Buying a condo unit in Metro Manila is a bad investment

Buying a condo unit in Metro Manila is a bad investment

You can’t throw a stone right now in Metro Manila without hitting some new condo development. From New Manila to Taguig, Makati to Quezon City, there are new condo buildings going up left and right.

If only investing in property was as easy as playing Monopoly.
If only investing in property was as easy as playing Monopoly.

Following the rise of these buildings is an army of sales agents, hanging out at malls or sidewalks, bombarding passers by with flyers and information on great rates and easy to pay options.

One commonly heard refrain is that buying a condo is a good investment. That’s just plain wrong. See why after the jump.

1. Return on investment (ROI) isn’t that great

Say you pony up PHP5M or so for a unit in Makati. For that price you could probably get a studio near Greenbelt or a larger unit in an upcoming portion of the city (say, the Circuit).

You would probably be able to rent out that unit for PHP20,000-PHP30,000 a month.

That’s an ROI of around 6% a year. Sure that’s much higher than placing your money in a savings account or time deposit. But you can generate a much higher yield if you were to place your money in stocks or even in bonds.

(Yes, at the time of this writing Philippines stocks are down, and they’ve generally taken a beating this 2015. But over a long term outlook, say 10 years, stocks generally will outperform most other investments and will give you a tidy profit.)

The estimated return on investment does not even include expenses such as association dues, maintenance expenses, setting up of the condo expenses (buying furniture, etc.) and real property taxes, which will all be incurred before you can rent the place out.

Overall renting out a condo unit only yields, at the very best, a modest return.

2. Getting any sort of return is hard work

Chief among your concerns is finding a good tenant. This is more challenging than it sounds as a lot of tenants do not pay, damage the unit, or leave with thousands of pesos in utility bills overdue.

Putting up your unit for rent also means placing classified ads, informing brokers and dealing with all the inquires and requests for viewing that come with trying to get your place rented out.

Besides the headaches of finding a tenant you also have to deal with the sundry maintenance issues of your condo unit. Nothing ruins a ceiling paint job than having the unit above you leaking water onto your ceiling. (This happens quite often, even in well constructed buildings.)

3. Condo units do not appreciate (ie. their value does not increase over time)

Unlike buying land, condo units generally do not go up in value as time goes on.  So the same unit you bought for PHP5 million will still probably be around that value 5 years later.

Indeed, condo units are more likely to depreciate in value as time goes on because the unit and the building itself are subject to wear and tear while other newer developments will be shinier and more attractive to the general public.

Buy land in Metro Manila and this will most likely appreciate over time. The same cannot be said of condo units.

4. Buy it but not as an investment

There are many salient reasons why you would want to buy a condo. Say you just got married and you and your spouse are looking to have your first home. Perhaps you’re a retiree who’s tired of dealing with a house and lot wants to move into a smaller space.

But if you just have some extra cash on hand and want to invest it; don’t be tempted into buying a condo unit. There are other more profitable areas of investment for your hard earned loot.

5. Find a good broker

If you’re still keen on buying a property in Metro Manila I would suggest contacting Reality Homes, my experience with them in the past has been excellent.

12 thoughts on “Buying a condo unit in Metro Manila is a bad investment

    1. I don’t think buying an apartment in Metro Manila is a wise investment. But I encourage everyone to see both sides of an argument and in that spirit you may want to check out the link above. (I don’t find the link very persuasive though.)

    1. Hi Maria,

      If you’re looking at a long term window (10 years +) then I think residential land in a reputable subdivision is still a good investment. Land, unlike condo units, appreciates over time. There are many Ayala developments now in the South, eg. Nuvali or Ayala Westgrove, which fit this description.

    1. I really don’t think it’s worth it considering the hassles owning a condo brings (association dues, condo boards, neighbors you can’t get away from) compared to the roi possible. Moreover buying condos doesn’t scale well, after buying 2 or 3 you’ll be hard pressed to manage all of them on a part time basis.

  1. – Statistics on Philippine property prices state condo prices have been rising strongly, 12% over the past year. What’s your basis for saying condo prices don’t increase? I agree there would be a diminishing return in line with your argument about newer developments being more attractive over a long period, but the fact is that there is data that says condo prices are currently increasing.

    – Compared to shares, property (including condos) offer easier opportunity for leveraged investment. If you have 1m peso you can invest that into a deposit on a 5m peso condo and borrow the outstanding balance, or you could invest 1m into shares. Leveraged investment in shares is possible but far more expensive and very risky. In addition to this, although shares offer a higher potential return, what’s important in any investment is risk adjusted returns.

    1. Much of the increase in the price of condos is due to new units hitting the market. I agree that there’s a demand for new condos so the price of new units has been steadily rising. However the appreciation of condos is flat. Say you bought a studio unit for PHP3 million. Five years from now its market value will still probably be around 3 million (if you’re lucky and the value hasn’t dropped).

      My experience with this is largely anecdotal. For more than a decade my family and I have owned several condos in the Makati-Greenbelt area. We also own some pieces of land scattered around Metro Manila. The value of land has appreciated tremendously over the 10-20 year time frame. The value of the condos has remained flat.

      For hard data you can dig through the latest Central Bank survey (June 2016) of real estate values in the Philippines. (Link only leads to a short summary of the study, you’ll need to dig around the BSP site to find the actual study.)

      I agree that a leveraged investment in equities is risky. I would not recommend it. Moreover I would not recommend incurring substantial debt either to buy land in Metro Manila. People in general are too quick to borrow money to chase returns which are still 5 or 10 years down the road.

      1. You are most likely looking at a condo that was bought at a pre-sell inflated price of 3M, as an example, and is still worth 3M 5 years later. I would buy it if it was a good desirable location, it is not likely to to remain at 3M in another 5 years.

        The main point of condos is rental income is on a steady increase in desirable locations. Land has no income until you create something on it or sell it, so it is costing you money to hold on to it.

        Best to have a mixture of both land and condo investments.

    1. Honestly I don’t know. I haven’t been following the Tagaytay real estate market so I don’t feel qualified to answer your question. Personally if I had some money and was looking at a long term (10+ years) investment I would buy land in the new developments in the South (the developments after Nuvali).

  2. I think condo investment is not that bad. Even if you have tenants or not, at the end of the day you still own a property which could be valued at least a million, unlike in stocks sell then gone.
    Best thing is risk diversification, for my case I allot 60% of my salary for my following investments, Ph stock market, real estate downpayment, investment linked policy, and endowment insurance.
    27, OFW , with salary of 130k-150k a month. As a bachelor the best thing I can do is to invest and just invest. Sadly my friends don’t invest or don’t even save, they like traveling and buying useless things.

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