Buying A Condo In Manila - Advice Needed

[ManilaBae]

Cheers Mark / ManilaBae, again much appreciated. I am dealing with different authorities, private services firms over email from overseas, and it's just such a hassle dealing with them... makes me weary buying a condo when I'm not always able to travel to the Philippines within a reasonable time frame.

 

If I knew a developer that has a professional PM, is responsive and responsible over email communication, dependable and knowledgeable that would give me a lot more confidence to go ahead. But as you said, I've done some research on different developers online, but many Filipino buyers have such low expectations regarding professional communication and services that it all boils down to "oh yeah they're great, didn't cheat me too much, I actually got my apartment a few months later... " which just isn't enough for me. 

I understand your concerns completely and its good to see that you are considering all angles and seeking to fully understand everything there is about condo ownership in the Philippines. Sooner or later, you will have to draw the line somewhere and decide if committing to a purchase or abandoning the idea completely is the right way forward. Many posters have put forth their perspectives- some urge you not to buy while others think that you should. You know your partner more than any of us here, and the fact that you'd even consider buying a condo for her and your child means that there is some trust and a lot of care for them. If you didnt, you'd be unlikely to even consider  a property purchase. So this is a good starting point.

 

From my perspective, you should draw the worst possible case scenario that is acceptable to you (eg. you lose your stake on your property and your child gets a guaranteed minimum 50% of the asset and your partner the other 50%). Perhaps you may want to clearly define where you lowest threshold is because if the likely future outcome (through your forecasts, gut feel and deep reflection) of holding your property purchase falls between your lowest and the highest (family's cohesive and will be together long term), then I suggest you go ahead and purchase a condo (must consult lawyer and have a fair contract between you and your partner). If your lowest threshold is breached for the worse then kill the idea and seek alternatives in having your family live with you to save costs.

 

If I were in your shoes I'd seek a solid legal advice first. When Im happy with the legal advice, determine specifically what property to buy- Location(stick with premium areas), budget (know your min-max), must haves, nice to haves, deal breakers and deal makers. Construct a matrix and tick each one that satisfies your requirements. Limit your search to established developments because buying pre-selling doubles your expenses as youd still be maintaining your family's monthly stipend + payment scheme towards your unbuilt property (approx 5 years). Thats an extra P1.5million in cost (25kx12mosx5yrs)! Furthermore, there are condo sellers that fire sale their properties because of liquidity issues or shortfall in funding. Take advantage of this situation because you'll get instant equity in your purchase which means that you're already ahead at day 1 of owning the condo. Lastly, spend time physically scouring through properties, talking to agents face to face and asking your Manila contacts (and theirs') for property leads because agents that you find online are likely to rip you off. Make sure you have your BS radar fully active and if things are not making sense just walk away.

 

Just to address some people's concerns about the bust in apartment prices in Manila. Yes, the pace of development has been astronomical and it was so because of key economic drivers that supported the capital growth of the Philippine property market - cheap access to credit, sound economic growth, inflows of foreign capital etc... The Philippines is projected to keep an approx growth rate of 5% p.a. for another 20 yrs (DW 2016), and some economists believe that the Philippines will be among the top 10 biggest economies in the world by 2050 (PWC 2050).  If the growth rate of 5% yoy is maintained, then the doubling of the Philippine economy is approx every 10 years (Yueh 2015). What is likely to happen to property prices in the Philippines by then? Yep, its likely to go up. I've met so many Filipinos in Aus and the US who are multiple apartment holders in Manila. Surprisingly, most of us aren't renting out our apartments because we'd rather use them and have them kept in pristine condition for when we and our friends are due for a holiday back. In one of the buildings where I have an apartment at , most of the owners are OFW, and our apartments arent being tenanted out. And whats clear to me is for you to stick to the premium locations and premium developers. Prime locations and high quality developments are likely to go upwards in price rather than stagnate or fall (so long as theres no black swan event).

So buying is the way to go especially with your time horizon. Just work out some of the key steps I outlined and satisfy if the risk for you is worth the investment.

 

Regards

Mark

 

References:

DW 2016 http://www.dw.com/en/the-philippines-has-transitioned-to-a-tiger-economy/a-18225955

PWC 2015 http://www.pwc.com/ng/en/press-room/the-world-by-2050.html

Yueh 2015 

Edited March 2, 2016 by ManilaBae

[afathertobe]

I'm a bit more pessimistic with regards to these growth projections. The same was done for China, if China grows by 10% annually until 2025 it would overtake the US... well it didn't and it won't, a hard landing is under way as we speak. So just because the Philippines currently grows at 6%, which is solid but not great for such a poor country, does not mean it will continue to do so for the next 20 years. 

 

Still, I also see some long term growth potential, and if you buy on the high-end market in top places there will always be some demand. 

[scott h]

Still, I also see some long term growth potential

 

Afather...............It might be a long time compared to our standards. Let me relay something I just learned this week.

 

My brother in law is selling a piece of property. Its appraised value is 4,000 pesos per SM. I looked at the sheet that was being used in the negotiations. This sheet was supplied by the city tax assessor and was published in 2008. I asked how often this sheet was updated and was told "every ten years or so". I couldn't believe my ears so asked another way. "so this property was valued in 2008 and has not gone up?" I was told this is the common practice. So I asked another way "if you want to negotiate a higher starting price you have to wait for city hall to publish another appraisal sheet?" "that's the way it works" was the answer. 

 

Now I am not saying this is practiced all over, for all types of properties. But just something that might be worth looking into. :cheersty:

[ManilaBae]

I'm a bit more pessimistic with regards to these growth projections. The same was done for China, if China grows by 10% annually until 2025 it would overtake the US... well it didn't and it won't, a hard landing is under way as we speak. So just because the Philippines currently grows at 6%, which is solid but not great for such a poor country, does not mean it will continue to do so for the next 20 years. 

 

Still, I also see some long term growth potential, and if you buy on the high-end market in top places there will always be some demand. 

Im like you and err in caution. My thinking is that even if the economists' forecast are only half right, in a span of 10 years your property purchase, in a premium Manila district, is likely to appreciate in capital value by around 50%. Bottomline, buying a property makes more financial sense, so long as you can include your protectionist clauses so you're not dudded out of your own property.

 

Another realisation that I had is it is likely that OFWs based in OECD countries, would borrow from their base country's lending institution rather than in the Philippines because the interest rates are far more competitive. In my case, a portion of my Manila condo was paid for by my Australian bank secured by my property portfolio in Australia. The lending risk is therefore within Australia and not likely to be in the Philippines. Furthermore, Ive encountered a few property investors who paid fully in cash using their savings or some funds from their pension fund. Considering that many of the 10 million Filipino OFWs are nearing retiring age, the search and inevitable purchase of a home base in the Philippines is starting to become a key financial decision by them. 

Edited March 4, 2016 by ManilaBae