Is there a real estate bubble?

Is there a real estate bubble?
Published: December 21, 2018
 
DISCLAIMER: This material, which is strictly for information purposes only. The views and opinions expressed in this article are those of Juan Patag’s and do not necessarily reflect the position of RE/MAX Capital, or of any other RE/MAX franchise. Any information is subject to change without prior notice. No liability whatsoever is accepted for any loss that may arise (whether direct or consequential) from any use of the information contained herein. Information Each RE/MAX franchise is independently owned and operated.
 
In recent years, we have seen real estate prices in Metro Manila soar to unprecedented heights. In fact, ultra high end condos are being sold at Php650,000 per square meter.
 
And one of the most common asked question we would get is, is there a bubble? I’ll go straight to the point and say yes–in certain segments I think. The reason people fear these “property/asset bubbles” is because the rapid increase in property prices is historically followed by a sudden crash. So the better questions to ask are:
• Which segment in the property market is the bubble, and
• What are the risks of the bubble bursting?
 
To answer these, let me first talk about why I think the prices are stable in certain segments (and this is all based on what we see in the market).
 
Ultra-high end condos
Examples: Discovery Primea, Park Central Towers, One Roxas, West Block of Rockwell
 
Buyers of these properties are mostly old rich families, as well as owners or top management of the country’s top 1000 corporations. The old rich families use the interest income or rental income of their various properties to purchase more. Some use the unallocated cash of their businesses, knowing that real estate investments have better risk-return ratios than any equity or fixed income assets. They buy properties in cash.
 
Some buy these properties as a status symbol of their wealth, knowing that people in the same social circle also have units in the same building. Some buy it for their kids, given the scarcity of available lots in high end villages such as Forbes, Dasmarinas, Urdaneta, etc. For these reasons, these properties are price inelastic (not sensitive to change). Simply put, these are the people who keep their Ferraris despite economic downturns.
 
High-end condos
Examples: Rockwell East Block, Park Terraces, Two Serendra
 
The buyers of high-end properties are a mix of end-users and investors. End-users are those people who are doing well in life and enjoy some of the luxuries life can offer. Some buy these properties from the windfall from their parents. Investors are also prominent in this space. They want to reinvest the hefty profits booked from the recent run up in real estate prices, looking to repeat the same success. They have healthy generating businesses and they park their money in real estate. Only a few get bank loans to finance the purchase.
 
Mid-end to Low-end Condos
Examples: DMCI, SMDC, Robinsons Land properties, properties that are in the outskirts of the CBDs
 
Buyers of these properties are mostly middle-class end-users. They have 8-5 jobs and have recently moved out of their parents’ house. They take a bank loan to buy these properties. I’m quite sure that they have steady jobs and work for top corporations; otherwise banks wouldn’t lend them the money. Thanks to the Asian Financial Crisis back in the 90s, our financial institutions have the stringiest qualifications in the world for personal loans. This is not where the risk is.
 
The risk lies in the sudden influx of Chinese buyers. Have you heard of stories where a Chinese buyer walks in a showroom and purchases several floors in one go? As I found out, these “buyers” aren’t really buyers. They are brokers. They pay the reservation money (which ranges from Php25,000 to Php100,000 per unit) to the developer and re-sell the properties in Chinese Mainlanders. Mainlanders have all the reason to buy in the Philippines: 1) invest in better air quality in the Philippines, 2) protect their hard earned money by bringing it offshore, 3) better opportunities in the Philippines (US$10,000 wouldn’t go far in China).
 
Here’s the problem: we don’t know how well the Chinese brokers explained the payment terms to these buyers. As we’ve heard, these buyers don’t pay spot cash; they take terms when purchasing (e.g. Php10,000 a month schemes). The question lies when the balance comes due—the time when local buyers get bank financing. I don’t think local banks or Chinese banks will lend to them. They don’t have anybody else to borrow from but the developer. Aside from the interest rate risk (especially since it’s on an upward trajectory) and the more volatile foreign exchange risk, there’s serious political risk. What if, the Chinese government decides to restrict capital flows to certain foreign countries–which they’ve done so many times in the past. What happens if they miss payments for a month? For two months? A quarter? What if a chunk of these foreign buyers default? Will projects still be completed? This is highly probable as proven by the fact that a certain publicly traded real estate company’s past due ratio became more than 25% of total receivables some years back (The company was privatized in the same year).
 
I know, a lot of these claims are unfounded. However, you can’t displace the fact that these are legit questions. I don’t think even regulators have means to check (i.e. BSP can only monitor banks; SEC does not have the manpower to effectively monitor all private companies.)
 
The good thing is, if the bubble does burst, I don’t think the pandemonium would reach the other segments; simply because leverage isn’t a big component in the other segments. Yes, there might be a slow down but it shouldn’t be as serious.
 
The points I’m trying to drive at are: First, I hope developers control the amount they sell to each nationality. Second, buyers/Investors should carefully choose which broker to listen to. No, not all real estate investments are “good” investments. At least in RE/MAX Capital, we carefully study which projects to push and we’ll offer the best ones.
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The Complete Step-by-Step Guide to Buying Real Estate in the Philippines: A Guide for First-Time Investors or Property Owners

The Complete Step-by-Step Guide to Buying Real Estate in the Philippines: A Guide for First-Time Investors or Property Owners

Buying real estate anywhere in the world can be exciting, whether it’s going to be for your own use (like an exotic beach home for retirement) or for investment (like a condominium unit you rent out on AirBnB).

However, the acquisition of a real estate investment can vary from country to country. So if you’re looking to buy here in the Philippines, look no further than this article!

In this step-by-step guide, I’ll walk you through the important details you need to know when you’re looking for and buying real estate in the Philippines.

Let’s get started!

Buying Real Estate

Step 1: Have an idea of what you’re looking for

There are thousands of properties available to purchase in the market right now. And that’s just in Metro Manila! Having a short checklist of the kind of property you’re looking for can help you narrow down your search, and aid your broker in finding the perfect property for you.

