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August 09, 2021

Investing in Condos: Is It Worth It?

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Your hard-earned money can be invested in many ways—real estate, stocks, bonds, physical businesses, and assets such as gold. However, real estate investments stand out among the rest because of their tangibility. Real estate can be seen and touched, and the average appreciation rate of condominiums is at 5.7% per annum. Plus, your capital will never close at zero.

Leveraging is one of the notable strategies when investing in real estate. It allows you to use borrowed money to buy a property. Leveraging also allows you to start with more than one real estate deal at a time since all your funds aren’t tied up in one project.

Before taking advantage of leveraging, it’s important to determine if the real estate you’re investing in is worth your money, time, and effort. One of the most common real estate investments in the Philippines are condominiums. Condominium investments can give you a steady flow of income, especially when rented out.

If you’re thinking of purchasing a condo in the Philippines but don’t have enough information to determine its worthiness, then you’ve come to the right place. Here is a guide to show you what a condo investment entails and whether or not it’s a lucrative one.

What is a condominium?

A condominium, or “condo” for short, is a large building that holds individual units belonging to different owners. Condo residents share common areas and amenities with other residents. These include lobbies, parking spaces, pools, gyms, and recreational centers, among others.

You may be advised to avoid purchasing from condos that have existed beyond 50 years. They are often deemed obsolete, but this will depend on the building inspections and certifications the condo has passed. Considering that most condos today are built with modern techniques and durable materials, they will likely remain in good shape even after 50 years.

How much does it cost to buy a condo unit?

In Metro Manila, Lamudi states that the average price of a condo for sale is PHP 4.2 million or PHP 113,000 per square meter. But this figure highly depends on the city where the property is located. Colliers Philippines states that Makati is Metro Manila’s most expensive condo market with an average price of PHP 246,000 per square meter as of Q2 of 20219, with an expected 2% average annual increase from 2022 to 2025.

Other Expected Costs of Owning a Condo

Once you own a condo, expect to pay additional fees such as association dues. Association dues are required monthly contributions to the operational expenses of the condominium building. These include maintenance, utility, and repair expenses, wages of the condo staff and personnel, taxes and licenses, and any other miscellaneous fees used to maintain the building.

Besides association dues, you will have to pay joining fees, electricity, water meter deposit, and other charges. You may also have to shoulder the cost of unit improvements.

Pros of Investing in a Condo

  • Accessible Amenities: Condos give you access to amenities like pools, parking spaces, gyms, spas, function rooms, recreational centers, playrooms, and green spaces.
  • Less Maintenance: Condos have their maintenance staff, so residents won’t find themselves cutting grass or cleaning gutters and roofs. If you’re worried about security, condos have 24-hour security, CCTV cameras, smoke detectors, and fire sprinklers.
  • More Affordable: Condos are usually cheaper than traditional homes—Dot Property lists the median price for houses in Metro Manila at approximately ₱ 23 million. Condos are also a great way to ease your way towards property ownership without having to take on the expense of maintenance immediately.
  • High Rental Yield: Condos offer a high rental yield which is what you can expect as the return from your investment before taxes and other maintenance fees. According to the Global Property Guide, the Philippines has a 6.13% rental yield, which is the second-highest in Asia.

Cons of Investing in a Condo

  • Other Fees: Although generally more affordable than traditional houses, condos do impose association fees for upkeep and security. In Metro Manila, the dues can range from PHP 1,000+ to PHP 8,000+, depending on the unit size, condo location, and developer. Other financial obligations can include real property tax (RPT) on the unit to be paid every quarter or once a year.
  • Smaller Floor Size: Though there are large cut units, on average, condos in the Philippines are relatively smaller compared to house and lot properties. As such, there are creative ways to maximize and enjoy every space for you and your family.
  • Partial Privacy: Shared space can offer the feeling of community but may also mean less privacy. Essentially, you’ll have neighbors above, below, and beside your unit. But there are various ways to go about this. Such as balcony plants, blackout curtains, and soundproofing options.

4 Key Factors That Affect the Value of a Condo

  1. Economy
    The overall health of the economy affects the value of real estate. During an economic downturn, the labor market is negatively affected, causing homeowners to default on mortgage payments. This floods the market with foreclosed properties, making home prices drop.
  2. Location
    The location must be prioritized when purchasing any property. Properties in the most sought-after locations demand a premium. Areas such as the Makati Central Business District and Bonifacio Global City are city centers with good transport links and continuous urban developments, causing nearby properties to appreciate over time.
  3. Accessibility
    Consider the surrounding area of the condo. Many renters are willing to pay for more accessibility to their workplaces, transportation, shopping malls, schools, fitness centers, parks, and more. Accessibility can significantly increase the value of the condo. An accessible condo is more attractive to renters, keeps vacancy rates low, and increases the rental rate.
  4. Developer Reputation
    Condos built by reliable real estate developers have excellent quality, allowing them to have higher resale value. Developers with years of experience and an excellent track record can affect the value of the condominium.
  5. Safety and Security
    Security is one of the most important factors people think about when buying a condominium unit. Because of this condominiums with security features that are located in safe areas have a greater return on investment.

Possible Income Streams from a Condo Investment

  • Rent out your condo unit
    Renting out your condo unit can provide you a steady flow of income and build your equity. Since you own the property, you can potentially benefit from an increase in the property market’s value as a result of changing demands among home buyers.
  • Rent out your parking space
    If your unit comes with a parking space, you can rent it out to earn extra income from those living in the same building or nearby areas. Before doing so, check the terms, rules, and regulations of the developer or landowners regarding this.
  • Flip your condo unit
    Flipping is a possible income stream in real estate. It’s when an investor purchases a condominium and holds on to it for a short amount of time. This investment strategy is for investors who want to cash in from their investment within a time frame while taking into consideration the appreciation value of the unit and the price increases.

Count the Costs and Run the Numbers

There will always be pros and cons to weigh, in any real estate investment—and condos are no different. The million-dollar question is: “Is investing in a condo worth it?” The simple answer is yes, considering its affordability and the many ways to gain income from it.

If you’re looking for a more definitive answer, then that depends on many things. Condos can be an excellent choice for investors if they have put in the time to know what they’re getting into.

Before any purchase, consider the costs associated with both owning and managing a condo unit. Consider as well your budget, the condo’s amenities, location, profitability potential, and condo association rules. There are truly a myriad of things to take into account, but if your ultimate goal is to get a good return on your investment, then the effort will be worth it.

If you’re looking for a condo that can give you the best return on your investment, check out the quality condos from Federal Land situated at prime locations in the Philippines.