Going Into The Property Market Business For Extra Income?

[bootleultras]

Well thats basically my question to you guys.

Im seriously thinking about buying a new condo, ready for occupancy in a high rental area (probably Makati) & dabbling in this market as an extra source of income in the long run. I have money to invest at the moment, not taking into account my regular savings and rather than see it dwindle away on every day expenses, any source of positive income is going to hopefully cover our living expenses and still boost the bank account a little. I have actually bought another property in Makati but that will not be turned over until late this year but would like to get another to begin my project asap.

Any thoughts on the positives & negatives I may encounter? ..... appreciate any feedback

[Old55]

I suggest you invest that money into some type of low risk fund in your home country. I am of the opinion investing in Philippines is best left to connected insider Filipinos.

Once the first Makati property comes online you will have a better idea the wisdom of condo market investing in Philippines.

[Bruce]

Well, I support your idea and effort. Real estate is often solid investiment. Always pitfalls, of course. But compared to other ideas to make money in Phils, I would like the real estate.

 

Low taxes and in Makati, very busy area! Doing online research you see some rental deals in The CItidel, an older building with investor owners either using the front desk to rent out or on their own via Sulit et al.

 

I believe that if you allow the building manager to manage your unit, you get 11 months rent and he gets 1 months rent as a free.

 

As for negative you ask? TOO MANY TO LIST... so I shan't. But, unless you try, you end up with no income and living on 1% bank interest. I I had the money to try, you bet I would. But I invested out in Samar instead of the city which is good for me.

 

As an option.... if you are not in a hurry, you might find some Kanos with buyers remorse who bought into the building before you and as such may sell to you to simply get out NOW with no loss and you may be 500,000p or more under the current selling prices. Cash talks!  

[JJReyes]

My wife, son and I are in the real estate business owning a real estate firm in Hawaii. We had looked into the Philippine property market for investment opportunities either for ourselves or our clients.

 

There is no multiple listing service in the Philippines. Without a reliable database, it is difficult to make an informed decision when it comes to investment properties. Everything is rumor and hearsay. The tax code means you pay capital gains irregardless whether or not you made money from the transaction.

 

Metro Manila and Metro Cebu real estate is in a bubble. Prices will more likely continue to rise because "hot money" from Asian speculators and overseas Filipino workers continue to fuel the market. At some point, the bubble will burst. Think what happened to the global markets after the American real estate collapse in 2007/2008. Unless you can stomach a 40% to 60% loss, be careful.

 

How can you tell the market is in a bubble? A simple gauge is to look at the property developer prices and how much the units are reselling. For greater accuracy you need reliable data from a multiple listing service, which is non-existent in the Philippines.

 

The International Monetary Fund is starting to question the Bangko Sentral Ng Pilipinas, who in turn, is questioning the commercial banks. The Philippines is an oligarchy with powerful families controling the banks. The small depositors receive very little interest and the cumulative deposits are loaned by the bank owners to their friends or they use the money for their pet projects like building offices and high rise residences. Each new project always seems to be bigger and more prestigious. What happens is the mid-level companies and small businesses have no access to capital. They are forced to borrow outside the banking system at exorbitant interest rates. This is contrary to a sound monetary policy.

 

My greater concern is Mainland China because they can drag down the rest of Asia. Unless you have strong government connections in China, you can't borrow money. If you manufacture widgets and in need of trade financing, the only choice is to borrow at 30% to 70% interest rates. Someone earlier posted a video about a huge shopping complex in China without customers and without shops. That's just one of many examples. The money is borrowed through government connections. Everyone involved already made money except the government who forecloses on the property.

 

As they say in Latin, "Caveat Emptor." Let the buyer beware.

[Utpatur]

Very interesting from JJReyes here.  

 

I have looked a little at the condo-market in Manila - and a sign can be the rush sale of newly finished condos with very little - 5-10% cash - and then next 10% on up to 24 mths with no interest - then bank finance.  

 

It says that the developers are pretty desperate - and when you can get that easy finance on a brand new condo- it will be very hard to sell a 2.hand condo. 

 

If you look long term - 10 years +  the marked will go up - but will your condo? - it depends on how the building will be managed and kept , and it looks like that is out of ones control? 

 

How are these projects organized - is the condo-owners the owners of the hole property (the land) - and can influence (democratic) how the property is kept? Anyway there can be a majority holder that can be in control - and maybe have other interest than people that owns one single condo?

[Bruce]

JJ.... great info, but you stopped before you stated your opinion as go or no go. Sounds like the original poster is looking to buy 1-2 units and not a huge speculation.

 

Utpatur.. they use a negative word from English about their financing programs. They call it SCHEME. Really..... In the US a scheme is a shady deal, illegal or risky. 

 

But in the Philippines, it is a two tiered plan. 1st. you can finance your down payment for 2-4 years and then convert to a bank financing at predetermined rates.