A general checklist could include:

Approximate size

You can give a minimum, maximum, or range of sizes. Sizes would largely be determined by the number of bedrooms you require. Studio units are the smallest type, which typically range from 22 square meters to 36 square meters and are characterized by just an open layout and a bathroom. One-bedroom units can range from 32 square meters to 52 square meters and two bedroom units can range from 50 square meters to 175 square meters. However, these also still vary depending on the developer of the condominium and the year the condominium was constructed. Older condominiums would tend to have bigger cuts.

Alternatively, you can also just mention how many bedrooms you prefer.

Also tell your broker if you’ll need a separate maid’s room and maid’s bathroom. The number of bedrooms depicted in ads excludes the maid’s room and maid’s bathroom.

Type

The type of property you’re looking for can sometimes determine the broker you will be working with, since brokers tend to specialize in either residential or commercial. Most brokers have access to databases of available properties for both types, but tend to stick to selling one type because the sales and paperwork processes are different from one another.

Budget

  • Provide your broker with a minimum and maximum range you’re willing to pay for the property so that they do not show you options that are too shabby or too expensive. This also gives an idea on the geographical area and building that your broker can start your search with.
  • Usually, when a broker mentions a price, it includes capital gains tax and the professional fees of the broker but does not include the documentary stamp tax, transfer taxes, and registration fees (which aggregately equate to roughly 3% of the contract price). If you want those included, you can just inform your broker that this is your “all-in” price. A good broker would clearly explain to you the fees and taxes that buyer would need to shoulder, apart from the total contract price.
  • Decide also early on your preferred payment term: cash or bank financing. This is also important, as some sellers prefer cash buyers. Sellers shy away from bank financing since this usually involves transferring the Title to the buyer’s name even before they get full payment. Moreover, bank financing tend to take 1 to 2 months longer than a straight cash purchase.

Amenities

  • Should there be active community events hosted by homeowners or the village association? Some villages also have a community gym and/or pool, along with a basketball court and a playground. Others have only one or two of these. Decide what’s important to you and what you can do without.
  • If it’s a condominium unit, is a gym or a pool important to you? How about a jogging path, children’s playground?

Location / general area

  • This is considered to be one of the most vital considerations in your search. Having to decide on a particular area helps you and your broker narrow down properties and as well as managing expectations in terms of prices and availability of inventory.
  • It would help to choose a particular village (Bel-Air 2, Salcedo Village, Legazpi Village) than an entire city (Makati City).

Accessibility and security

  • How easy or difficult is it to access the property via main roads and highways?
  • Are there multiple points of entry from the surrounding area? Are these points of entry secure or unmonitored?
  • Are there any security risks in the surrounding area? If so, how has the village association or building administration addressed these risks?
  • Have there been any major breaches of security in the past? If so, what happened and how was it handled?
  • Ask about the history of flooding and the proximity of the nearest fault lines. For condos, make sure they have elevated parking areas if the building is located in a flood-prone area.

General Preferences for Residential Lots

  • If you’re planning to sell the property later on, make sure to stay away from lots that:
    • are found along the perimeter of the village,
    • are found at the end of T-junctions,
    • are near a creek,
    • are found at the bottom of a hill,
    • have irregular shapes, and
    • have an elevated terrain

as these are significantly harder to sell.

Purpose

  • Are you going to live, flip, rent, or lease the property? Some sellers only allow certain purposes. For example, some tenants have gotten away with subletting a property out through AirBnB. Not all condominium associations/lessors allow this. It’s important to respect the wishes of the owner of the property on how it should be used when you are only renting. Some condominium associations also prohibit AirBnB setups.

Pets

  • For condominium buildings, you will have to inform your broker if you intend to have pets in the unit. Sadly, not all condominiums allow pets.

Property Provisions

  • It would also be good to check the provisions of the village or the condominium building.
  • Some villages have design themes that you have to follow (e.g. Mediterranean) or have height restrictions (e.g. 9 meters from the highest point of the lot).
  • Some villages also prohibit cutting the trees found on the lot (even if they’re found in YOUR lot.
  • Also make sure that the lot you purchase does not have any immovable structure (e.g. Meralco transformer) that would be difficult or impossible to take out later on.
  • For condos, check how many occupants are allowed in the unit.
  • It would also be good if to check:
    • If there are enough air conditioning units in the property to keep the place cool;
    • Whether the condo building is fiber-ready for ultra fast internet connection; and
    • There’s a provision for a washing machine/dryer and dishwasher.
    • There’s a trash chute (some condos don’t have one and unit owners simply leave the trash bags outside their door for them to be picked up at certain times of a day).
    • If the building can still accommodate foreigners as the law dictates that foreigners can only occupy a maximum of 40% of the floor area of the building.

Bear in mind that you don’t have to fill out this entire checklist. Sometimes viewing properties will help you get a better idea of what you are looking for, so refining this checklist is a gradual process.

Now, if your checklist ends up being too specific, it may be difficult to find exactly what you’re looking for. In this case, keep an open mind and trust your broker when they recommend a property that may be a “wild card” or not exactly what you’re looking for, at least on paper. You might be surprised once you view the unit that you like it or would view similar units.

 

Step 2: Share your checklist with your broker

Now that you know what to start looking for, share your checklist with your broker so they can get to work on finding you options. Brokers usually collate a list of properties for you so you can view options that would fit your requirement.

If you don’t have a local real estate broker yet, don’t fret. Here are the top 4 best ways to find and choose independent licensed broker:

  1. Search for listings in the internet and contact the listing agent for those properties. The broker you choose should be able to answer your query within 12 hours (or at the very least tell when they will be able to get back to you if they’re busy).
  2. Ask the broker if they’re associated with any group (e.g. Pasay Makati Realty Board, RE/MAX, etc.).
  3. Communicate with the broker through email and see how formal/professional his writing is. This person will be drafting your contracts and you want a very sharp person for this.
  4. Ask for his opinion about certain developments. Not all properties are made perfect and the best brokers will be able to highlight both the good and the bad points of properties.
  5. Ask for a broker who knows how to do transfer works himself.
  6. Look for a broker who knows how to calculate potential rental yields.

