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How to Invest in a High-End BGC Condo with Low Start-up Capital/Payments

By: Pio Granada




With the highly anticipated easing of community quarantine restrictions in Metro Manila this coming summer (with a proper vaccine roll out), the recovery of travel and Central Business District (CBD) rental rates are posed to strengthen. With MGCQ on the way offices are allowed to operate at full capacity according to IATF guidelines. This could signal the recovery of commercial and residential rents in CBDs.


Recovery is in sight!


If there ever was a good signal to invest in CBD real estate again this is it. Prices are still low and developers are still offering generous terms with discounts. So how does one take advantage of this especially if you are an investor with adequate cash flow but low start-up capital for a real estate venture?


Simple: go for pre-selling projects. But where? The trend now is to buy outside Metro Manila, pre-selling is now mostly following this trend. I also believe that provincial pre-selling projects right now are a good move only if it is connected to at least two major infrastructure projects sponsored by the build-build-build program and if there is going to be a healthy eco-system of commercial, industrial and residential projects being built in its vicinity or close to it with at least one top tier hospital at its disposal. Of course, it is a must that high speed data and fixed line internet in the area is proven to have high bandwidth, if not proven then it must be in an estate or township being made by a developer with close ties to a telco or internet service provider better if it’s part of the digital cities project of the government which means to lay down more fiber in the countryside. I believe, however, that there is something better… According to Carlos Betancourt (CEO of Bresco, a massively successful developer and investment house in Brazil) in the book Real Estate Titans, “In real estate its best to be a contrarian. When the market is tight, players are not very active, banks are not very active, banks are barely lending money to investors, and people are building speculatively, it should be a good time to buy.” “In real estate its best to be a contrarian. When the market is tight, players are not very active, banks are not very active, banks are barely lending money to investors, and people are building speculatively, it should be a good time to buy.”


In fact, being a contrarian in real estate investing has made many investors a ton of money, buying at a discounted rate in a downturn like the one we are in now is a text book move. This is why I believe it is best to buy within the Metro right now as the trend is to go outside, so we go inside where demand has slimmed down but not without catalysts that make this move a sure thing… To compound, another trend nowadays is to go horizontal, mostly vacant lots, which this article will run counter, so we are choosing a vertical project.

Obviously, BGC (Bonifacio Global City, Taguig, Philippines) is the district of choice not just because this is where I concentrate, the reason why is – its uniqueness and its growth catalysts. What makes BGC unique? Right now, it is the closest to a smart city that the Metro Manila has, recently Moovr PH has launched its e-scooter and bike sharing program in BGC. Secondly, BGC boasts a park-café culture that enriches high street retail which why even with the community quarantine in effect it remains to be healthily crowded. The raw amount of open space and clean air in BGC makes it the leading business district in terms of open space among complete CBDs. Plus, it all has the basics covered:


· High Speed Internet – CHECK! Sidenote: with the PSE firmly in place no provincial project will ever beat BGC in the high-speed internet stakes for the foreseeable future!

· Top tier hospital – CHECK! This is St. Luke’s of course.

· Educational institutions – CHECK!

· Surrounding warehouses (in FTI & Bicutan Area) – CHECK!

· Infra Projects: Mega-Manila Subway, BGC-Ortigas Bridge, Skytrain – TRIPLE CHECK!

On top of this, it is poised to take (or in my opinion has rightfully taken) the moniker of the Financial Capital of the Philippines with the unification and migration of the Philippine Stock Exchange to BGC a few years back. Not to mention the population of financial institutions that have firmly installed their offices in BGC. And if you haven’t noticed utilities in BGC are mostly underground – no ugly wires.


Still the question remains, how is the commercial demand in BGC?



According to Lamudi’s forecast, BGC, Taguig rental demand will have an uptick. As always commercial demand will also drive residential lease demand since BGC demand has always depended on its live-work-play appeal.

Besides this what are the other growth catalysts in BGC:

1. Population growth – contrary to popular belief this pandemic is hardly an extinction level event in the Philippines, in fact according to a UN Study the Philippines has already grown its population by 1.34% from 2020, and we are just at the 1st quarter!




