Is Condo in the Philippines a Good Investment?

Is Condo in the Philippines a good investment?

As a civil engineer myself, I know how lucrative property investments are. And just recently, condo investing piqued my interest. I always come with thorough decision making before buying properties so I spent these past few months learning the roundabouts in this particular field.

After months of research, I have come up with the important facts about condominiums, procedures in acquiring one, possible fees and computations, and ways for your condo to generate income.

At the end of this article, you will find the answer if buying a condo in the Philippines a good investment or not.

Is buying a condo considered an investment?

Before anything else, I just want to make sure we’re on the same page.

Let me get it straight to you.

Buying a condo unit does not automatically make it an investment.

You have to understand that it is only considered an investment if you’re making money out of it. That is if you’re going to:

Sell it for a much higher price in the future
Have it rented out
Become a host and list it in online booking platforms like Airbnb.

If you’re as interested as I am, I suggest reading this whole article to know the actual figures you have to deal with.

The Pros and Cons of Buying a Condo in the Philippines

Owning a condominium offers a long list of advantages and disadvantages so let me start with the pros first.

Benefits of Buying a Condo

Less Maintenance

You will not have a hard time looking for someone to do things that requires much time and effort because other people will do it for you.

Safety and Security

Condominiums have well-trained security professionals. Most condos also have CCTV cameras installed in corridors of each floor to monitor the entrance and exits of homeowners and visitors. They also practice safety measures in case of emergencies.

Amenities

You will not spend much time dealing with traffic jams if you want to go swimming, exercising, playing ball games, etc. because condos have their own facilities you are looking for.

Affordability

Condos are more affordable compared to a single-family home. Prices of condos also appreciate at a slower rate compared to a single-family home.

Accessibility

Most condos are located in downtown areas which are very accessible to public transportation, companies, malls, schools, churches, restaurants, etc.

Disadvantages of Buying a Condo

Homeowners Association (HOA) Fees

You are obliged to pay a Homeowners Association HOA fee each month on top of your mortgage. The payment goes to safety, security, and maintenance. Some part of the HOA also goes to further improve the condo’s amenities and facilities.

Mismanagement of funds

HOA fees are divided into two accounts. One account is intended for maintenance costs and the other one is for long-term projects. The funds from HOA may be mismanaged if the board members collectively make unwise decisions.

Delinquency of other homeowners

If your neighbors are not able to pay their HOA fees, everyone else may be required to cover up the delinquency.

Less Privacy

You might be disturbed by unpleasant noises from your neighbors or from their visitors since they are just a wall away from you.

Difficulty in Selling

You may have difficulty if you want to sell your condo unit in time. The process of transferring condo ownership takes a lot of time.

Management’s Rules

You are obliged to follow rules from the management so as to live harmoniously with the community. This might include but not limited to the restrictions of pets, number of visitors, renovations you want to make, and celebrations.

Different Types of Condominium Units

Studio Type Condo Unit

The studio type is the most affordable unit among the different condo types. The unit typically has an open area with a kitchen space and a bathroom. This condo type has a very limited area so you’ll typically see the bed, sofa, and dining area in one space without any divisions at all.

This type is ideal if you’re living alone in the city or starting as a couple. It has at least a floor area of about 20 to 30 sqm. The rental of studio type condo ranges from P 20, 000 to P 50, 000 a month.

Loft Type Condo Unit

The loft type has the same amenities with the studio type but it has a high ceiling with bigger vertical clearance. You can add structures like a mezzanine floor in this additional space. The loft is ideal for a breezy space that can be visible to the rest of the unit space.

The space below the loft can be used for other areas that you might need inside your room. The unit covers a floor area of more than 30 sqm. The rental price for this type of condo unit ranges from P 30,000 to P 60, 000 a month.

Condo Unit with Bedroom

A one-bedroom condo unit covers a 30 to 50 sqm floor area with a monthly rental that starts from P 30, 000. 00 and up.

Two-bedroom unit spreads 50 to 80 sqm with P 40, 000 to P 80, 000 monthly rentals while the three-bedroom unit starts from P 90, 000 to P 150, 000 and lays a 60 to 100 sqm or more floor area.

The bedrooms of this unit are separated from the rest of the area in the room.

Penthouse Type Condo Unit

This type of condo covers a large floor area. It is an ideal unit if you’re finicky about privacy. It has an exclusive elevator and offers an exclusive swimming pool. This is perfect if you enjoy an overlooking view from the top.

A penthouse covers a floor area of 100 to 150 sqm or more depending on the roof deck area. It is the most expensive type of condo unit which has a monthly rental that starts from P 150, 000 or more depending on the size of your penthouse.