REMEMBER! Working with a licensed real estate broker that you trust can literally make or break your real estate investing experience. When things get complicated, especially with legal or financial matters during the paperwork process, you need to be able to rely on your broker and believe that they are making the right decisions for you behind the scenes. It is your broker’s goal to protect your interests as a buyer.

 

Step 3: Go shopping 

Once your broker gets back to you with a list of properties that fit your criteria, it’s time to schedule viewings and see the properties. For some real estate investors, this is one of the most exciting and fun parts of the entire process despite also being the most time consuming.

Aside from the Top 5 Essential Tips When Shopping for Real Estate in the Philippines that I’ve already shared, it’s also best practice to:

Ask for an signed Authority to Sell agreement and any proof of ownership (i.e. Title) from the broker showing you the property to make sure that:

  • The broker is indeed authorized to sell the property;
  • The seller is the owner/sole owner of the property to avoid cases of misrepresentation;
  • The real asking price (sadly some brokers increase the selling price beyond the asking price of the owner to earn more from the transaction).

Getting these documents beforehand prevents any unfortunate surprises later on.

  • Take photos of all the properties you view, even the ones you’re not sure about. Some properties don’t always make the best first impression. Other times, what you’re looking for can change. Keeping photos of every property helps you look at them again with fresh eyes, and you may notice a few things you didn’t notice before. Properties that you turned down at first might be just what you’re looking for after a change in your checklist. Also, try to take a picture of the number of the house or the number of the condo unit before everything else. This way you know which property the series of pictures belong to.
  • Write down your questions about each property, even if you broker is already taking them down. This is you to remember what is important to when you attend a second viewing or go through the photos you took. Your broker should coordinate with the seller and make sure all your questions are answered, but again, sometimes what you’re looking for can change. Sometimes your questions will change! Keeping track of the Q&A between yourself and the seller can provide some key insights about the seller’s personality and motivations (yours too!) that may be useful further into the process.
  • Be patient. Some days, you will look at many properties that just don’t fit the bill. Don’t be disheartened. Your broker will find more options for you to view. Remember, this is the most time consuming part of the process, but it can also be the most fun.

 

Step 4: Create a shortlist and schedule second visits

After viewing a few options, you should already have at least one or two that you really like. After the seller gets back to you on your questions, it doesn’t hurt to schedule a second viewing of the property. A second viewing will give you the chance to see if the seller addressed any of your immediate concerns or not.

TIP: Schedule the second viewing on a day and time that is different from when you first viewed it, so you can check what the surrounding area and accessibility is like. For example, if you viewed the property on a weekend afternoon, try going on a weekday or at night. This will give you new insights into the quality of the property and the general area, as well as your potential future neighbors and association/administration.

 

Step 5: Decide if it’s time to choose, or keep shopping

By now, you might have a standout property you’d like to move forward with, or none at all.

If it’s the former, great! If everything checks out, make sure your finances are ready then let your broker you’re ready to start the paper work. Don’t forget to let your family know too – in some cases, they will be affected by your purchase. Don’t blindside them!

If you still aren’t convinced by any of the properties you’ve seen, that’s okay. Go back to Step 3. You can always advise your broker to continue your search until you find the right property for you.

REMEMBER! Don’t be pressured to buy something you are not 100% sure about. Don’t feel obligated to keep working with brokers who you feel you’re pressured with. Save yourself the headache and restart a professional relationship with another broker. It will be cheaper and more time efficient in the long run, trust me.

 

Step 6: Make an offer!

Once you’ve finally chosen a unit, make an offer! Avoid offering too low as this might insult the owner. If the property is among the lowest priced in the market and your budget can meet the seller’s asking price, lock it in! Time is of the essence and you want to prevent other buyers from coming in to steal the purchase. In this regard, it is also advisable to do verbal offers first since drafting an offer letter might take time and other buyers may come in and steal the purchase. Once your offer is accepted, that’s when you have your broker prepare a written offer letter to formalize what was agreed on. Also prepare payment of earnest money (typically 10% of the purchase price or Php1,000,000)

In the offer letter, be sure to include clauses to cover events of forfeiture and refund of the earnest money especially in cases of fortuitous events (e.g. destruction of property due to earthquakes, civil war, etc.). If there are more than two tranches of payments, it is advisable to draft a Contract to Sell (CTS). A CTS is a more detailed agreement (compared to an offer letter and a deed of absolute sale) that would indicate the step-by-step process for completing the sale.

Make sure to state in the offer/CTS who would shoulder the Value Added Tax (VAT) in the event that the Bureau of Internal Revenue decides that the sale should be subjected to VAT. It is very important to include this clause even if the seller and broker believe that the sale will not be subjected to VAT.

 

Step 7: Due diligence of documents and Preparation for Closing 

Your broker should be able to conduct the due diligence for you. But just so that you’re aware, here are some of the important things to check:

  • All owners of the property (if more than one) have consented to the sale of the property;
  • All owners listed in the Title still live (you can check this by asking for copies of IDs that need to be renewed on an annual basis);
  • Names of the owners listed in the Title are spelled properly;
  • Technical details of the Title don’t have typographical errors;
  • Special Power of Attorney naming their representative have been executed at least one owner resides abroad;
  • Owner’s copy of the title exactly matches the certified true copy of the Registry of Deeds;
  • Property is mortgaged or encumbered;
  • Owner is up-to-date with all subscription, bills, taxes, and dues; and
  • Tax declaration on the improvement is up-to-date.

These things aren’t necessarily deal breakers. Knowing these would manage expectations and help you prepare for extra steps to take to finalize the transaction.

