Creating wealth through property investing

Reduce the chances of losing money by diversifying your investments across different types of assets.

 

Ask anyone for their top investing motivations, and we guarantee you’ll never hear them say: “Because I want to lose money… the more I lose the better.”

This absurd outcome can actually happen in real life, if you rush into investing without giving much thought to the 5 W’s of investing: Why, When, What, Where and Who.

WHY

Your personal goals have a huge impact on your investment strategy. Are you saving for a home renovation? Are you simply putting money away for that dream holiday? Or are you building a nest egg to fund your retirement?

WHEN

What’s your investment horizon? The length of time you have to achieve your goals influences the level of risk that you can realistically afford to take.

The more time you have on your side, the more risk you can allow in your portfolio — and higher-yielding investments tend to involve more risk. To reduce the chances of losing money, traditional wisdom dictates that you diversify your investments across different types of assets.

That brings us to buying real estate as an investment.

Investing in real estate can potentially make you some serious money and is a good way of balancing low yields from much more liquid assets. However, it may not be a viable strategy for anyone looking for get-rich-quick schemes.

Jay Escudero (name changed to protect their privacy), an overseas Filipino, bought an off-the-plan property in a new development back in 2008. The three-bedroom house, located some 32 kilometers from the central business district (CBD) of Sydney, Australia, was in the market for $430,000 during the pre-selling period.

At the time of purchase, all Jay could see was the master plan for the 4.7 square kilometer community. He was confident of the area’s potential nonetheless – he was aware of future developments that could boost local property values.

Jay’s calculated foray into real estate ownership paid off handsomely: 10 years later, property information and analytics provider CoreLogic estimated the property’s value at $1.1-$1.3 million.

The report Emerging Trends in Real Estate Asia Pacific 2018 from PwC and the Urban Land Institute confirms that with interest rates remaining low and bond yields looking like they’re not going to improve much in the near future, investors have been turning to higher-yielding assets, notably property.

Previous editions of Emerging Trends continues to view the Philippines as “a healthy market, with both rents and capital values continuing to trend upward amid an infrastructure boom and economic growth of some 6.5 percent”.

WHERE

Strong demand for residential properties in Metro Manila’s major CBDs has pushed selling prices from P113,100 per sq m to P161,700 per sq m — a compounded annual growth rate of 5 per cent to 14 per cent depending on the specific location.

Figures from the first quarter 2018 report of Colliers International Philippines reveal that capital values of three-bedroom residential units have increased by 8.2 per cent in Fort Bonifacio, 13 per cent in Rockwell Center and 14 per cent in the Makati CBD.

Property prices are expected to continue to rise by 8 per cent to 10 per cent annually through 2020.

Colliers believes that real estate developments in the Manila Bay Area and the Makati CBD currently enjoy a location advantage over Fort Bonifacio, Rockwell Center, Ortigas Center and Eastwood City, due to real demand from companies requiring office space and staff accommodation. Today, condominium units that command the highest rental rates are those in Rockwell Center followed by Fort Bonifacio and the Makati CBD.

Meanwhile, other CBDs continue to be built outside Metro Manila, providing more opportunities for investors to snap up properties in new developments. In its Top 10 Predictions 2018, Colliers Philippines expects township projects in Pampanga, Bulacan, Cavite, Laguna, and Davao to “offer a better value proposition (live-work-play-shop lifestyle) than standalone projects since they offer mixed-use developments”. The Colliers Outlook explains that “this feature makes integrated townships a more attractive option for investors”. One such township, NUVALI, a 2,290 hectare community straddling the cities of Sta. Rosa, Calamba and Cabuyao in Laguna, has built residential units alongside retail and office spaces.

WHAT

Selling prices may appear daunting to beginning investors, but plunking down hundreds of thousands of pesos for a deposit isn’t the only way to get into the property market. These days you don’t even have to buy an actual house or building space!

In 2009, the Philippines passed Republic Act No. 9856, legislation that should create more opportunities for ordinary people to invest in real estate through shares in publicly listed companies that own and operate income-generating properties, such as office buildings, medical centers and shopping malls.

Real estate investment trusts (REITs) have yet to trade actively in the Philippine stock exchange, but many hope that lawmakers and regulators can eventually agree on amendments that can truly boost the growth of this nascent investment vehicle.

WHO

If property investment figures large in your wealth creation journey, give serious thought to other parties involved in your investment. Key questions to ask include:

Notwithstanding the seemingly cumbersome nitty-gritty of real estate investing, it can be well worth the time and effort. But remember to pay heed to the 5 W’s of investing. They can spell the difference between losing your shirt and hitting pay dirt.

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