The Reward of Due Diligence: Buying Real Estate in the Philippines
Economic growth in the Philippines is currently identified with the countless high-rise condominiums and housing projects visible everywhere in the metro and selected urbanized cities nationwide.
Facts and figures show that the real estate sector had the highest industry growth of 28% during the first quarter of 2012 (National Statistical Board Coordination), with Manila prices escalating up to 7% in the last six months. And its environs possibly set to increase another 9.9%
Mega-companies such as SM have earned P13.9-B this 2012, an increase from their P9.7B earnings in 2010. Century Properties earned P4.9-B over the last six months, a 133% increase from last year’s P1.8-B. Analysts have reported that the boom of real estate was produced by the combination of OFW remittances and the Business-Process Outsourcing industry. At least 20% of the real estate market has come from the billions in remittances sent by OFWs worldwide. Their remittances sustain mid-scale housing projects outside of the metro.
In the meantime, the rapidly growing BPO industry which has swelled to a million employees this year, accounts for the sales of mid-scale to higher-end properties.These are clearly signs of changing times. Thanks to rapid foreign investments and a boost in government reform morale, Filipino buying power is gaining exceptional confidence. The real estate industry will no longer require too many sales pitches asserting that the best time to invest in Philippine properties is now; the facts and figures talk for themselves.
However profitable real estate investments may seem in these economic times though, it is never flawless. The real estate industry is still struggling with an immature mortgage system, issues involving corrupt or false land titles, loopholes or unclear statements in contracts, high transactions costs for buyers, and inferior and unsafe building practices, just to name a few.
To gain a sense of security and avoid all possible misunderstandings, due diligence is necessary. Due diligence in the real estate context simply refers to the meticulous study of a property before any final decisions are made in its acquisition. Not only does this require browsing through brochures and websites, but it entails thorough research and inquiries into the following topics:
- > Payment Terms. What are the payment costs, payment terms, and interest rates? Are they fixed or adjustable monthly amortizations?
- > Type of property. Is it a condo, single-detached, etc.? What are the available facilities and amenities such as parking, poolside, etc.?
- > History of the property. How long has the property been developed, and by whom?
- > Condition of the property. Is the property brand new? Does it need repairs or necessary installations?
- > Accessibility of the property. Is the property near schools, malls, supermarkets, public transportation terminals, or churches?
- > Security of the property’s location. Have there been murders or crimes in the vicinity? Are police enforcers and fire stations present or available?
- > Safety of the property and its location. If it is a condo, does the property have standard emergency exits and fire protection devices? Is the property located in a flood zone?
- > Occupancy of the property. Is the property occupied? Why is it occupied? When can the property be vacated by the occupant?
- > Property Titles. Does the property have a clean title? Is the title certified? How do you get another copy of the title for safekeeping? Does the copy include any annotated mortgages, liens, encumbrances, adverse claims, etc.?
- > Taxation. Who pays for the Capital Gains Tax (CGT) or Creditable Withholding Tax (CWT)? How much would the CGT and CWT taxes be? Can the banks compute the costs? How much should the Documentary tax stamp and annual real property tax be? Are there other taxations applicable to the purchase of the property?
- > Renting properties out. How much can the property be rented out for? For how long can the property be rented? What is the difference between that property’s rental and other rented properties nearby?
- > Renovations. Can the buyer renovate? When can the buyer renovate and take control of the property?
- > Monthly dues (if a condo). Are there any arrears in the monthly dues? Who updates and pays for these arrears?
- > Utility expenses. Are there any arrears in the utility expenses (electricity, etc.)? Who updates and pays for these arrears?
- > Homeowner’s and other miscellaneous dues. What are the other dues to pay for and how much do they cost?
The best technique for answering these inquiries is to call and visit the appropriate banks with foreclosed information on the properties. They should have some background and legal reports readily available. Other places for gathering relevant data are various local government departments, institutions such as the registry of deeds, the city/municipality assessor’s office, etc. Buyers may also do a personal inspection themselves, to have a firsthand check on the potential property.
Due diligence involves a lot of research and hard work. It can prove to be mind-numbing and time consuming, but a tip from the master is to do due diligence only on properties you have short listed and thus are those you are most interested in and on those that you have done an initial screening already.
At the end of the process, buyers will not only seem like seasoned real estate investors, but they will also be rewarded with a sense of security and knowledge that they made the best choice.