It is also good practice to prepare the following documents and items before the closing day:

Broker to Prepare:

  1. Acknowledgement Receipt of SELLER for Full Payment (4 copies)
  2. Approved Draft of Deed of Absolute Sale
  3. Closing Cost Breakdown (delineates various payments deductible from Total Contract Price)
  4. Certified True Copy Condominium Certificate of Title (2 copies)
  5. Certified True Copy of Tax Declaration of Unit (2 copies)
  6. Certified True Copy of Tax Declaration of Parking (if applicable) (2 copies)
  7. Tax Clearance from City Treasurer’s Office (2 copies)

Seller to Prepare:

  1. Owner’s Copy Condominium Certificate of Title of Unit
  2. Owner’s Copy Condominium Certificate of Title of Parking (if applicable)
  3. Owner’s Copy of the Tax Declaration of Unit
  4. Owner’s Copy of the Tax Declaration of Parking (if applicable)
  5. BIR Certificate Authorizing Registration (CAR, if purchased after 2007) from when they acquired the property
  6. Seller’s TIN and verification whether he is subjected to VAT
  7. Special Power of Attorney to be able to secure documents, transact, and make payments on behalf of the SELLER and BUYER with BIR, Treasurer’s Office, Registry of Deeds and Assessor’s Office
  8. SELLER’s valid government ID’s with 3 original signatures of all signatories (3 copies each)
  9. Official Receipt for Realty Tax for the Year
  10. Official Receipt Most Recent Utility Bills
  11. Official Receipt Condo. Association Dues for the Month
  12. Colored photos of property (Door no., interiors and building facade) for new Tax Dec. purposes
  13. Keys to the property
  14. If SELLER is represented by Attorney-in-Fact:
    • Notarized Special Power of Attorney (SPA) from SELLER assigning their Attorney-in-Fact
    • Attorney-in-Fact’s valid government ID’s with original signatures (3 copies)
  15. If SELLER is a company:
    • SEC Certified True Copy of Articles of Incorporation & By-Laws
    • SEC Certified True Copy of Latest Audited Financial Statement
    • SEC Certified True Copy of General Information Sheet
    • Official Receipt of SELLER for full payment (should have BIR ATP)
    • Secretary’s Certificate of Authorized Signatories (Notarized)
    • Board Resolution authorizing to engage in a sale (Notarized)
    • Certified True Copy of BIR Certificate of Registration of SELLER (Form 2303)
    • BIR Withholding Tax Remmitance Return (Form 1606) – For remittance of Creditable Withholding Tax
  16. If property is mortgaged:
    • Release of Mortgage Certificate from Bank
    • Cancellation of Mortgage Fee payable to the Registry of Deeds
  17. Affidavit of one and the same person (if there are discrepancies in the names of owners/directors/shareholders)

BUYER to Prepare:

  1. Manager’s Check / Cash Payment
  2. Refund of Association Dues for unused portion of the year
  3. Refund of Realty Tax for unused portion of the year
  4. BUYER’s TIN
  5. Special Power of Attorney to be able to secure documents, transact, and make payments on behalf of the SELLER and BUYER with BIR, Treasurer’s Office, Registry of Deeds and Assessor’s Office
  6. BUYER’s valid government ID’s with 3 original signatures (3 copies)
  7. If BUYER is represented by Attorney-in-Fact:
    • Notarized Special Power of Attorney (SPA) from BUYER assigning their Attorney-in-Fact
    • Attorney-in-Fact’s valid government ID’s with original signatures (3 copies)
  8. If BUYER is a company:
    • SEC Certified True Copy of Articles of Incorporation & By-Laws
    • SEC Certified True Copy of Latest Audited Financial Statement
    • SEC Certified True Copy of General Information Sheet
    • Secretary’s Certificate of Authorized Signatories (Notarized)
    • Board Resolution authorizing to engage in purchase (Notarized)
    • Certified True Copy of BIR Certificate of Registration of SELLER (Form 2303) 

 

Step 8: Closing

Schedule the date of signing to be on an early part of the calendar month to give you ample time to settle tax payments before deadlines and prepare you for any surprises. For example, it would be ideal to schedule signing between the first to tenth days of the calendar months. Moreover, schedule signing in the morning and within banking hours as a precaution so each party has ample time to review all documents especially since closing can take as long as a few hours. Never schedule the closing after banking hours or on weekends.

On signing dates, make sure that the documents brought by the seller are the same documents presented to you beforehand. The brokers are also present on signing date to make sure all documents including receipts and transmittals.

 

Step 9: Transfer Works

Once that’s complete, all you have to do is sit back and wait. Your broker will take it from here and update you on the status of your papers being verified, as well as the seller’s.

If you’re sure that all your paperwork is complete and valid, you should have nothing to worry about here. Delays may arise because of the seller, the village association or building administration, and/or government offices. That is normal and just part of the process that could take anywhere from 5 to 8 weeks.

Once the new title (which will be in your name) comes out, make sure to check if your name is spelled correctly and if the technical description of the property is perfectly the same as originally written in the old title. These details are manually typed by people so it is prone to human error. If there’s a mistake, bring it immediately back to the Registry of Deeds so they can be revised. Safekeep ALL documents which include receipts and architectural/building/floor plans.

If this is also your first time to complete a real estate purchase, then you are now officially a real estate investor! Nothing can compare to the feeling of successfully going through the purchase process and now being able to enjoy the fruits of your labor.

Pat yourself on the back and take some time to enjoy your brand new real estate property in the Philippines.

So, there you have it!

If you’ve ever thought becoming a real estate investor or owning property in the Philippines was a confusing or intimidating task, I hope this guide helped shed some light on how easy it can be with the right broker.

Everything you want to accomplish becomes 10x easier if you work with an independent licensed real estate broker that you can rely on and trust. Behind the scenes of this process is countless other tasks that your broker will take care of on your behalf.

That’s why this entire process becomes 10x harder when you try to do it yourself, but 100x harder when you work with a broker you don’t trust.

So my last piece of advice to you is this: be careful when choosing a broker. ALWAYS check their PRC license, and ask around about their reputation if you can.

Of course, once you choose someone as your broker, give them a chance to earn your trust if you do not have a personal relationship with them before working together. Trust is a two-way street and you have to give it to get it.

Disclaimer: This material, which is strictly for information purposes only. The views and opinions expressed in this article are those of Juan Patag’s and do not necessarily reflect the position of RE/MAX Capital, or any other RE/MAX franchise. Any information is subject to change without prior notice. No liability whatsoever is accepted for any loss that may arise (whether direct or consequential) from any use of the information contained herein. Information Each RE/MAX franchise is independently owned and operated.

