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drbubb

The Dilemma of Preselling Buyers (who want to resell)

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The Dilemma of Preselling Buyers (who want to resell)

"They are NOT finding the Buyers they want..."

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Are you Ready to Sell?  But find no buyers around?

Had an interesting discussion last night with a Real Estate agent.  He told me that he has several clients
who feel trapped, and would like to Finance or Resell their properties.  They find they are in a real dilemma.

+ Those who bought a Preselling Property may have have a contract to pay maybe 20-30-40% during the construction period, and finance the final amount (60-70-80%?) at completion.

+ Perhaps they were happy to hear about the developer announcing regular prices increases along the way, and thought "oh, great! my property has just gone up in value" (once again perhaps.)  Then when the completion approaches, they are thinking of Re-selling to capture that big profit they thought they had made.  but they are finding the "High" prices  that they were being quoted by the agents are not real - they cannot sell THEIR new property at those prices,

+ Another similar situation is where an Installment Buyer of a new property  may find that bank finance is not be so easy to obtain as they had hoped. Perhaps they have less savings than needed to make the downpayment the bank may require, or maybe their income has changed, and as a result the 70-80% loan the Buyer wants from the bank is not available.

Whatever the reason, the owners of a pre-sold property are now finding it difficult to resell... a property that is not yet complete.

EXAMPLE: P 4 million Cost (/27= P 148. psm)
Suppose a buyer agreed to pay P 4million for 1 BR property, and they see the developer selling "reopened" units at
P 6million, and they are thinking it should be easy to resell at P5 million or more. At 5 million, after a 5%
commission, and 6% in capital gains taxes - ie P 440k in transaction costs - the owner would have a P 560k,
or 14% gain on their original cost.  That is not very exciting.  Moreover, if they cannot sell at P5 Million, and
have to accept a price below P 4.5 Million, they may be stuck with a loss, when they were expecting a big
profit.

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Here's the underlying problem:
There are not many Buyers around to purchase those Resale Units (prior to completion.)
The banks want a Title within a reasonably short time frame, and there may be further delays before these
units are completed, so banks may not provide finance.  This would mean that ONLY CASH BUYERS can
participate.  And those types of buyers may only respond if they see a True bargain.
There are not many Buyers around to purchase those Resale Units (prior to completion.)

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There are too many cheapskates around.

 

There is one interested buyer for a breeze residences condo studio unit. He only wants to pay PHP3,4million including everything.

https://www.olx.ph/item/looking-for-condo-at-breeze-residences-ID8pP2E.html?h=173cbba9f5&utm_source=Opt_Homepage_Var_0&utm_medium=Ad_Clicks&utm_campaign=Phase_2

 

And the are many sellers for these condo's. Some want PHP4,3Million, some want PHP5 Million, some private owners even want PHP6 Million but their ads are have been advertised for a very long time. So few takers.

 

 

 

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" There are too many cheapskates around. "

Maybe there at just NOT ENOUGH buyers - because people with cash want a GOOD deal.

Who cares if there are many Low priced Buyers?  The sellers can just ignore them...
The Sellers are frustrated that Buyers are not stepping up their offers.  With Rents under DOWNWARDS pressure
in the Mall of Asia / Manila Bay area, why should they pay more?
Serious Investors want a decent return, and the Yields are just not interesting, unless you can buy cheap.

You say:
Sellers are seeking:       P 4.3 Million and more.
Buyers are advertising: P3.4 Million (or less?)
I am wondering: what size unit?  What are the Rentals? (in Rent per Sqm) 

=====

(I did some Re-Search on OLX, and found these units for sale):

BREEZE STUDIO /1BR OFFERS
RFO Studio - : P6,900K / 22.0 = 313.k psm : Balcony has Makati View
RFO Studio - : P6,800K / 22.0 = 309.k psm : 1 BR/ Studio? Balcony, Makati View
RFO Studio - : P5,000K / 22.0 = 227.k psm : Balcony has Makati View
1 BR Condo- : P4,600K / 26.0 = 177.k psm : Roxas Blvd
Rent to Own : P3,963K / 22.0 = 180.k psm : @ Manila, Roxas Blvd
1 BR Condo- : P3,600K / 27.0 = 133.k psm : @ Manila, Roxas Blvd
=====
Obviously any Buyer will just ignore those very high, crazy prices at the Top of this list.
Sellers can also just ignore silly lowball bids, unless those are the only bids they see.
In the end, Sellers who really-need-to-sell will have to Accept the best bid(s) they can get.
Interested Buyers can just sit back and wait, and maybe they will get lower prices later.