How Much is a Condo Unit in the Philippines

Condo units’ prices in the Philippines may vary depending on the following factors:

Floor area
Condo type
Location
Accessibility
Amenities offered
Mode of purchase (Pre-selling or Ready for Occupancy)

But to give you an idea, the total contract price of a condo unit may start from P 2, 000, 000 up to P 10, 000, 000 depending on the factors I stated above. Just note that these figures do not include the hidden fees like maintenance, utility, and miscellaneous fees.

Condo fees you have to pay in the Philippines

Condo fees are all paid by unit owners. Those fees will go for the maintenance of the building to the beautification of the amenities in the coming days. If you have plans of acquiring one, you better consider if you can stipend those costs.

You may have hooked up an ad saying ‘no down payment, own now for PhP 10,000 per month or no interest up to 10 years.’

But have you foreseen the condo fees you will be dealing with by owning a unit? Here are some of those:

Reservation Fee

This is the payment you need to pay after visiting and confirming the unit offered that is offered to you. The cost ranges from P 15, 000 to P 25, 000 and is payable in cash or through check. The payment for the reservation is deductible to the final value of the unit price.

Down payment

You are required to pay an amount that is usually 10-20% of the unit price. The amount you’ve paid will be deducted from the total cost of the unit.

Equity

Equity is not the same as a down payment.

To put it simply, equity is the difference between the total contract price (TCP) and the loanable amount you are allowed to make for a particular condo unit.

Total Contract Price – Loanable Amount = Equity

If you are eyeing for a studio type unit having a total contract price of P 3,500,000 and the loanable amount you are allowed to make is only P 2,000,000, then you have to pay for P 1,000,000 as equity.

₱ 3, 500, 000 Total Contract Price – ₱ 2, 000, 000 Loanable Amount

= ₱ 1, 000, 000 EQUITY

Monthly Dues/ Amortization

This is the monthly fee for the unit that normally averages ₱ 25,000. This must be paid after you pay the equity.

Registration Fees

These are the fees paid for transferring the property from the name of the seller or developer to your name as a buyer.

The amount is typically 0.25% of the total unit cost or is also based on the Register of Deeds amounting to ₱ 8,796.00 for the first ₱ 1,700,000 (plus ₱90.00 for every ₱ 20,000 or fraction thereof in excess of ₱ 1,700,000).

Incidental Fees and Miscellaneous

These are the expenses incurred for the registration process.

Utility Fees

These are the fees for the maintenance as well as the repairing of the building or the units itself if there’s trouble.

Some Hidden Condo Fees:

Association Fees
Membership Fees
Realty Tax of the Unit
Share of the Realty Tax on the land where the condo is built
Share of realty tax on common areas
Parking Fees

A Sample Computation of a 24 sqm Studio Unit Condo: (Rent to own)

Is condo in the Philippines a good investment? Let's compute!

For you to better understand the fees in buying a condo unit. I made a sample computation below with a sample TCP (Total Contract Price) amounting to P 3,500,000.00

PARTICULARS	AMOUNT
Total Contract Price (TCP)	₱ 3, 500, 000. 00
Less:
Reservation Fee	₱ 20, 000. 00
Down Payment	₱ 700, 000. 00
Difference (result will serve as the mortgage balance)	₱ 2, 800, 000. 00

PARTICULARS *(After deducting the reservation fee and down payment)*	AMOUNT (multiplied to estimated interest for a 10 year term)	TOTAL (example is based on 10 year term)
Mortgage Balance (payable depending on the terms applied)	₱ 2, 800, 000. 00 x 1.06 interest	₱ P 2, 968, 000. 00
Registration Fee	₱ 750, 000. 00 (fixed)	₱ 750, 000. 00
Real Property Tax	₱ 10, 000. 00 per year x 10 years	₱ 100, 000. 00
Association dues	₱ 3, 000. 00 per month x 120	₱ 360, 000.00
Assumed Taxes and Fees	₱ 65, 000. 00	₱ 65, 000. 00
NET TOTAL		₱ 4, 243, 000. 00

Note: Other fees may not included from the computation. Values presented may vary depending on several factors.

Difference Between Pre-selling and Ready For Occupancy (RFO)

Before all of those whirlwind payments settled down, how will you purchase this condo unit? What are the methods you will be dealing with before you can have a good investment in buying a condo unit?

Pre-selling

If you’re on a tight budget, you might want to opt for pre-selling terms. Pre-selling offers a much lower cost of the unit all because the building is either under construction or about to be constructed. Also, there is a variety of units to choose from.