Top 5 Things First-Time Real Estate Investors Forget to Do Before Buying A Property

Top 5 Things First-Time Real Estate Investors Forget to Do Before Buying A Property

One of the things that can discourage investors from real estate investing is the fact that the “transaction” – the act of purchasing the property and becoming its legal owner – can take at least a few months. This happens during the Due Diligence stage of the purchase process, after the seller has agreed to your price.

First-time investors have a tendency to jump the gun because of their excitement in finding what they believe is the “perfect” property for them. In doing so, they forget to check certain things that sellers might neglect to disclose. This can range from something minor like needing to replace some fixtures to major like the property having been flooded before or the fact that it is built on a major fault line. For the record, sellers are not legally required to disclose any of this information, so the fault of finding out certain facts too late rests solely on the buyer’s shoulders.

All that can be mitigated if you’re already working with a trusted independent licensed real estate broker. He or she should already know everything to check for and will be the one to pre-screen units and sellers for you.

But if you haven’t found a broker yet, and would like to start shopping around anyway, it’s important to know the top 5 things first-time real estate investors forget to do before buying a property:

 

1. CHECK if the property is on a fault line or has been flooded before.

  • Don’t find out the hard way! Your broker and the seller are NOT required by law to disclose this information. If they neglect or forget to do so before closing the sale, you can’t file a lawsuit against either of them for damages or compensation.

For Floods:

  • Check in http://nababaha.com, ask current residents, the village association, maintenance and security staff, etc.
  • For a condominium, check if the parking area is elevated or basement and check if whether it was flooded during the typhoon season

For Earthquakes:

 

2. REQUEST for a copy of the property Title and Tax Declaration and CONDUCT your own research into its authenticity.

  • Get a certified true copy from the Registry of Deeds of the City where the property is located (You will need an authorization letter from the owner to do this)
  • Check if the contents of the certified true copy (CTC), owner’s copy (OC), and Tax Declaration (TD) are exactly the same on all 3 documents. More specifically, check if:
    1. Title number, technical descriptions, lot size, signatories, dates are the same;
    2. All owners are indicated;
  • Spelling of owners name are the same, by the letter:
    1. If a second name appears in the CTC, the second name should also appear in the OC
    2. If the maiden name of one of the owners appear, the maiden name should also appear in the OC
  • The property is clean or if it is not (mortgaged or has any other encumbrance, annotation, or lien);
  • Check if the persons listed in the Title and all their spouses are alive;
  • The Tax Declaration of the Improvement (if any) is up-to-date and reflects all improvements (e.g. swimming pool);
  • Important Note: When the new title is transferred to the buyer’s name, make sure this information is also correctly written in the new OC. The Registry of Deeds manually types all these and as such it is prone to human error.

 

3. ENSURE that all the title owners are currently residing in the Philippines for the duration of the sale.

It is a legal and logistical nightmare to transfer a title while one or more people involved are not in the country because:

  • The person abroad must appoint an attorney-in-fact by executing a Special Power of Attorney that he must have notarized then sent to the nearest Philippine Consulate for consularization.
  • This is a process that can take anywhere from one week to several months. There wouldn’t be any delays if all parties are in the Philippines and able to execute the legal decisions on-the-spot.

 

4. ENSURE that the owner is currently settled (paid) on all property and utility bills which include:

  • Real Property Taxes
  • Internet
  • Homeowner’s/Condominium Association Dues
  • Utility Bills
    1. Electricity
    2. Cable TV
    3. Internet
    4. Phone Bill

 

5. Get a copy of the House/Village Rules to ENSURE that what you’re planning to install, change, or build on the property is allowed by the Homeowner’s / Condominium Association. Some usual things to check are:

Commercial Properties

  • 24 hour operations
  • Building is Fiber-Ready
  • Provision for air conditioning systems (e.g. where to place condensers)
  • Number of telephone lines allowed

Condominiums

  • Water/Electrical Provisions for Appliances (e.g. Dishwasher)
  • Small/Big Pets are allowed
  • Letting more than 2 people stay in the unit

Houses

  • Design of the house (for villages with themes)
  • City Restrictions on Height of Structure

 

Bear in mind that this is not a comprehensive list. The things you have to check for will change depending on the type of property, its location, and the seller’s background. The process can easily get overwhelming, especially if you have other priorities and investments to manage. This is where your trusted independent licensed broker comes in.

 

Disclaimer: This material, which is strictly for information purposes only. The views and opinions expressed in this article are those of Juan Patag’s and do not necessarily reflect the position of RE/MAX Capital, or any other RE/MAX franchise. Any information is subject to change without prior notice. No liability whatsoever is accepted for any loss that may arise (whether direct or consequential) from any use of the information contained herein. Information Each RE/MAX franchise is independently owned and operated.

In-House Brokers vs. Independent Licensed Brokers

In-House Brokers vs. Independent Licensed Brokers

Going through an independent broker for properties sold in the primary market

As I’ve mentioned in previous articles, the one factor that can make or break your experience in real estate investing is your broker. When buying properties from the primary market (or properties that are yet to be built), you may choose to go with an in-house agent/broker or an independent broker. It’s common practice for buyers to go through an in-house agents since, after all, they’re the most convenient to approach. This article will argue why it’s better to go through an independent broker.

In-house broker

An in-house broker is a real estate broker who is employed by a real estate development company to help sell their inventory of properties. They get a basic monthly allowance (more or less based on minimum wage) and sales commissions for each property they sell. They also have to hit sales quotas to continue to be employed.

An in-house broker may be a licensed broker or an accredited sales person (For simplicity, we will refer to salespersons as “agents”). Agents are accredited with the Professional Regulation Commission (PRC), and are allowed to perform the simpler tasks of brokers such as property viewings and general paperwork. Only licensed brokers are allowed to sign legal documents related to the real estate investment transaction. An agent’s job generally ends after the buyer has paid the 20% downpayment since it would be the developer’s back-office (e.g. Amicassa of Ayala Land) who will take care of the rest of the requirements.

More likely than not, when you visit a real estate developer’s showroom, you will be approached by an agents instead of a licensed broker. You will likely only deal with this broker throughout your transaction, unless major issues arise in which the licensed broker will need to step in. Some developers have a ratio of as many as 20 accredited brokers to 1 licensed broker. This makes it easy for the developer to reach more potential customers for their properties.