BREEZE RENTS (examples)
1 BR Rental- : P30,000 / 28.0 = 1,071 psm : FF, Double Deck with Balcony
1 BR Rental- : P28,000 / 28.0 = 1,000 psm : FF, with Balcony
1 BR Rental- : P25,000 / 26.0 = P 962 psm : SemiFurn?, high floor

Suppose you are a Cash Buyer, and :

Suppose you are a Cash Buyer, and :

+ Pay: P4million for a 25 sqm property (that's P160K per sqm)
+ Spend P200,000 getting it decorated and furnished
+ Rent it out at P1,000 psm = P25,000 a month

RETURN, Gross: 7.14% : P25k x12 = P300k / P4200k = 7.14%
RETURN, Net-- : 5.74% : P300k -(25 + 24 + 10) = P241k / P4200k = 5.74%
( Assuming: 1mo.comm., P2000 monthly assoc.fees, P10,000 annual prop.tax )

Is Before Income tax on Rental Income, which would likely reduce the Net A/T Return to just under 5%.
Nothing too exciting in that return, and it could fall in coming years if rents at Breeze decline.
Based on these figures, P4M = P160K psm is a pretty decent offer, not a "cheapskate offer" for a cash buyer.
If someone assumes a lower rent (P850K per sqm), and wants a higher Net A/T return (min. 6%), they might
offer only P156k psm or less. Minimum of 7% Net Pretax return would mean paying P126k psm or less.

850 x25 = 21.25 x12= P255k -(21.25 +24 +10)= 233.7 /0.06= P3895k -200k= P3,695k/25= P155.6k
850 x25 = 21.25 x12= P255k -(21.25 +24 +10)= 233.7 /0.07= P3339k -200k= P3,139k/25= P125.5k

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Correct Dr Bubb. Assessing the value of a flat by looking at the latest official value given by developers is very misleading.  Only secondary market buyers will buy your unit so only their offers matter.
A seller can say that an offer is too low if this offer is significantly lower than recent similar transactions. Our problem here in Philippines is that real transactions records are not freely available. The other way for a seller to justify his price is the decent return yield the buyer can expect at this price.


I am trying to follow the prices of few buildings around mine in Makati, and my guess is that secondary market prices are around 20-30% lower than official prices given by developers. I expect this gap to increase even more during the next 2 years due to downwards pressure on rents and new supplies coming.


This is of course hard to admit for primary market buyers who need to sell their unit urgently. And I am not counting the 5% agent commission and 6% capital gain tax payable by sellers…
 

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FAULTY REASONING, DR bubb

 

""  Suppose a buyer agreed to pay P 4million for 1 BR property, and they see the developer selling "reopened" units at
P 6million, and they are thinking it should be easy to resell at P5 million or more. At 5 million, after a 5%
commission, and 6% in capital gains taxes - ie P 440k in transaction costs - the owner would have a P 560k,
or 14% gain on their original cost.  That is not very exciting.  Moreover, if they cannot sell at P5 Million, and
have to accept a price below P 4.5 Million, they may be stuck with a loss, when they were expecting a big

profit.  ""

 

If the property was worth PHP4Million, and the original buyer has paid up PHP1Million, and he would be

able to sell at a 1MIllion profit, - provided he did it himself and avoided expensive middle man - and he

was able to avoid cap gains taxes, -- or has a contract written that forces the buyer to pay those taxes

if they are due -- then he has made 100pct profit, NET.

 

And I have seen some people make this kind of profit in the bay area.

 

It is very attractive. Only in the Bay Area you can do it. And i swear by the Lord that

it is the reality. I even have some experience by the way.

