How to Invest in Philippine Real Estate
“Don’t wait to buy real estate. Buy real estate and wait.” ~Will Rogers
Such a quote sums up the necessity and essence of investing in real estate. Investing in the Philippines real estate market is the wisest decision anyone can make. The country posed the strongest economic development in recent history.
The government is eyeing the elimination of the housing backlog by 2030. Addressing the shortage in housing supply means developing approximately 11 million homes for 11 years or about 1 million homes every year. Put simply, the government needs to meet the ever-increasing housing demand in the country.
Demands for all types of housing are high, especially among the working Filipinos. They want to live near the city centers and workplaces. The increasing urban population is also seen as a driver behind the high demands.
Not to mention, the continuous OFW remittances are allowing the Filipino families to participate in real estate. Over 50% of these remittances are devoted to investments including real estate.
On the other end of the spectrum, the businesses and employers are also demanding for condos and other residential options for their top executives as well as employees.
On the government’s side, the priority is developing infrastructure that may enable and encourage more real estate developers to do their share of addressing the backlog. The construction of MRT, improvements of road networks, and expansion of the airports country-wide are just three of the efforts.
What is real estate?
Real estate is a tangible property consisting of land and anything above it - may it be a building, house or natural resources.
A real estate can be residential, commercial or industrial. Residential properties refer to all types of dwellings. Commercial properties house establishments including office buildings, shopping centers, academic institutions, etc. whereas industrial properties are mostly warehouses or buildings where manufacturing of products occurs.
A parcel of land (or a lot) is also considered real estate. Farms and agricultural lands, as well as undeveloped properties, fall under this category.
Why invest in real estate?
When we say investment, it is classified as a financial instrument. Investing in a property means you will use it for generating income. It means that you are going to acquire real estate to profit from it.
It does not, in any way, mean that you will use the property for personal purposes. You or any of your loved ones will not live on it unless they are going to pay the rental fee.
Even if not for monthly rents, if you can buy a property, improve it and then sell it for a profit, it also counts as real estate investing. This is called flipping.
If you already owned the property, the better and faster you can turn it into profits.
In the Philippines, as the economic outlooks prove it, you can always sell for a profit because properties appreciate in value over time. This is the main reason why you should invest in Philippine real estate: value appreciation.
Even if you buy a condo unit now and sell it six months or a year from now, you will still be able to generate a significant income from the sale. This is the classic buy-and-sell strategy in the real estate market, that is without any changes to the unit or house and lot.
Nevertheless, you may always choose other strategies such as buy-and-hold wherein you wait for 5 to 10 years before you sell the property for a higher profit due to a higher valuation. Within that period, the price of the property would be at least five-fold higher.
Another strategy, which is also common nowadays is the buy-low, sell-high. This is like flipping only more intensively. For example, the investor buys a land, puts up a commercial building then sells for the highest possible profit.
What are the most profitable real estate investment ideas today?
While there are various ways to earn from real estate investing, the old school ones tend to still work in the last few years.
Residential properties - all configurations (1BR, 2BR, 3BR, apartment, condo unit, single detached, etc.)
Rental properties - rooms for rent, AirBnBs, bed and breakfast, vacation homes, dormitories, etc.
Commercial properties - low-rise buildings, old buildings for renovations, stores, shopping malls, office buildings, etc.
Industrial properties - warehouse, industrial park, etc.
Land - vacant lots, empty lots on main roads, agricultural land, farm, ranch, etc.
How to invest in Philippine real estate?
Investing in real estate is a proven strategy to grow your money passively.
Nonetheless, there are several considerations along the way. It takes more than knowing that real estate can be a viable source of passive income.
Learn more about the real estate market
The more you know, the better your investment decisions will be. Apart from that, you owe it to yourself to know more about this undertaking before you invest your money and other resources. While we are talking about passive income here, commitment is key in making this venture a success.
In the end, the more you know, the more you will understand if real market investing is for you or not. For one, an investor with zero knowledge must invest his time and energy learning not just the ins and outs of the industry. Also, he must dig background information on each developer and financing strategy available, among the most important things.
What you need to realize is investing in properties is a long-term strategy, not a quick fix to acquire wealth. Expectations of new investors are often short-term and shortsighted. Don’t be that investor.
Have an investment plan
Every investor understands the importance of planning as a necessary first step. Initially, you need to identify growth areas or the location you wish to invest in a property in, the type of property, and the target market.
Once you know all these, your next step is to figure out the investment timeline or the most feasible period to realize ROI (return on investment). The plan lays out the ROI against the expenses and revenues, so you’d know when you would actually realize the returns. The plan also gives you the complete picture wherein decisions are made based on the available data and calculated risks.
An exit strategy is also critical and forms part of the investment plan. You must know when to stop, more so when the expected returns are not expected at all.
Identify the target location and market
In real estate, the emphasis is always on looking for the right locations. This is true, but every location is a good location since it depends on your purpose. A perfect example is buying a barren land in the province that you turn into an agricultural area or a low-rise condo building near an IT park where all sorts of BPO locators operate.
Speaking of the target market, remember the different price points that will depend on the location and the financial capacity of the people. Again, if it’s a rental property for the call center agents, you may demand mid-range pricing. However, make sure that all the preferred comforts are present, from adequate storage at each unit to small appliances such as a microwave oven and thermo pot.
Bottom-line, know your target by heart - what they want, need, and prefer. This increases the chance of having them stay as renters, for instance, longer than expected while minimizing the vacancy.
Realign with your target property, location, and market
In investments, there is no need to reinvent the wheel. What you need is to determine the needs of the market and how you can best meet those. For instance, you decided to buy land or property that you can develop into a female dormitory near the university belt. There’s a good fit.
But when it’s already operational, you should think of the needs of your borders. For example, you may place vendo machines that dispense tissue and sanitary napkins, etc. in the lobby or near the common restrooms.
You earn ancillary profits on top of the actual profits from the rental fees. With this, however, make sure that the additional features really meet the needs of the people. Otherwise, it will be an unnecessary expense that would diminish your RO.
This all boils down to one thing - capitalize on the consumption-driven market today as well as the resilience of the market in general. Invest in Philippine real estate now when the real estate bubble is too far from reality. However, as an investor, you need to do your part in knowledge-building because it involves your hard-earned money.