Generally, in-house agents have access to all the properties of their developer. Their focus in particular projects/developer makes them more knowledgeable with the technical details and more up-to-date with the availability of units. However, in-house agents are not allowed to sell properties in the secondary market.

One disadvantage of in-house brokers is that they are not allowed to sell properties of other developers. As such, they have a limited view on the general property market. They may know some facts, but they would unlikely reveal facts that would put their property on a disadvantaged. Typically when asked, they will argue that their properties will always be superior to comparable properties in surrounding areas.

Moreover, sales of in-house agents are also limited by the number of projects their employer has to offer. Once the developer runs out of new developments, agents are left with nothing else to sell and they’re forced to move to another developer.

For these reasons, it’s not surprising that the turnover rate of these agents is quite high. The agent you have been coordinating with may transfer to another company. Problems arise when your agent promised you certain things that he/she will deliver. In this case, you’ll be passed to a new agent to whom you will have to initiate discussions with. Things previously agreed on will likely be forgotten.

Independent licensed broker (ILB)

An independent broker (hereinafter referred to as “ILB”) is a licensed real estate broker who is not tied to one particular developer. Aside from pre-selling properties, ILBs can sell pre-owned properties or properties in the secondary market. ILBs do not get any fixed salary and is rewarded solely with sales commission. They may or may not be associated with real estate groups such as PAREB, or RE/MAX. Some independent brokers may hire their own accredited brokers who will act as their agents, in the same way real estate developers do.

Because ILBs have a much broader view of the general real estate market, they can give you multiple recommendations depending on what you’re looking for, and are not limited to one developer alone. ILBs even have access to private individuals and companies who may be selling their properties at attractive prices that a developer could never sell at. ILBs can also help facilitate loan applications for the banks they are accredited with.

The disadvantage of ILBs is that they are less knowledgeable with the technical details of particular projects given the sheer number of other projects that they can offer. To address this problem, developers (e.g. Rockwell, Ayala Land, Megaworld, etc.) have established broker relations groups that aid ILBs in project presentations.

Another advantage of ILBs is their expertise in the secondary market. Clients who intend to re-sell or lease out properties they bought from the primary market, ILBs can guide them with the whole process: pricing of the property, legal and procedural requirements, etc.

Why go with ILBs?

Luckily, you can choose the best of both worlds. You can get an ILB to represent you and have him/her coordinate with the in-house agents. This option will NOT cost you anything since it will be the developer/seller paying for their professional fees.

This model has been so successful that developers (i.e. Ayala Land, Rockwell Land, Ortigas & Co. etc.) have established Broker Relations Groups to handle leads from independent brokers. In fact, sales of ILBs have reached as much as 30% of total sales for certain projects.

Let your independent broker do the follow-ups, legwork, review of paperwork, etc. Get an unbiased opinion with regard to the property. Since ILBs handle pre-owned properties, they know what to watch to check (see article on What to Check for Newly Turned Over Units). Simplify your life by having your ILB take care of leasing out or re-selling the property you bought. Work with an ILB.

Disclaimer: This material, which is strictly for information purposes only. The views and opinions expressed in this article are those of Juan Patag’s and do not necessarily reflect the position of RE/MAX Capital, or any other RE/MAX franchise. Any information is subject to change without prior notice. No liability whatsoever is accepted for any loss that may arise (whether direct or consequential) from any use of the information contained herein. Information Each RE/MAX franchise is independently owned and operated.

Top 8 Signs You’re About To Get Scammed When Shopping For Real Estate In The Philippines

Top 8 Signs You’re About To Get Scammed When Shopping For Real Estate In The Philippines

Let’s face it: while investing in real estate can be one of the best financial decisions for your portfolio, it’s also one of the most common ways to get scammed.

Millions of pesos are required to make any worthwhile real estate investment. For scammers, the opportunity to steal just a fraction of that is highly motivational.

Imagine your standard rate for a 1-bedroom condominium in Bonifacio Global City worth around Php7,000,000. Earnest money or down payments are usually about 10% of the asking price or at least Php1,000,000, whichever is higher. That’s an easy Php1,000,000 for scammers who can convince you that the unit is theirs to sell. Scammers can pretend to be the seller or even the broker/sales agent!

Now, I’m going to be honest with you. Nobody, not even brokers like myself, are immune to the creativity and craftiness of scammers. Knowing the law and researching who you’re dealing with is an absolute must.

But if you’re new to the real estate investing world, everything can feel unfamiliar. So here are the top 8 things to watch out for during the purchase process so that you don’t have to suffer the same way others have:

  1. Properties that are priced extremely lower than the market price. The saying, “it’s too good to be true,” should always be top of mind. If it’s such a good deal, why hasn’t anybody bought it yet? You can even ask the seller this question. Gauge their reaction and answer. Defensiveness or avoiding a direct answer is a red flag.

 

  1. The property documents differ from those filed with government offices. Always cross-check ownership documents with the government’s. For example, it’s possible that the copy of the Title that’s provided to you doesn’t show any lien but the certified true copy from the government does. Your broker can do this for you, but remember that sometimes they are in on the scam. Check the documents with your own eyes too.

 

  1. You’re being rushed to pay because you might miss out on a “fantastic deal”. Conducting due diligence is the only way to make sure nobody gets scammed. Scammers typically use the fear of missing out to bait buyers to skip the due diligence part and pay the downpayment immediately.

 

  1. Check that payments from the Seller are made to people other than the Developer or those listed as owners in the certified true copies of the Title. If there are multiple owners in the Title, multiple checks in equal amounts should be prepared (unless there’s a written and notarized authorization to allow somebody else to receive their share).

 

  1. If your brokers/agents can’t show an Authority to Sell or Authority to Lease agreement from the owner of the property. These documents are supposed to be shown to the buyer to avoid an event wherein the broker/agent “pads” (or increases) the selling price to earn more from the transaction. The industry standard for professional fees of brokers/agents is 3% to 5% of the total contract price, and is shouldered by the seller.