 

When i visited a copy center I saw other papers of units of Anchor Land,

that were sold in a similar way. Now I  don't know about the profit,

but I know a lawyer who handles those kinds of transactions,

and some people walk away with big profits.

 

YEAH, the dilemma that those people face is that they invested in the wrong area.

 

Period.

 

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Dr Bubb, regarding your calculation to get the net return there are also some transfer charges when you buy a flat on secondary market (around 150k for a flat of 4M)

For me even 4 million would be a bit too high to get a decent return.

Now, if the seller wants 5M and gets such offer at this price from purchasers within 6 months then he's correct. Otherwise he's not ;)

 

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"If the property was worth PHP4Million, and the original buyer has paid up PHP1Million, and he would be
able to sell at a 1MIllion profit, - provided he did it himself and avoided expensive middle man"

Might have been possible if they bought early enough, like when prices were P 120psm, or something.
I don't think it is possible if they buy now, or bought in the last 1-2 years after prices jumped above P150K psm.

Also, how do you "avoid expensive middlemen"?
How to find buyers without help?  (Maybe you are talking about agents selling their own properties)

And also, for the Flats I have bought, I don't think it would be possible to escape the capital gains tax.
I bought mainly Ayala properties.  Maybe it is possible with properties purchased from other developers.

But the overwhelming problem now is... Preselling prices are just too high = Buyers cannot earn a decent yield,
and there are very fewer investors around who you can Resell to, who will pay these ultra-high prices
(unless, somehow, magically? rents can be made to rise.)

===

Alex, thanks for the clarification on transfer fees

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1,

Yes the window of opportunity has closed for the moment. it was possible 3-4 years ago, but preselling prices have gone wild now.

2,

I read many messages on skyscrapercity and cap.gains taxes can be avoided for SMDC, Federal Land if the unit is not fully turned over yet

and paid up 25pct to 50pct. AYALA prevents the transfer of ownership during preselling I believe. The only way to transfer it then is it to fully pay it but when you fully pay you must pay the CGT so AYALA is the only major developer where you can't do it. When you sign agreement you let the new buyer pay the CGT if any is or would become due.

For fully paid up unit and turned over unit, there is no escaping the CGT in my opinion.

3,

You just post on OLX.Ph . Had found a buyer. He very much liked the "disintermediation". No brokers, no middlemen. He was very happy about it. And he paid the CGT himself. OK many people are timid and afraid and look for brokers but there are people who understand that they're basically just an extra charge to the transaction.

4,

Maybe the stock markets will take a hit and sentiment will turn. This might start at year end when the ECB stops QE in Europe. From then on we will be in worldwide QT and troubles will/might/could start then everywhere.

5,

There are unfortunately also many other buyers who face this "dilemma" and have not been that as lucky as me, because I look at the facebook page of VIERA residences. And every 2 to 3 weeks or so, they have a newly reopend units. That building was fully sold 2 years ago.

It means that there are still buyers who face this dilemma and cannot accept the fact that reality is different from the story portrayed by the media, and that they refuse to accept reality, because selling at a small loss is better than selling at a 50pct loss in case of Maceda Law or even 100pct loss, depending on the contract they have with DMCI.

Sad but it is the reality.

https://www.facebook.com/vieraresidencesdmcihomes/?hc_ref=ARQRPlxOXZqeD3086_hWh2u1PwCVU04UAih_gAZX5ZrOxMDgazNY21_MA0WcMQPKsI8&fref=nf

6,

The people who bought preselling 2-3-4 years ago and saw the developers raising their prices still have a chance to avoid paying the lumpsum by offering their units at the original prices, or in the worst case, at a very minimal loss, but I am very afraid of the people who have bought late 2016-2017 and now. I am afraid that the option of getting their money back will be slim. Only MACEDA law could protect these people because theoretically they can claim 50pct of the investment back. 

 

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" When you sign agreement you let the new buyer pay the CGT if any is or would become due. "

That is a negotiating point - since the Seller is technically responsible for the CG tax.

