Now that the recovery of the economy is in sight, are you considering buying a condominium unit? When do you need to move in? Do you need to do it immediately or in a few years?
Developers, big and small alike, have a wide range of projects that are newly launched, under construction, nearing completion, ready for turn-over or completed. The choices are wide and often difficult to make.
Pre-selling units
Offered for sale but not yet ready for immediate turn-over, these units include recently launched projects or those that are under construction. They are priced significantly lower when compared with units that are ready for hand-over.
Buyers enjoy no or little down payment, low monthly amortization, and long payment period. These projects are offered with a special pricing, promotional stretched payment schemes, and often accompanied with early-launch or special discounts.
Thus, buyers with limited savings or smaller income can purchase these projects through monthly or step-up amortization during the condo unit’s construction period, with full payment falling due upon turn-over and acceptance of the unit. Buyers of pre-selling units soon realize the potential savings of buying these units early because of the price increases made by developers throughout the construction period.
This appreciation in property values is usually larger than the very low bank interest. Enterprising and entrepreneurial investors who are aware of the potential upsides usually “flip” the property mid-stream during the amortization period and profit on the price differential.
Pre-selling projects offer numerous payment schemes that address various buyers. Once the developers’ balance is fully due, buyers who still do not have sufficient funds can secure bank financing and further lengthen their payment period by as much as twenty to thirty years more. Should the buyer opt to dispose of the property in the future, the price appreciation will result in higher returns, confirming the decision to purchase a pre-selling project as an excellent investment proposition.
Ready for occupancy (rfo) units
Condominium projects that are complete and ready fall under the RFO category. Priced higher than pre-selling projects because of the accumulated price escalations since the launch of these projects, these units can be acquired by depositing a small down payment in exchange for early occupancy. These projects allow buyers to save on their housing expense as they only need to pay the amortization-balance of their new condominium units.
Depending on the condominium developer, location and size you choose, down payments are available for as low as 2.5 percent of the Total Contract Price (TCP), with total 20 percent to 30 percent amortization payable to the developer over two to three years after unit occupancy, before being required to pay the TCP balance. These units are normally eligible for bank financing, payable over 20 to 30 years.
An alternative is to look for RFO projects with a Lease-to-Own (LTO) or Rent-to-Buy (RTB) option. Condominium buyers uncertain about their current plans or finances but need to move-in early are allowed to lease the units immediately and eventually decide to buy the condo units or not.
Pre-owned units
During the early part of the pandemic, an increase in property owners selling their condominium units were observed. Some of these condo units are old and dated. Regrettably, some sellers had to dispose of their property at reduced prices to help bridge their funding gaps and address their credit crunch.
Variations of this type of pre-owned units include condos foreclosed by banks due to loan defaults, as well as Tax Lien units that local governments dispose of due to the original owner’s failure to settle the property taxes.
While there is a market for these units, many sellers want cash payment and thus require buyers to seek bank financing.
Which one should you buy?
Given the variety of condos available in the market, your choice of which type to buy will ultimately be guided by your objectives and sense of urgency.
Pre-selling units are cheaper and good for early investors. RFO units are for immediate users although current prices are already higher than pre-development prices. Lastly, pre-owned units are for the more discerning buyers.
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Henry L. Yap is an architect, environmental planner, real estate practitioner and former professorial lecturer.