 

  1. Sudden change in schedules for important events. I’ve heard a lot of kinds of excuses such as hospitalization, death of a relative, dramatic fight with their spouse, etc. While these events can be true, it is prudent to be extra cautious when these are brought up.

 

  1. Not all listed owners listed in the Title show up for the signing of the Deed of Absolute Sale. The one thing you have to make sure that all listed owners are alive and have given their consent to the sale of the property. In case the seller is legitimate, it’s still necessary for all the owners to be alive and consenting to the sale, unless you’re ready for months or even years of legal troubles later on.

 

  1. Use of prepaid mobile accounts – I don’t mean to discriminate but, it’s hard to imagine that somebody who owns or who is buying a multi-million peso property can’t subscribe to a post paid line. I feel more comfortable working with people who have postpaid lines because these can be traced if something bad happens.

 

So, now you’re wondering: Then what’s the best way to stay safe while shopping for your next real estate investment?

The easiest way is to be guided with a trusted and knowledgeable licensed real estate broker.

DISCLAIMER! The list above is not all the signs to watch out for. Scammers learn from the mistakes of their peers as well, so every new scam is probably better than the last. Always be cautious with your investments and don’t let your emotions, like excitement, get the better of you.

Listen to the advice of your broker when they say they have a bad feeling about a property or a seller. They have more experience and exposure to the traps within the industry, so they have a better trained “gut feel” of the situation.

Oh, and one last thing. Sometimes, it’s your broker who’s going to try to scam you. Sad, I know, but it happens. So like I always say, go with a licensed broker you can trust. Make sure they are licensed by the PRC, have a public track record of success, and have a positive reputation. Being associated with a real estate group like RE/MAX also helps because these companies do extensive background checks before allowing brokers to use their brand name. And, if one slips through their cracks, you can report them to the Head Office for support.

This material, which is strictly for information purposes only. The views and opinions expressed in this article are those of Juan Patag’s and do not necessarily reflect the position of RE/MAX Capital, or any other RE/MAX franchise. Any information is subject to change without prior notice. No liability whatsoever is accepted for any loss that may arise (whether direct or consequential) from any use of the information contained herein. Information Each RE/MAX franchise is independently owned and operated.

5 Essential Tips When Shopping for Real Estate in the Philippines

5 Essential Tips When Shopping for Real Estate in the Philippines

Whether you’re shopping for new or second-hand real estate in the Philippines, there are a few things you should keep in mind before committing to a purchase. Here are my top 5 tips to help guide your search:

  1. Bring your broker

When shopping for real estate, the most important decision you will make is whom you’re going to trust to manage all financial, legal, and administrative work on your behalf. That’s where a broker comes in. I covered this topic in-depth in the article, “How To Choose Between An In-house Broker And An Independent Broker”. But for now, the key difference to note between an in-house and an independent broker is this: an in-house broker is employed by the real estate developer, while an independent broker is employed by you. There is an “insider advantage” when you work with an in-house broker, but an independent broker is free to show you a wider range of options from multiple developers, and you can trust that they are not indebted to any one developer for their paycheck or employee benefits.

If you decide to go with an independent broker, don’t hesitate to bring them along to your viewings with developers. There’s nothing wrong, rude, or taboo with doing this, and seasoned real estate investors never shop without their broker with them. Independent brokers are your real investment advisors, and it is to your advantage that your broker can speak the same language as the developer or other in-house brokers. He or she can ask questions or make requests on your behalf, if you’re not sure how to do it yourself. They might even spot a few things about the unit that you might miss, which could make or break your purchase decision.

Whichever you decide, just make sure you choose a broker you trust.

  1. View the unit at least 3 times before deciding

Why 3 times, you ask?

The first time you see the unit, the seller is usually putting their best foot forward. You’re also processing a lot of information, and it’s easy to become enamored with the beautiful things about the property while not noticing some of its weaknesses.

Go a second time, and you’ll notice the little things you didn’t see before. This can be both positive and negative – it depends on what is important to you as a buyer. This is an opportunity to raise new questions and concerns with the seller. It’s also a great chance to get to know the seller a bit more, which many buyers often neglect. Getting to know the seller can give you a better understanding of why they’re selling the property, how they might have managed it, and how they might behave during the purchase process. Give your gut the information it needs through observing the seller’s body language and other non-verbal cues. You might thank yourself later.

Finally, a third viewing will reassure you of your assumptions about the property so far. Hopefully, they’re all good things. But if you’re gut has been telling you something negative about the property, this is your chance to confirm or deny. Hopefully, by this time, you’ve developed a relationship with the seller and are free to ask more questions or clarifications. Don’t hesitate. It’s not rude to ask before buying, and any seller that faults you for it should be steered clear of.

  1. Choose the most advantageous financing option FOR YOU

You can read more about the different ways you can finance your real estate purchase in this article, but essentially there are two ways to finance your real estate purchase: cash and a loan.

  • Cash

Purchasing real estate through a 100% cash payment has the simplest legal and administrative process. Usually, buyers can even get a discount from the seller if they purchase in cash, in full. Always negotiate for one if you decide to pay this way!

Some sellers can be hesitant of full-cash buyers, because most real estate scams are transacted this way. If you are a legitimate buyer with the full amount ready, this is where you broker or your bank can come in to reassure the seller.

  • A loan via bank financing

Another way to purchase real estate is by getting a loan from your preferred bank. People are generally more trusting of established financial institutions than individual buyers. That’s why bank financing is considered one of the safest ways to purchase real estate. However, it is safer for the buyer than the seller. Buyers typically use the same property being bought as their collateral for the loan. Obviously the buyer should own the property first to be able to do this. So, banks require the title of the property to be transferred first to the buyer before it releases the loan proceeds to the seller. In other words, the seller will sign a deed of absolute sale and deliver the title even before he is fully paid. I explain this process in detail in another article (“How to Buy Real Estate In The Philippines: From Start to Finish”).

Depending on your current financial situation, one financing option will stand out more than the others. Consult with your broker or other financial advisers to decide on the best route for you.