The Buyers I know, will look at the Net price to them, and they want a genuine bargain, like 30-40% below Developer's prices.

not something just a little cheaper.

I don't know a single person who will consider paying over P200k per sqm for a new or new-ish property.

In fact, most seem to be targeting Net Prices below P150k per sqm, since you need that to get a sensible Net Yield

/ 2 /

"I am very afraid of the people who have bought late 2016-2017 and now. I am afraid that the option of getting their money back will be slim.'

Great point.

If we start hearing widespread reports of OFW's and other buyers losing money on their condo purchase, it may CHILL the market in a serious way.

In fact, a banker I spoke to just yesterday seemed to be hinted that her bank had seen signs of a downturn starting 3-4 months ago.

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" Only MACEDA law could protect these people ... theoretically they can claim back 50pct of the investment"

I have looked into that...

MACEDA Law: AN ACT TO PROVIDE PROTECTION TO BUYERS OF REAL ESTATE ON INSTALLMENT PAYMENTS.

"Knowing your rights as purchaser of a real estate property under the Maceda Law, will mean a huge difference. It can mean losing everything you have put in for your investment, or getting at least 50% of it back, when for some reason on your part, you cannot continue with your installment purchase. So in this post, we will discuss the most important points in the Maceda Law that are relevant to a distressed real estate buyer."

> MORE: https://philpropertyexpert.com/defaulting-payments-know-your-rights-under-republic-act-6552/

Eight Things You Need to Know about the Maceda Law

BY Lamudi

(excerpt):

5. Can I sell or assign my rights to the property to another person?

Section 5 of RA 6552 stipulates that those buyers covered by Sections 3 and 4 have the right to sell or assign their rights over the property to another person. They may also reinstate the contract if they so choose by updating the account during the given grace period, as provided for in Section 4. This transaction, however, must be made prior to the actual cancellation of the contract. The corresponding deed of sale or assignment must be done by notarial act.

> http://www.lamudi.com.ph/journal/eight-things-you-need-to-know-about-the-maceda-law/

 

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OFW's STRUGGLING: OFWs in a bind with condo payments due to pandemic
August 8, 2020 /
Through the years, major Philippine property developers set up satellite offices in Dubai to tap the huge market of about half a million Filipino workers. But now, they all have clients in a quandary on how to continue paying for their properties.

Beth Camia (not her real name) and her husband acquired a P2.5 million property near SM Southmall during the pre-selling stage, years ago. “Na-turnover na dapat, kaso lang medyo ilang buwang hindi kami makabayad (It should have been turned over already, but we haven't been able to pay for months),” she said.
Pre-selling means the actual unit – or building itself – has not been constructed. Most OFWs prefer buying at the pre-selling stage because the property is a lot cheaper and its value would have increased when the key is finally turned over.
Some OFWs flip the property or sell it, while others rent it out and use part of the money for the monthly amortization. /

TAKEOUT > FORECLOSURE?  :   
Property developers in Dubai interviewed by Rappler said they have OFW clients facing similar problems...
(Everything that I'm working on are loan take-out accounts. They're all turnover units already. Their balance for the units are on bank loan.)
Take-out accounts are those where clients were already done paying down payments or equity and whose properties are with the bank to which they regularly make payments.    /  
Will banks foreclose?
Vince Lubrin, a licensed real estate broker at Robinson’s Land Corporation International, said it would be better for OFWs facing foreclosures to get in touch with their loan officer in the bank and make a compromise agreement.
“Banks will be lenient to make restructural loan proposals suitable for both parties,” he said. “Remember that the banks’ main business is to keep their money moving. As much as possible, they don’t want to foreclose properties because it would be an idle asset on their part."                           

REFUNDS (of 50%):   
There is also an option for those who have made at least two years’ payments, for a refund at a so-called “cash surrender value” if in case the contract is canceled.
The law requires a 50% refund of the total payments made for the first 5 years, and an additional 5% for the succeeding years. The statute also provides that down payments, deposits, or options on the contract should be included in the installments made.

> https://rappler.com/nation/overseas-filipinos/ofws-bind-condo-payments-pandemic

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