One of the most attractive properties is condos or housing units under a pre-selling offer. That’s because they feature minimal down payment and interest rates, attractive location, and low monthly amortization.
The only catch is that when you visit the address, construction is often nowhere near completion. So now you’d probably understand why the offers are irresistible.
In real estate, pre-selling condo or subdivision housing units are residential properties sold before construction, under construction, and just right after the developer launched the groundbreaking ceremony or even during the planning stages when the area doesn’t have any construction activity. So depending on your research, a pre-sale offer can be hugely advantageous to snagging an excellent property acquisition or an offer you must avoid at all costs.
As a cautious buyer who doesn’t want to take high risks, especially when investment involves millions, you can make an informed decision once you have done your homework.
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Definition of pre-selling properties
In the Philippines, pre-selling properties refer to real estate properties offered for sale by property developers before their construction is completed or even before the construction has begun.
These properties are sold at a lower price than the market value to attract potential buyers and investors willing to wait for the property’s completion. Pre-selling properties in the Philippines are typically condominium units or house and lot packages. Buyers are usually required to pay a certain amount of down payment and the remaining balance upon the property’s completion.
Investing in pre-selling properties can be a good opportunity for buyers to purchase a property at a lower price and potentially earn a profit through capital appreciation once the property is completed and the market value increases. However, buyers must also be aware of the risks involved in pre-selling properties, such as construction delays or changes in the property’s specifications.
Residential properties such as condominiums, apartments, and houses are in high demand, particularly in urban areas with abundant job opportunities. On the other hand, commercial properties like offices, retail spaces, and industrial spaces are also becoming increasingly popular due to the country’s growing business sector.
In recent years, the government has also been implementing policies and programs aimed at boosting the real estate industry, such as the Ease of Doing Business Law and the Build, Build, Build Program, which focuses on improving the country’s infrastructure and transportation systems.
Foreign investors have also shown interest in the Philippine real estate market, particularly in the luxury segment, which has seen an increase in the number of high-end developments being constructed in major cities.
Despite the overall positive trend in the Philippine real estate market, challenges still exist, such as rising property prices, lack of affordable housing, and issues related to land ownership and titling.
As a guide, here are things to look for:
Advantages of pre-sell properties
Promising investment with lower prices
If you look at advertisements of well-appointed residential units ready for occupancy, whether from renowned or obscure developers, prices are often out of reach for most buyers. That is why they settle with a pre-selling unit as its attractive, sometimes even seductive, low introductory price which can be as much as 30% cheaper than a finished unit. Additional sweeteners include up to a 15% discount depending on the mode of payment. Downpayments of 10% payable within three years aren’t uncommon, with the remainder payable through manageable terms under Pag-IBIG loans or bank financing.
If you are into property investment, this offer can be very tempting; once your property is ready for occupation, favorable conditions — infrastructure and accessibility development within the area — finished units can fetch much higher value than your initial investment.
More options and flexibility
Since the condo unit isn’t finished yet, you, as a buyer, have more options at the construction stage. You can pick the location, floor plan, and interior design. This depends on the contract you’ll sign, so one thing to bargain with your agent is the ability to make such leverage. You can even arrange to inspect your unit at certain project milestones and notify the developer of defects or adjustments. It gives you plenty of freedom to design and customize your future home or investment.
Customizable specifications
Buyers of pre-selling properties often can customize the unit’s specifications according to their preferences. For example, a buyer who purchased a pre-selling house and lot package in a new development in Cebu could choose the color scheme and finishes for their kitchen and bathroom.
Flexible payment terms
Developers usually offer flexible payment terms for pre-selling properties, making it easier for buyers to manage their finances and pay for the property over time. For instance, a developer in Quezon City offers a pre-selling house and lot package with a staggered payment plan allowing the buyer to pay over 36 months without interest.
Higher resale value
Pre-selling properties in prime locations or areas where development is expected to boom often have higher resale value once completed, providing a potential source of income for the owner. For example, a buyer who purchased a pre-selling commercial space in a new development in Alabang was able to sell the unit for a profit of PHP 1 million a
Risks of pre-sell properties
With all the advantages of pricing and flexibility, there must be disadvantages to pre-sale condo housing units. Otherwise, it becomes the only acceptable payment option.
