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Buying a Condo in 2020: Three Money Misconceptions to Know

“It’s like losing money slowly for something you cannot truly call your own.”

“You’re just wasting your money.”

“Condos are never worth it!”

“Real estate investment, in general, is not a good investment during the crisis.”

 

You’ve heard them for sure!

If you notice, the majority of the concerns of the folks and well-meaning friends are money-related, but these are mere money misconceptions related to condo buying in the Philippines.

Below are some of these worth-knowing misconceptions this 2020.

Current misconception about property investment this pandemic:

The property market acts like the stock market.

Many people expressed their concern about the property market that it might not be a good time to invest because of what has happened with the stock market.

When the pandemic occurred, the international stock market rapidly collapsed as COVID-19 began to gain speed and visibility. In fact, the crash that occurred at the end of February 2020 was the sharpest decline that the stock market had seen since the disastrous market collapse of 2008 — and one of the worst crashes since the beginning of the Great Depression in 1929.

However, the property market does not act like the stock market. In fact, the property market is trending in the opposite direction of the stock market during these uncertainties. The market is remaining stable. Because stocks are so volatile and real estate retains its strengths, now is a great time to invest in real estate.

Ultimate misconception: Living in a condo is like/not like living in a house.

You might not think of this sentiment as related to anything financial regardless of how you look at it, but it is. You are a homeowner, whether you buy a condo unit or a freestanding property. Ownership comes with responsibilities. The difference is that condominium ownership pertains to shared ownership. This does not mean that you are spared from maintenance fees, for instance, particularly of your unit.

Within the residential building, there are shared properties to maintain as well. Communal ownership means sharing for the expenses for the upkeep of the facilities. Living in a condo requires paying for the monthly association fees, like how homeowners pay for monthly dues.

Other money misconceptions in condo buying

#1 Condo association dues are expensive.

Condo association due are usually between Php1,500 and Php25,000 per quarter (or Php6,000 to Php100,000 annually).

Several factors are at play when buying a condo and beyond and specifically in this aspect also including the size of the building and the number of facilities, including the designated parking space. This amount is needed to cover all the cleaning, preservation, and aftercare of the facilities and amenities such as the swimming pools, function halls or multi-purpose halls, and elevator, among others.

If the condo association does not set aside a certain percentage of the dues for repair and other emergencies, it may ask for an additional amount from the owners to cover the expenses. This might need to pass through the evaluation and approval of the board or the homeowners, depending on who initiated the additional required payment.

Please know that if you fail to pay your obligation, interest rates are applied, so, prioritize paying the monthly dues on time. No one is profiting from any of these. Whatever amount is collected for the month or quarter is devoted to operational expenses.

While at it, if the condo management requires too high an association due, chances are, it is not managed correctly. Carefully look at these things before buying a condo.

#2 Condo fees are outrageous as well.

 

Aside from the association dues and parking fees, the owners need to shell out hard-earned money for membership fees, realty tax on the unit, share of realty tax on common areas, and share of realty tax on the land where the building stands.

In some condos, membership is not automatic. Under the Framework for Governance of Homeowners Associations of 2004 (Sec. 5), membership should be voluntary. However, it entitles you to use the facilities in the condo. Also, only members can vote. So you might as well join as a member.

There is no set price, though it is usually 50% or the same amount as the monthly condo association dues. Further, the taxes need to be paid since these are government-mandated fees. For instance, to compute the share of realty tax, the fair market value (FMV) of the residential building must be assessed first.

The assessment levels of a condo building with an FMV of more than Php5 million but not over Php10 million is 50%. Let’s say the FMV is Php5 million. The assessment value is Php2.5 million. If it’s located in Manila, the real property tax (RPT) rate is 2% (while 1% for provinces-located residences). If we multiplied Php2.5 million by 2%, the RPT would be Php50,000. As such, if there are 100 owners, including you, the share would be Php500.

Yes, there is strength in numbers. The higher the number of residents, the lower the share for the RPT and other taxes. This cost-sharing model only tells us that the condo fees are not as high as you might think.

#3 Condo fees keep going up.

It’s easier to blame the increasing condo fees on the inflation rate because, well, it is. The inflation rate is the primary reason why the prices of goods and services are high. There’s no other explanation for this.

However, the bottom-line here is the board must justify every increase in condo fees. It should be for the best interest of the entire condo community, not just a few people or a select group. Expenses are ongoing and some of them are beyond the control of the condo management. Your duty as an owner is to make sure that the board delivers on its goals and promises. Otherwise, it will only breed contempt and speculations from the owners.

Then again, if you understand the reasons why condo fees kept on increasing, there’s no reason not to contribute and doubt the management.

 

If interested to check the condominium developments of Amaia, inquire through this website.

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