People have been moving outward but this should have little effect on Metro Manila because secondary cities have been needed a long time now to decongest or mitigate the overpopulation of CBDs and it will take decades before BGC is surpassed by other districts in the foreseeable future.


2. The Senate – the Philippine Senate is moving to Fort Bonifacio. This puts BGC in a unique position having both the at the seat of the Capital markets and the halls of legislative power in the Philippine Senate.


3. BGC, Taguig has low municipal tax rates compared to its neighbours.


4. Infrastructure projects connecting to BGC: The Mega-manila subway, the Ortigas-BGC link bridge, the Skytrain, and the BRT program.


5. BGC is FLOOD-FREE, no storm or typhoon has ever flooded BGC’s streets, EVER!

So its easy to say based on hard facts and not speculation that BGC is the best CBD in Metro Manila for real estate investment, generally speaking. On the speculation side of things given the resilient population growth, one might foresee that supply may get tight in BGC by 2025 given that there are have been no recent condominium project launches. So, both fact and speculation support our CBD selection now let’s move on to strategy.


WHAT’S YOUR STRATEGY?

With pre-selling the only issue is you can’t make it self-liquidating as you would with a secondary market property but there are still other investment strategies we can do. Actually, another benefit of going pre-selling as mentioned in my previous article, “Why are high-end/luxury pre-selling properties a good pandemic season investment?” (https://bit.ly/3sjs3fd) is that because rental rates have been continuing to plunge because of the slim demand the pandemic has wrought upon us a good mode is to buy pre-selling projects that turn over after 2022 when recovery is expected to be at full swing. Thereby, totally avoiding the pandemic demand drain. With you can pick from any investment strategy below.


1. Lease Out on Turnover

2. Flip on Turnover

3. Flip before Turnover balance – to do this pick a payment term that has a balloon payment of at least 60%. Then sell it on the turnover year, give yourself at least six (6) months to market the property, a whole year is better. This is the most speculative strategy, because if the market doesn’t appreciate enough a year before the turnover you are stuck with the property and might have to take out loan. Conversely, this has the highest and fastest Return on Investment (ROI).

4. Live and Flip – Simply use the property until the market satisfies your appreciation target and sell.

5. Lease and Flip – This has the highest income potential over time and the most sure-fire ROI strategy as long as you sell during a seller’s market (high demand in the area/project and not many are selling), since you will generate income from the rents and from flipping the property. Suggested holding period is 5 to 10 years.

PICKING THE RIGHT DEVELOPER & PROJECT

Now that we have picked the area and strategy it’s time to go micro. In BGC, there are only two primary projects of significance which are developed by reputable developers that fit our turnover timeline:


1. The Seasons by Federal Land – High End

2. Aurelia Residences by Shang Robinsons Properties – Ultra High End/Premium


Since we are just talking about a non-capital-intensive strategy here, Aurelia Residences is out since the unit reservation alone already sets you back Php 1,100,000 at the minimum. This is why we are going with The Seasons and Federal Land. Aside from this, Season’s is good choice because of the following reasons:


1. It will have its own Japanese themed high-end mall at the building podium - Isetan Mitsukoshi Mall. People are saying that malls are dying. I agree but only to a degree. I believe malls will still be around in the foreseeable future, but only the malls that give its market a unique experience. A premium Japanese themed mall in BGC I believe is going to capitalize on this and give a distinctive shopping/dining experience to its patrons.




2. Japanese Inspired design- On the real estate side of things it is co-developed with Nomura Real Estate Development (the number 1 Residential Real Estate developer in Japan) on the retail side it is a partnership with Isetan-Mitsukoshi Holdings


3. Viscoelastic Damper – The damper acts like a shock absorber whenever the ground moves. This is quite a rare feature, most the buildings in the Philippines only have rollers to soften the blow of earthquakes and aftershocks.

4. Low Emissivity Glass used on windows or low-e glass. The Seasons uses low-e glass which double glazed which insulates the units from both heat (to an extent) and outside noise.


