Looking for and buying a forever home could become one of your stressful decisions in life. You might already be working on your short term lodging goals like apartments or transients but it will eventually transition to deciding on what home you would like to live in forever or long term. There are two types: A condominium unit or a House and lot. And alongside these options are the financial and time requirements needed. To help you narrow decisions, let these comparisons guide you.
If you would like to live in the bustle of the city life, perhaps a condominium is what you are looking for. Though, there are good things that condo units provide like amenities or an opportunity to have it leased or rented, there are, more or less, numerable disadvantages that could pop-up in the future. Most developers sell units during the planning stage of the condominium, which means a unit is more likely to be affordable, depending on its location. While that could be tickling to the ear, don’t jump in just yet.
According to the Global Property Guide, with the Philippine mortgage market relatively underdeveloped, “most of the houses are sold for cash or pre-sold”. In the condo market, it’s a choice between ready-for-occupancy (RFO) units and pre-selling ones.
Many buyers go for the pre-selling option, due largely to its much lower introductory price, which can be 30% cheaper than a finished unit. On top of that, developers throw in a 10%-15% discount or offer flexible payment schemes where the down payment can be as low as 10% payable for 3 years, with the lump sum to be paid either through a bank financing, government sponsored home loan (Pag-IBIG), or the developer’s in-house financing options.
If you are a real estate investor, pre-selling condos are a promising investment since their market value can increase by the time they are finished. Given favorable market conditions, you can resell the finished units for twice the price you put down when they were in the pre-selling stage.
A pre-sale condo unit is full of terms like “more or less” and “subject to change without prior notice”. If you do not check the construction progress every now and then, the terms you might have agreed on might not apply anymore when the building is already standing. The primary risk with a pre-selling condominium is that the finished unit may not be what you have in mind. Materials can change. There can also be changes made in unit sizes, floor plan, finishing, features, or amenities about which you may not be notified. You can end up paying for a unit that falls below your expectations thus nulling the “promising investment” claim.
Another risk is the delay in completion and turnover if the developer may not deliver on time. Pre-sale contracts have delay clauses that allow the developer to be late for up to a year or more. The painful risk, however, 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.
OFWs that plan to buy pre-selling condos from abroad run the biggest risk. Many have lost their deposits and payments through corrupt representatives or agents who take advantage of their absence and use the complicated paperwork to collect “fees” from them.
House and Lot
If commuting or travelling is not a problem for you, then perhaps buying a house and lot a few kilometers away from the city is the best deal for you.
Buying a house and lot can be a meaningful investment, because this would house your future and your legacy. The design, the features and the overall appearance of your house is absolutely up to you. You just need a trusted real estate agent or company to guide you through the legalities and meet up at a “win-win” or good deal.
Looking for a reputable real estate company simplifies the process of buying land yourself and choosing a suitable design. They device house plans that is intended to suit the block with appropriate sun orientation and driveway placement.
Most home buyers will enter into a land contract with a land developer and a building contract with a builder. There are two ways a home builder can simplify this process for you. The builder can wait for you to settle on the land, then conduct soil tests and feature survey, so they determine site costs and finalise the contract. Alternatively, the builder can fix the site costs to produce the building contract around the same time the land contract is ready. This method is not always applicable for all new home builds, but it is more efficient as the lender can obtain finance for both house and land at the same time.
You can save thousands and thousands of pesos. Reputable financial organizations or lenders should be able to waive some of the associated fees for both of the described situations above. You only have to pay stamp duty on the land’s value as the house has yet to be built, and you can also claim various depreciable assets including the cost of the building, the cost of the fixtures and the construction itself.
One risk you could be facing is paying for someone else’s profit. When you buy any brand new property, factored into the price is the developer’s profit margin and a proportion of the high marketing costs that come with selling this type of property. These hidden ‘costs’ could be the equivalent of a few years of capital growth, putting you behind the eight ball from day one.
Another risk is compromised location. The majority of home and land packages are located on the outskirts of the city, in areas often with abundant supply of land, weaker economic drivers and a lack of infrastructure. Capital growth is therefore often harder to come by. You could be battling uncertainty. When buying off the plan, you really don’t know whether the quality of the finishes will meet your expectations, or what the surrounding facilities and other homes will be like. There is also the uncertainty that the final bank valuation won’t stack up.
Logic dictates that when investing you should seek out a property with a high proportion of land value, as this is what will drive capital growth. With new property, however, most of the value lies in the building component and not the land, which will hamper capital growth as the building depreciates. A 30 year old property on a good size block in the middle of a suburb might not look too glamorous when compared to a brand new property, but chances are it will make a far better investment over the long term.
When building an investment property, you don’t receive any income while it is in the planning stages or under construction. But you will be paying interest on any money you have borrowed by that point.
Building can sometimes be stressful, with construction delays a fairly common occurrence. The biggest surprise for many first-time builders is the amount of extra money that needs to be spent to get the property ready.
Finally, smart investors know that adding value to a property through renovations is a key strategy for accelerating the wealth-creation process. However, this option could rarely be available with new property.
House and land packages may include attractive inclusions, but many new estates feature small lot sizes. Depending on your budget, you do have the option of choosing other available lots by the developer. Make sure the block of land will meet your needs in years to come, especially if you plan on starting a family.
New estates are often constructed in the areas outside the city proximity, where employment opportunities and public transport may be limited. The development may be marketed as being a commutable distance from the city. In reality, it could be minutes or hours of driving (or more with traffic). Are you willing to withstand the long commute to work each day?
Selling for profit might be difficult in the short term if your house and land package is part of a new estate. Home values outside or far from the city usually rise at a slower pace due to weaker economic drivers and lack of infrastructure. As the developer continues to offer new homes in the neighbourhood at competitive prices, capital growth is even harder to come by.
After weighing up the pros and cons, if you believe a house and land package is suitable for you, the next thing to do is compare house plans. Also, be wise by looking for and choosing a reputable new home builder or developer.