Aside from having a budget-friendly price, its payment term has a wide variety which you can choose from to fit your budget.

However, there’s a downside of choosing condo units under pre-selling terms. You still need to wait for the construction to be finished. Worse, there could be a delay in the expected date of turn-over.

I don’t recommend getting a pre-selling condo unit if you want to generate income immediately. Just imagine the years you spend waiting to monetize your unit. Still, this is one of the cheapest ways of acquiring a condo unit.

Ready for Occupancy (RFO)

This refers to the built and fully-functional condo building. If you have enough budget and you want to transfer immediately, this option is good for you. However, it is more expensive than the units under pre-selling. The good thing is it comes with no “surprise fees”.

The downside of this is that you cannot choose a perfect place that suits your taste since it might be occupied by other homeowners already. I can only recommend this if you have enough budget and you’re planning to transfer immediately or use the unit to generate an income.

Below are some ways that you can consider in purchasing a condo unit:

Condo Payment Terms

Cash Term

This is the easiest and fastest way of owning a condo unit. I recommend this payment term if your pocket has enough budget to buy a condo unit.

With this, you can avail of a large discount from the total contract price (TCP), comply with lesser requirements, experience more accessible and immediate processing of real estate papers. More than that, you will not spend your time worrying about the monthly mortgage.

Bank Loan

This is an agreement between you as the borrower and the bank as the lender. In this term, you will pledge to pay the loan depending on what is written in your agreement. The loan term varies from bank to bank. Most are payable up to 20 years and above.

Only 90% of the TCP is loanable from the bank. The remaining 10% is for the equity which is payable in cash and is not shouldered by the bank. However, some condo developers limit in allocating units for this type of loan.

In-house Financing Term

Is condo in the Philippines a good investment? Pay thru Condo Payment Term: In-house financing

This is a payment term that will be offered to you by the condo developer. This is favorable if you don’t want to spend much time in the bank’s queue and end up being rejected.

You just need to present the following:

Certificate of employment showing your work position;
Length of service and salary;
Latest Income Tax Return (ITR);
Latest payslip; and
Utility bills

You also need to put in 20% to 30% of the TCP which will also serve as a guarantee of not being rejected by the developer.

However, this payment option offers above-average interest rates compared to the banking finance terms. The interest could range from 14% to 18% which is too high but it can guarantee you for a fixed term unlike in the banks.

Pag-IBIG Fund Housing Loan Program

According to PAG-IBIG Official Website, you are allowed to borrow up to P 6,000,000 for purchasing house and lot or condominium units. This includes loan intended for house construction, home improvement or renovation and refinancing your existing housing loan.

You can avail this home loan if you qualify to the following requirements:

an active member of the organization;
have the capacity to acquire real property;
have a satisfactory background of PAG-IBIG Fund; and
no existing PAG-IBIG loan at the time of loan application or even as a co-borrower of the current loan.

Your loan entitlement is based on your capacity to pay or loan-to-appraised value ratio – whichever is lowest. The interest rate shall be based on your chosen re-pricing period under their Full Risk-Based Pricing Framework.

What makes it interesting is your PAG-IBIG Fund Housing Loan can cover a Mortgage Redemption Insurance (MRI) or a Sales Redemption Insurance (SRI), whichever is applicable, as well as a Fire and Allied Perils Insurance (FAPI).

For you to better compare the payment options mentioned above, I made a summary below.

PAYMENT TERMS	AMOUNT THAT YOU CAN BORROW	INTEREST RATES	YEARS TO PAY
Cash Terms	X	X	X
In-house Financing	80% of the TCP	14% to 18%	5-10 years will depend on the agreement
Bank Loan	minimum of P 300,000.00 to P 1,000,000.00 (depending on banks)	5.5%	maximum of 25 years
PAG-IBIG Housing Loan	Depending on the housing loan ceiling and monthly salary of borrower but the maximum loanable amount is P 750,000.00	3% to 10%	maximum of 30 years

What is the best payment option for a condo in the Philippines?

If you have enough budget to pay a condo unit, I suggest you pay it in cash.

If not, I highly recommend availing the PAG-IBIG housing loan. Aside from the lower interest rates, they also offer longer years of payment period. This can leave you a sufficient amount for your other needs. However, I would highly suggest to avail loan that is payable for a lesser year to lessen interest rates.

How to earn from condo investments

These are the different ways of generating an income using your condo unit.

Rent out your unit

Since condominiums are located in urban areas, you can offer your unit to those who are looking for convenient spaces. This will totally succeed since your target market is wide.