5. Sunken Slab – This is very nifty. Sunken slab is like an extra layer between floors which absorb noise coming from noisy neighbors dropping heavy things on their floor and if there is a pipe leak this feature redirects the water back to the plumbing.


6. High-tech Toilet – Since this is Japanese inspired, it wouldn’t right if it didn’t have Japan’s latest toilet tech. Inax branded toilets will enhance the residential units with the installation of automated and manual spalets which ensure hands-free and hygienic bathroom visits.

7. Air Washing Tiles – tiles that absorb odor and prevent high humidity.


8. Energy Efficiency features – Motion detection lighting in common areas.


9. Floor under storage – a nifty feature for concealing valuables or simply stowing away that big bag of rice.


10. Hyper-amenitized – The Seasons hosts a huge cornucopia of amenities see photo below:





SELECT THE RIGHT UNIT

Now we know which project we will invest in. There are currently two towers and many units still on offer with Federal Land, so let us go back to our criterion for unit selection:


1. Select the cheapest per SQM

2. Rarity

3. The most sellable and leasable based on unit layout, floor plan, and view


In this case, the best per SQM are the bigger units (usually the case), so we will stick with what we can afford since this article is about investing in something that needs low capital and low monthly amortizations, we will choose such a unit based on its absolute price, rarity (amongst the ones within budget) and attractiveness.


Natsu 10 C Amenity View*

The Seasons is a four-tower project, each tower is named after a season in Japanese.


Spring – Haru

Summer – Natsu

Fall – Aki

Winter – Fuyu


Natsu still has the affordable 1-bedroom units and the best one on offer right now is 10C. Below are the specs:


Natsu 10C

Floor Area: 46 SQM

Bathrooms: 1

Balcony: None

View: Amenity


The Seasons mostly has a view of surrounding buildings but has an expansive amenity deck boasting of a huge Japanese garden, pool and a guest house done in the traditional Japanese design. Given this generally units with the amenity view currently are the easiest on the eyes. Right now, Federal Land is giving a 2% discount for selected units, such as 1 bedroom C units in the Natsu tower. This is until February 28, 2021 only.


SELECT THE & NEGOTIATE THE RIGHT PAYMENT

Now for the last piece, the payment term. Outright we will start with a scheme that allows only around Php 36,246.10 for the down payment and below Php 300,000 on the 1st monthly payment. The payment terms will be 10% down payment split to 6 months + 10% splits to 49 months and balance on the 50th month.

See below:


Reservation: Php 50,000

10% Down payment split to 6 months

Split down payment monthly: Php 286,676.48 (x 6)

Monthly Amortization: Php 36,246.10 (x 49 months)

Balloon Payment: Php 14,208,471.20 (paid on last month)

Other Charges: Php 792,883.44 (paid on last month)


If Php 286,676.48 is still too high there is a no payment scheme with a monthly amortization of Php 58,816. If this is still too high just give me call let’s see if we can work out something with the developer.


This computation is subject to changes by the developer and the expiration of the promo on Feb. 28, 2021!!!


CONCLUSION

The silver lining to this pandemic is that developers have been giving amiable payment terms with matching discounts. I believe this is good opportunity for anyone with at least a Php 30,000 to Php 40,000 to invest in the high-end residential market which one of the most resilient asset classes in real estate. During this pandemic it is the mid-market and lower that experienced the sharpest price dives. People who hold high-end to ultra-luxury properties in areas with resilient demand most likely than not have the holding power not to sell during economic turns so assets in this class react slower to situations such as this and if ever there is a huge mark down. It is usually a one off. This is why high-end is the one of the best residential investment plays.


If you have any questions, want to see the actual computation or if you want to inquire about a unit like this don't hesitate to contact me!


Pio Granada, RES

PRC Reg. # 009602

RE/MAX Capital

BGC Southern

www.bgcsouthern.com

+63.916.7113518



*Subject to unit availability: Natsu 10C was available at the time of writing.


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