Should you Invest in Pre-selling Properties in the Philippines?
The growth of Philippine real estate market remains bullish through 2016. The booming economy encourages more real estate investors to consider buying pre-selling properties.
What is pre-selling?
Pre-selling or off-the-plan properties, mainly condominiums and townhouses, are units that are sold to buyers at the very early stage of development. Buying ‘off-the-plan’ or ‘pre-selling’ basically means entering into a legally binding contract to purchase a property before it reaches the stage of final development and occupancy approval. In other words, the buyer is buying a promise – a promise that the seller will complete the development of a property in accordance with agreed terms.
Pre-selling allows the property developers to finance the construction of the project and enables potential investors to purchase the property at a much cheaper value.
It seems like a wise investment, but there are many factors to consider. As with any other form of investment, there are benefits and risks in buying pre-selling properties.
Benefits
Low introductory price
Because the property is essentially nonexistent at the time of selling, property developers often sell the units at cheaper prices, approximately 30% lesser than a unit that is ready for occupancy. Pre-selling price is definitely the best price.
Flexible Payment Schemes
To further attract more buyers in order to finance the completion of the building, developers also offer discounts and other promotions, including flexible payment schemes.
Pick of the bunch
When buying at a pre-sale stage, you get to choose your preferred unit location and floor plan. You can opt to buy the units with the better views, easier access to amenities, and lesser foot traffic.
Securing a high-value asset for a low initial capital outlay
Buying preselling properties is basically purchasing a property at today’s price for tomorrow’s equity. Capital growth is almost always a guarantee. By the time the property is ready for turnover, the buyer can sell the unit and earn a profit.
Risks
Failed expectations
Ambiguity of contract terms is a huge factor in disputes arising from off-the-plan agreements. A pre-sale contract is full of terms like “more or less” and “subject to change without prior notice”. There can be material changes in unit sizes, floor plan, finishing, features, or amenities about which you may not be notified. You may not get what you thought you paid for.
Delay of turnover
Pre-sale contracts have delay clauses that allow the developer to be late for up to a year or more.
Failure of Completion / Developer Bankruptcy
While pre-sale contracts often have delay clauses for delayed turnovers, the bigger risk is that you may not get a refund for your deposit in case the pre-selling project does not push through or the developer goes bankrupt.
Rising Interest Rates and falling property market
These are the risks common in any form of investment. While these are factors beyond the control of the investors, a careful study of the market situation can curb this risk.
Tips on Buying Pre-Selling Properties
Before you sign the contract:
- Visit the property site and check the location. If there are other constructions in the area, it may affect your view.
- Carefully inspect the display home, models and plans.
- Research the market conditions and speak to an expert to determine the property prices.
- Research the developer.
- Carefully review the contract with a legal professional.