You just need to make sure that your agreement between your renters will also abide with the rules set forth by the developer for them not to be surprised for possible changes in fees.

AirBNB

Have you heard of this platform? AirBNB offers the tourist or room renters an option to feel free to choose the rooms available in the specific areas.

The thing about AirBNB is you can have direct contact with your guests. You’ll be able to get in touch to lay the Dos and Donts through the platform itself. What else can be more fulfilling than making other people feel comfortable and worry-free beforehand?

You just need to make sure that the space you are promoting is fully equipped with materials your guests need during their stay. Aside from the basic furniture and appliances, I highly suggest including the following:

Clean bed linens
Sufficient pillows, blankets, and towels
Toiletries
TV (with cable or Netflix etc.)
Wireless internet (WiFi)
Iron and ironing board
Washer/dryer and detergent

AirBNB highly encourages guests to leave a review after their stay. Thus, as a host, you should really ensure that your guests are happy with their stay to receive good reviews. This will greatly help in inviting more future guests without spending on advertisements.

I highly recommend becoming a host in AirBNB to generate an income for your condo. You don’t have to do the advertising yourself: you’re exerting less effort but you can possibly generate more income.

Comparison of Earnings vs Expenses: Is it worth it?

I have shown you the amount that you need to purchase a condo unit. I believe that it requires a bigger pocket to come up with those amounts. You also need to remember that after purchasing a condo unit, you still need to buy the materials needed to make it fully functional and that means, well, another expense.

Honestly, earning through your condo unit is not an easy task especially during the early stages. But once you have completely settled your unit already, it will be easier for you to earn passively from rentals or bookings.

If you plan to sell it soon after years of utilizing your condo or after using it for renting, you might also encounter liquidity problems. Also, you need to come up with a price that is affordable and is appealing to your target market compared to the newly existing units.

The key point, however, is the profitability of your unit. If your earnings through rentals and bookings are higher than your expenses, then you can say it is worth it. So make sure that the amount you’ll get will suffice all the expenses you have paid.

The lifespan of a condominium in the Philippines

Have you heard about “50-year lifespan” of condo units? Have you heard from someone that the building will be demolished or be uninhabitable after 50 years?

Here are the truths about the “50 years lifespan” of a condo:

Condominium is uninhabitable if it reaches its lifespan. All the corporations in the Philippines have a lifespan of 50 years. After that period, all the shareholders will decide or vote for the fate of the building. The renewal could be possible if it is the decision of the corporation.
Condominium is considered uninhabitable if it is already obsolete and uneconomical.

What will happen after the lifespan of the condo expires?

If the corporation decides to continue the renovation and development of the building, then it will be renewed. But if the corporation voted to have it demolished, they can either sell the land and make some money out of the scraps from the demolished building and divide the proceeds among the owners or make a deal with developers to build a new condominium in their land.

But if the developer decides otherwise, you can still continue making money out of your condo unit as long as it is habitable and completely functional.

Conclusion: Is condo in the Philippines a good investment?

So is buying a condo in the Philippines a good investment?

This generation is becoming more interested when it comes to real estate investing, specifically condo investing. But before you join the bandwagon, you must take a precaution if it is worth it.

If you have cash on hand and you can afford to buy a unit in a split of an hour, I suggest that you pursue buying a unit especially if you want to generate income. If you’re thinking about the 50 years life span that is totally dependent on the developer as I’ve mentioned above, you can actually prepare a contingency plan for it.

If you depend on in-house, bank, and PAG-IBIG financing loans, it would take you more than 20 to 30 years to pay.

You may generate an income from letting others rent in your condo with a great number of the target market. You can also accept timely guests from booking platforms like AirBNB.

You have to take note, however, that condo’s contract prices, interest rates, and other fees may escalate over time. As we all know, the land is scarce and its value is always heading on an upward movement. Simply, acquiring a condo may become more difficult and expensive in the coming years. The good news is you can increase rental and booking fees accordingly as well.

With all the figures and facts I stated above, I can finally say condo investing is a good investment as long as your proceeds exceed all the expenses you have taken out of your wallet. You can base it on monthly or yearly proceeds. I have laid all the possible condo fees and charges so now, I urge you to do your assignment. Calculate your projected income and expenses and take the difference. That’s how you’ll know if condo investing is indeed a sound investment.

Have you been investing in a condo here in the Philippines? If so, I would love to hear your experience in the comment box below!

Sources:

What will happen after 50 years lifespan
New PAG-IBIG Housing Loan interest rates
Comprehensive Guide to Bank Housing Loans in the Philippines