Unexpected finished product
Unlike advertised properties that are more pricy yet ready for occupancy, those offered on pre-selling are long before the owner can take over and use them. Having terms such as “more or less” and “subject to change without prior notice,” pre-sale contracts can reasonably make buyers feel jittery as the other side of flexibility sets in a change in unit sizes, features, and floor plans can occur outside of a buyer’s knowledge. Ultimately, a buyer could end up paying for a property whose characteristics fall way below his or her expectations.
Delayed completion
One of the risks of buying a pre-selling property is the possibility of construction delays, which can extend the waiting time before the buyer can take possession of the property. Various factors, weather conditions, labor shortages, or issues with permits and licenses can cause delays. For example, a developer who advertised pre-selling units for a new condominium project encountered delays in the construction due to supply chain issues caused by the COVID-19 pandemic.
Changes in property specifications
Another risk is the possibility of changes in the property’s specifications, such as design, layout, or finish alterations. These changes can occur for various reasons, such as budget constraints or changes in local building codes. A buyer who purchased a pre-selling house and lot package was surprised to find out that the developer had changed the design of the property’s facade without informing them.
Uncertainty of the future neighborhood
Buyers often rely on the developer’s marketing materials when buying a pre-selling property to envision the neighborhood’s future. However, the actual development of the surrounding area may not turn out as expected, which can affect the property’s value. A buyer who purchased a pre-selling condominium unit in a new development was disappointed that the planned commercial area in the neighborhood would not push through due to changes in the local government’s policies.
Lack of established community
Since pre-selling properties are usually sold before construction is completed, the community and amenities in the area may not be fully developed. This can make it difficult for residents to establish a sense of community and businesses to establish themselves in the area. A resident who moved into a pre-selling condominium unit found it difficult to find nearby establishments and amenities since the surrounding area was still underdeveloped.
Market fluctuations
The real estate market in the Philippines can be volatile, and the value of pre-selling properties can be affected by economic factors such as inflation, interest rates, and supply and demand. Market fluctuations can affect the potential for capital appreciation and may result in a loss for the buyer. A buyer who purchased a pre-selling property during a market boom was forced to sell the property at a loss when the market suddenly dropped, resulting in a lower market value.
What the public needs to do when planning to buy pre-selling properties
While buying a pre-sale property is an attractive prospect, it’s also a risky business that only those who perform due diligence should accept or reject a certain offer. Here are a few tips one can follow:
1. Get to know the developer behind the project. If you are unfamiliar with it, check its background online, such as past projects, possible involvement in scams, and how it’s generally portrayed on social media. Best of all, check the status of this developer with the Housing and Land Use Regulatory Board.
2. Only transact with licensed agents and do not engage with people not permitted to engage as agents, even if you know them personally, such as friends or family members.
3. Once presented with a contract on a pre-selling property offer, consult a lawyer with experience in handling real estate business to help you navigate through the legal jargon to ensure it’s not onerous and disadvantageous on your part.
4. Calculate expenses incurred when committing to buy the property and balance it with your financial capacity, including your monthly income, assets, and properties you own. It would also be advantageous to know the trends — infrastructure projects in the area, the country’s fiscal health that may impact interest rates, and so on — to determine the property’s future value.
Deciding whether or not to buy a pre-selling property in the Philippines ultimately depends on the buyer’s financial situation, investment goals, and risk tolerance. While pre-selling properties offer several advantages, such as lower prices, potential for capital appreciation, and customization options, there are also potential drawbacks, such as construction delays, changes in property specifications, and market fluctuations.
Buyers who have the financial capacity to manage the risks and wait for the property to be completed may benefit from purchasing a pre-selling property, especially if they are able to buy in a prime location or take advantage of flexible payment terms. On the other hand, buyers who prioritize stability and certainty in their investments may be better off purchasing a completed property.
In any case, buyers need to conduct thorough research, assess their financial capacity and investment goals, and seek the advice of a trusted real estate agent or financial advisor before making a decision to buy a pre-selling property in the Philippines.