  1. Be patient while the paperwork is being done

It can be both exciting and nerve-racking once you’ve found the right property for you. But, the legal paperwork and due diligence takes time for a good reason: it’s to ensure the safety of you, your money, the seller, and their property. While you’re sure that you can pay, how can you be so sure that the seller is even legally allowed to give you the property? To avoid nasty surprises or being scammed, give your broker the time they need to go through the legal processes. This is when it’s extremely important to have chosen a broker you can trust.

  1. Do one last inspection before finalizing the turnover

And there you have it! After the turnover process has been ironed out and finished, you are now the proud owner of a real estate investment in the Philippines.

Before you and the seller shake on it, make sure to do a comprehensive inspection of the property. Is everything you requested for been installed or removed? Are electrical and plumbing still in order? Do all of the keys work?

There are also a number of things to check for newly developed condos. Is there cement stuck in drains? Are the built-in cabinets perfectly aligned? Do the balcony doors close smoothly? Your trusted broker should be able to help you check for these things.

It may seem trivial, especially given how excited you must feel at this point, but you’ll save yourself the headache of trying to contact the seller after the property is completely turned over.

Disclaimer: This material, which is strictly for information purposes only. The views and opinions expressed in this article are those of Juan Patag’s and do not necessarily reflect the position of RE/MAX Capital, or any other RE/MAX franchise. Any information is subject to change without prior notice. No liability whatsoever is accepted for any loss that may arise (whether direct or consequential) from any use of the information contained herein. Information Each RE/MAX franchise is independently owned and operated.

How do you differentiate a good Real Estate investment from a bad one?

How do you differentiate a good Real Estate investment from a bad one?

To expound on what we’ve learned so far, we ask ourselves, “Are all real estate investments good?”

Frankly speaking, no. While it’s safe to assume that property prices will increase forever (for as long as population grows), the rate at which prices increase is another thing to consider.

For example, prices that double in value in a shorter time period will always be more desirable than those that double in, let’s say, 10 years. The longer it takes to achieve the targeted returns, the less desirable the property is. Sadly, there is no clear-cut way to determine the exact time for a real estate investment to hit a target price–same with other kinds of investments.

However, understanding what can drive changes in property prices will help you determine whether a real estate investment is worth your time, money, and effort.

So, what can change a property’s price? It’s simply supply and demand. Some factors affect the demand and some factors affect supply. Below are several factors you should take into consideration when evaluating real estate properties on your own.

DEVELOPER’S TRACK RECORD
Positive effect on price Negative effect on price Comments
Developer has a track record of staying within construction and turnover schedule Developer has track record of not finishing projects or has no track record at all Affects demand because people fear that the development may not be finished.

 

For instance, construction of GA Sky Suites along Quezon Avenue was put on hold after its original owner, Globe Asiatique, got involved in a scam. It’s been 10 years and the project still hasn’t been turned over. Would you buy any of Globe Asiatique’s projects in the future?

 

SALES DURING PRE-SELLING
Positive effect on price Negative effect on price Comments
·A lot of people buying pre-selling units

·Pre-selling units close to sold out

·Majority of available units remain unsold even after the turnover of the property If a project sells out at the early stages of pre-selling, this indicates that prices in the secondary market would continue to increase once turned over. People who weren’t able to buy in the pre-selling stage would try to buy in the secondary market instead.
DEMAND AMONG FOREIGN BUYERS AND/OR TENANTS
Positive effect on price Negative effect on price Comments
·High diversity of buyers and tenants (local and foreign, individual and corporate)

·A lot of (professional) foreigners living in the area

·Low interest among business, ex-pat, foreign community

·Very few professional foreigners renting in the area

Foreigners, especially those from first world countries can demand higher standards of construction, maintenance, cleanliness, etc. from building administration.

If you find a lot of foreigners living in the area, it’s a sign that location, the quality, and the service are considered world-class.

PROXIMITY TO SERVICES
Positive effect on price Negative effect on price Comments
Walking distance (maximum 15-minutes) to and from central business district

Maximum 30-minute drive to major hospitals, schools, and banks

Development is located in an inaccessible or notoriously dangerous area

Accessibility of the building itself is difficult due to traffic, one-way streets, history of flash flooding, etc.

A nice example of this would be The Grove by Rockwell in Pasig. The development, in my opinion, is top-quality. However, demand has been diffused by the fact that there’s only one way to enter: C5.
GENERAL BELIEFS AND PREFERENCES
Positive effect on price Negative effect on price Comments
Lot is near the clubhouse Lot is located in a T-Junction (Tumbok) or is a perimeter lot Filipino-Chinese buyers represent a large part of the local demand for real estate.

Considering their beliefs in your purchase would likely increase the demand for the property once you decide to sell it in the future.

Corner unit, high floor, near the fire exit Unit is near the elevator
GENERAL LOCATION
Positive effect on price Negative effect on price Comments
Located in a secure, low-crime rate area Development is located in a dangerous and/or hazardous area (flood, fault line, etc.)

 

After Typhoon Ondoy, real estate prices in Marikina tanked. Today, concerns for flood, proximity of the fault line are among the typical questions buyers check before purchasing a property.
SUPPLY
Positive effect on price Negative effect on price Comments
No more vacant lots in the area A large number of new residential developments sprouting in the area

 

Prices of condominium units in BGC have a difficult time increasing due to the sheer supply of residential units turning over in the next 3 years

I’ve met numerous sellers who think that they could always sell their property at a higher price after a few years. This is not always true. They would probably have to wait a few more years until the demand catches up for them to fetch the price they want.

A proper analysis of these factors before purchasing your investment would definitely help you avoid this scenario.

And remember, this is NOT an exhaustive list of factors that would affect your price. Your best resort is to always choose a broker you trust, and ask them for their professional opinion.

Disclaimer: This material, which is strictly for information purposes only. The views and opinions expressed in this article are those of Juan Patag’s and do not necessarily reflect the position of RE/MAX Capital, or any other RE/MAX franchise. Any information is subject to change without prior notice. No liability whatsoever is accepted for any loss that may arise (whether direct or consequential) from any use of the information contained herein. Information Each RE/MAX franchise is independently owned and operated.