 

You have to realize that for the average Pinoy.... and car dealers LOVE this in the US..... the average pinoy does not care about the actual costs. They care about HOW MUCH per month. 1,000,000p or 3,000,000 is not as important as 15,000p a month!

 

It in only later that you find out that the 15,000p a month is only for 24 months and that is your down payment....

 

This is one reason I built my own place in Samar. I would have / could have bought a condo on Cebu IF I could have gotten a straight financing plan with no prepayment penalty. I was able to put down 10k USD and then pay $500 a month or some months maybe $1200 to pay off quicker. But my math was beyond the ability of the sales people to understand. And if I paid it off in 36 months instead of 48 months, I would still have owed the same interest!

 

But remember I live in the US. If I lived full time in Phils with a local bank account and were buying for an investment, then I might just go with their plan and use rental income to pay the payments.   

[jpbago]

I suggest you invest that money into some type of low risk fund in your home country. I am of the opinion investing in Philippines is best left to connected insider Filipinos.

Once the first Makati property comes online you will have a better idea the wisdom of condo market investing in Philippines.

   I agree with this. Investing in real estate is risky even in your home country where you know the rules and the laws, but here, the rules are written with invisible ink, and forever changing. Last week, there was news on condo tax increases for foreigners only, I believe. If the condo building was only owned by kanos, then it would hold it's value. PI standards are different.

   For investing, I use PUBs and BIG Tobacco. Pubs are pipelines, utilities, and Canadian banks. Tobacco is Phillip Morris and Altria which have done very well. PUBs simply raise their rates or fees while paying 4 to 8% dividends increasing every year. Look at TransCanada Pipelines, Enbridge, or KinderMorgan. Booze (Diageo) is another good one. All of these will continue to do well unless the world stops driving cars, stops smoking and drinking. If you want to keep busy, dabble in options.

[mikhael]

A few tips to consider:

 

 - Start out with a studio-type or 1-bedroom condo unit from a reputable developer just to get your feet wet.

- Developers usually have a leasing group which can undertake the marketing, contract administration, rent-collection and other services as well for the investor.

- Condos near Bonifacio Global City and Makati (not necessarily within these areas as real estate tend to be pricey unless you do have some serious cash).

- Look for real estate brokers who also invest in real estate and not merely sellers/agents looking for quick cash/commission.

 

Good luck!

[JJReyes]

My grandfather made a small fortune in the Philippine real estate market. His philosophy was very simple. "When the market is down, buy as many properties as you can afford. When the market is up, way above your wildest dream, don't sell." What he meant was that real estate is for the long haul. The market will fluctuate up and down, but in the long term, the market will continually rise. Sometimes rising prices is because currency is devaluing due to inflation or manipulation by the government. The US Federal Reserve and the European Central Bank are busy printing money at the moment.

 

I will hit 65 years next month and according to the US Census Bureau my remaining life expectancy is 18.7 years. I plan is to violate grandfrather's rule. It's time to sell. That includes our family farm, which I co-own with my brothers and sisters. The question is, "Where do you put the proceeds?"

 

I think jpbago is correct. For the past 20 years we have been heavily vested in oil companies, oil exploration, oil distribution, etc. Until someone can develop a replacement for the internal combustion engine, oil will remain a valuable commodity with prices, at a minimum, reflecting the rate of inflation. If there is a replacement for the internal combustion engine, it will take 20 years to get rid of all the cars & trucks. We have also been heavily vested in gas. While prices are down because of excessive supplies, that's okay before we are in it for the long term. Alternative energy like solar, wind farms, etc. does not interest me because profitability is based on government subsidies and incentive programs. What the government gives, they can taketh away.

 

Tobacco and sugared water companies are good investments. I hate these products and I won't smoke or drink sodas. My wife and older son think I am being emotional. My wife bought Pepsico and my son bought Coca-Cola even if neither of them consume the product. As defensive stocks, we have commodities like ConAgra, Procter & Gamble, Heinz, Kraft, Kimberly Clarke, etc. They are actually doing well at the present time. As a general rule no single stock company can be more than 4% of our cumulative portfolio. 

 

Technology stock has been a mixed bag for me. My plan was to buy Apple at $95, but a little earlier the stock was trading at the $40 range. I could not convince myself to do it. Big mistake.

 

Going back to Philippine real estate. I would buy or construct a house for lifestyle reasons. It would be something for me to occupy and enjoy. I would not buy as an investment. My preference is a high level of liquidity for an uncertain future. US Bureau of Census maybe right. My plan should be for 20 more years plus an additional 5 years as insurance.  

Edited February 14, 2013 by JJReyes

[Utpatur]

A good real-investment for long term would in Phil be a good piece of land.  A new condo with good  renting potential could be a good investment  I think-if you have the money  - but think min 5-10 years.  

 

About stocks - hope oil will be good  ( as the economy of my country depends on that) but think the problem there can be too much oil - as US and now AUS will find a lot more.  To make investment in things as Coke and tobacco - is that smart on long term? Company that provide some basic products for agriculture should be smart.