Condo living – is it for you?

FORMER President Benigno Aquino III once said heavy traffic is a sign of progress. If so,  Metro Manila  Metro seems to be rushing forward so rapidly that people are returning to the city center to keep their wits about.

Bedspacing is the only option for construction workers, and day laborers. Tita Marcia, my wife’s real estate-savvy aunt, recently bought two used condominiums in the university belt areas of Manila and Katipunan Avenue, and renovated them into comfortable dormitories. Occupancy is always 100 percent. They’re within walking distance to the CBD and universities so dorm-ers save on commuting costs. More important, they can hang out late, or go Pokemon hunting, and still make it to school or work the morning with time to spare.

People higher on the totem pole rent or buy studios. Instead of daily struggles to get to Bulacan, Cavite, or Laguna, they stay put on weekdays and head home only on Fridays.  Sometimes their families come over for weekend malling. With matters getting worse by the day, even Alabang, Antipolo, and Quezon City residents have weekday roosts.

“To condo, or not to condo?”

Cost is no joke, up to P150,000 or so per square meter of a condo that’s still a hole in the ground plus a million for a parking slot. Deciding go, or no-go is tough.

Auntie Marcia may be on to something with older condos. They are cheaper and could be better located. Rooms tend to be larger and ceilings higher. Past and present residents can be mined for vital info—quality of building maintenance, security, garbage disposal; elevator, traffic, and generator reliability; water pressure; noise and smells, pests (human and otherwise). You need to make sure, though, that the place is code-compliant and you don’t inherit unpaid real estate taxes, condo dues, or utility bills.

Repair work does produce surprises aplenty and improvements—unavoidable and avoidable, but must-have. These could cost a lot.

Here are some questions and answers on whether a condominium is a good investment, or not.

What makes a condo a “good investment”? 

If you are buying real estate to establish your home, your decision should be focused on what is most convenient for yourself and your family. As a home, it should not be looked at as a financial investment. Rather, it should be considered as a life goal. However, if you just want to invest, please make sure that you have carefully analyzed a real estate investment versus other investment options based on your personal financial plan. 

If you want to just invest in real estate, choosing between a condominium and a house and lot would use the same parameters in analyzing its financial viability. Here are some of them.

•     Location which includes convenience and attractiveness of neighborhood and security. 

•    Reputation for quality of development of the builder (this is particularly true for condominiums which are high-rise) 

•    Rules of the association governing the neighborhood and costs in relation to this association 

•    Your ability to maintain all amortization and maintenance (association, repair, taxes) payments.

I’m buying a condo which my children will inherit in the future. Is this a good reason for buying one? 

Many who have cash to invest like to buy condominiums that they will have their children inherit eventually (Section 8 of RA 4726). In the meantime, they believe that the condominium will bring them some income in the meantime plus even increase in value. But as children grow older, more and newer condominiums will be built. Your choice may not be your children’s choice.

As a financial investment, condominiums do not generally perform well over the long term compared to stock mutual funds or even balanced mutual funds and other types of securities. 

Except for a few offerings, the costs of owning condominium units drag down the resale value. Physical depreciation of units, monthly membership and maintenance dues plus real estate taxes imposed on condominium owners can be quite substantial over the economic life of the unit. There is also the issue of capital gains tax and the VAT applicable when the unit is sold. 

All these taxes have to be paid before you can transfer the ownership registration of the condominium unit to the buyer. If you include all these ownership costs and the reduced rental earnings due to the 20% vacancy rate, the percentage net return per year when you sell the unit (assuming you can find a buyer) can be very disappointing. 

How much should my income be to consider buying a condo?

It would be a good idea to evaluate your goals in life before buying a condo. Think about the next five years, and ask yourself questions that will create a drastic change in your lifestyle in the future. Will you be married then? Do you have plans to move in five years? Are you planning on changing careers in the next few years? All these will help you decide whether you should invest on a condo, and what type you will buy.

If you intend to rent out your condominium, you need to project your income and costs and assume that there will be times when the unit will be vacant and will need repair. Rental rates normally over around 5% of the market value of the condo unit provided rental income is constant throughout the 12 months in a year. Vacancy rates have a strong impact on the effective return on the rental property. 

Why is location an important factor?

Location is a crucial factor because where you choose to live will shape the lifestyle that you will have. But different locations especially in the Metro are priced differently depending on the area.

Properties near the central business districts are higher than those farther away. For example, the selling price of a three-bedroom unit in Makati can go from PHP 14,500,000 to PHP 25,785,000. While the same unit for sale in Bonifacio Global City average between PHP 13,500,000 to PHP 29,500,000. Aside from condominium prices, the cost of living also varies in different locations.

The condominium requires you to live in closer proximity to others, and that could be difficult. At the same time, it gives you better security because you can leave your unit and it will be more secure (if it is a good condominium, of course). 

Is it wise to invest in pre-selling condos?”

The great thing about buying a condo in the Philippines is that you have a lot of options to choose from. Aside from the many existing condominiums in the market, there are pre-selling condos that are readily available. But that same factor can hinder you when you start searching for your ideal residence.

Because of the number of options, you may find yourself gravitating towards cheaper alternatives, or more costly ones just because they have amenities and features you think you might need.

Bear in mind that you are in control of what condo you’ll buy. Don’t settle for second best when you can have the perfect one by simply being very discerning about your decisions.

What are the initial research I must do when considering a condo?

Gather all the information you need before signing a contract.

Buying a condo unit entitles you to a building’s services and amenities. Thus, you are also responsible for a portion of the upkeep of the building. Before you sign a contract, enlist the help of a broker to guide you into the financial aspect of buying a condo unit. This ensures you won’t be blindsided when a bill comes for a service that you were not aware of before buying the unit.

Pay attention to the details of the contract and discuss some important points you want to clarify with the building owner. For example, if you’re planning on sub-letting your unit then you should be aware if the owner allows this sort of business venture or not.

You can make suggestions or propose changes to your contract. For example, you are not certain about paying for a gym membership since you don’t work out that much, or you want to upgrade the pre-installed appliances in your unit.