What Foreigners Should Be Looking for in Condo Investments

Thought leader Andy Mañalac shares a way where real estate investors can enjoy hassle-free ownership via professionally run rental pools

For the past few months, I have been doing my rounds giving investment seminars to prospective investors in different countries. While most of the participants are keen on investing in properties in the Philippines, they are more particular about higher rental yields and capital gains than their personal use of the units. Thus, while features and amenities may be good selling points, there is one thing that really gets their attention: guaranteed yields.

There are also a lot of things that hold back their decisions about investing especially in preselling projects. Not only are they unfamiliar with the actual market condition in the Philippines, they are also committing to a property that is not even constructed yet. There are also other questions in their mind, including who is going to handle their property, going to look for tenants and facilitate the lease transactions, decide on lease rates, take care of the tenant’s maintenance concerns, pay utilities and insurance, collect payments, inspect the units after the tenants leave, handle the repairs and refurbishments, and pay taxes. And their biggest worry is, what if there are no tenants?

A lot of condominium buyers unfortunately have had the experience of having their units vacant for several months due to a variety of reasons. Sometimes, even with the best efforts of the real estate broker, the unit owner insists on their ideal rental rate and lose prospective tenants, not realizing that with each month that the unit is vacant, plus their additional cost in paying the monthly association dues, their actual effective return significantly diminishes. But really in most cases, these foreign investors feel that their agents abandoned them after they got their commissions.

With all of these considerations, I believe that projects that offer professional asset management will have an edge. I am referring to a separate company that specializes in managing hotels or serviced residences. This is the reason why I find it safer now to present projects that offer guaranteed rental yields in one form or another. These guarantees can be in the form of an actual contract with specific rates of rental yields or just the mere track record, brand name, and actual performance of the hotel/service residence operator is already a guaranty in itself.

As I have carefully studied several projects before including them in our investment seminars, there really are a lot of advantages in investing in units that are enrolled in the rental pool of professionally managed service residences that most people do not realize. First, owners do not have to worry about finding tenants for their units since they enjoy their monthly share of the pooled rental income whether their units are occupied or not. This rental income can range from 6 to 10 percent net for a specific number of years, depending on the project and occupancy rate. To be safe, all the projections that we present for different developers are based on very conservative occupancy levels and lower daily rental rates. This means that the rental yields can be much higher.

Getting more popular now are serviced residences because they have lower operating costs compared to full hotel setups. This is because they have more long-staying guests and do not require heavy staffing. This translates to higher profits that will be shared with the investors/unit owners.

Operators of serviced apartments actively and professionally market their rooms and they have the advantage of having existing networks of corporate clients, tie-ups with local and international travel agencies, and event organizers. Multinational companies usually prefer to house their top expats in these hotels/serviced residences run by reputable operators for safety, security, and most of all, convenience.

Another advantage of investing in professionally run rental pools is that it is practically a hassle-free ownership. Owners do not have to worry about paying their bills, insurance, commissions, and utilities; and will not be bothered by maintenance, collections, and refurbishing. The units are preserved since the operators see to it that they are kept in tiptop shape. One particular international service residence operator keeps the units they manage in very good condition since they are also open to buying back the units from the investors at a pre-determined premium.

In the absence of a guaranty contract, it is very important to check out the company that will operate the rental pool of the hotel or serviced apartments. Their brand, track record, and careful study of the market are sometimes an even better assurance than a contract. I believe that once the market becomes fully aware of the presence of these options in real estate, those who are coming in purely for investment will be taking a closer look at this. This may be the trend in the next few years.

This article was contributed by Andy Mañalac.

Andy Mañalac has over 25 years of real estate experience and is a recognized industry thought leader. He is the immediate past Chairman for three consecutive years of the National Real Estate Association, one of the biggest real estate professional organizations in the Philippines. He is the chief adviser of ThinkInvest Advisory Group, a lead network development channel of Filinvest Land, and was formerly Senior Vice President for Sales of Century Properties, Vice President for Sales of Eton Properties, Sales Director for Robinsons Land, and Assistant Vice President for Moldex Realty & Marketing.

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