellent reputation.
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