Earlier in the month, my co-founder Race shared practical saving and investing tips for couples who are just starting in life or now growing their families.
As a follow through on those points, let me answer one question about real estate investing that many younger couples in Singapore always ask, and that is “How do we even go about owning an investment property when houses are so expensive?”
Yes, Singapore property is expensive (before even considering the Additional Buyer’s Stamp Duty) and it is difficult to save for one. Knowing this, I’d say consider investing somewhere else. The world is big and there are other places that’s great for investments too.
Eyes on the Philippines
When I look at real estate investments, I always consider affordability and the returns, which could be in the form of rental or capital appreciation or both. I assess the risks against the benefits and do my best to make a calculated decision. I’ve certainly gotten some investments wrong in my younger years and hope that my sharing will help you avoid those mistakes.
I have personally transacted and invested in properties in 7 countries over the past years and at the moment, I remain very bullish about the long term prospects of the Philippines. Its affordability, rental yield and capital appreciation check all the boxes. The Philippines is one of the fastest growing economies in Asia, posting over 6% in average annual growth between 2010 and 2019 and it was only the pandemic that dented this figure for 2020 which then presented us with even better discounts on property purchases than before.
To give you an idea of the affordability in the Philippines, let’s compare the per square footage cost of a residential unit in a prime location in Singapore versus Manila, Philippines. In Singapore, it would be easily above S$1,800 psf, while in Manila, it would be S$500 psf, or 28% of Singapore.
So, if you have around S$100,000 to invest, you can buy a studio unit in Quezon City, a highly urbanised, densely populated city of Metro Manila. The available choices in Quezon City would include a 201 square feet studio in a development called Amaia Skies at S$97,000 or a 237 square feet condo unit at Aurora Escalades which costs a little over S$100,000. Both are centrally located and will attract young urban professional tenants.
With S$100,000 in Singapore, most people leave it in their bank account with little interest returns or in a fixed deposit account with a 1% return. A condo rental yield would hover between 1 to 3%. On the other hand, with any of the two Quezon City properties, owners can look forward to a gross rental income of about S$500 per month. That’s a rental yield of 6% per year.
The potential for capital appreciation is important. For the period March 2015 to March 2021, the annual average growth in prices of residential property in the Philippines was 3.4%. So with the S$100,000 examples, the asset could grow to S$114,300 in five years at the current rate.
The demand in the Philippines is driven by locals, as well as from Overseas Filipino Workers, otherwise known as OFWs. Did you know that remittances from Filipinos working abroad total over S$44 billion in one year?
Increasing urbanisation, an expanding middle class, the growth of their Business Process Outsourcing industry and the increasing remittances of Filipinos working abroad make this a resilient and thriving economy.
When you have a hard working, young and growing population of over 100 million with employment risks diversified across the world, it is clear that demand for real estate in this country will continue to grow vibrantly.
Property prices are highly correlated with that growth. So, if you want to grow your wealth through property capital appreciation, you can look into the Philippine market while real estate is still affordable.
What about the risks?
Any form of investment comes with risks and opportunity costs. Values may go up or down but remember that real estate is a tangible asset that you own.
1. Currency risk
There is currency risk when investing abroad because you are converting Singapore dollars into Philippines pesos when purchasing and over time, you’ll receive the rental and ultimately the cash proceeds when the property is sold. Between that time, the currency could move in your favour or against you. It may be possible to manage the timing of the cash flows to lessen the risk. Nonetheless, on the whole, you’ll have to weigh the potential currency loss/gain against your total returns.
2. Investment risk
If you are wondering about the professional experience of the developers of the projects that we sell in the Philippines, be assured that Ohmyhome only recommends those who have excellent track records and have been around for a long time. We can confidently say that the chances of any of them not completing a project is very low.
Some of these trusted developers we work with are Avida and Amaia, both units of the oldest conglomerate of the country, Ayala Corp. Another developer is SM Development Corp, which is the real estate arm of another huge conglomerate, SM Investments Corp. Both Ayala Corp and SM Investments are blue chip stocks traded in the Philippine Stock Exchange.
For your peace of mind when deciding on the purchase of a place, Ohmyhome agents are ready to do video calls onsite so you can see the environment, the showroom or maybe the unit itself. This way, you aren’t buying blind.
We’ve successfully assisted Singapore clients in this way, and others too who were transacting from New York, Dubai and the United Arab Emirates. Our ability to do cross-border business has really been a competitive advantage, given that the pandemic has made flying difficult.
Moreover, our services do not stop after you purchase the property; it extends to making sure the unit is rented out to a good tenant, the aircon is serviced and pest control is carried out, among other services. We will also take care of selling the unit in the future if you so desire.
This end-to-end service by the local Ohmyhome team who is looking after your Philippine properties was purposely developed so that you, the landlord, won’t have to supervise these things yourself.
Behind our recommendations of good properties to buy and markets to explore is Ohmyhome’s duty to always be truthful in our dealings.
The transactions we do, afterall, involve the life savings of hard-working people and I am very aware of our responsibility.
The aim then is that when Ohmyhome recommends an investment, the chances of it succeeding should be reasonably high, while the odds of it becoming a failure is as close to zero as possible. Our clients can then make their own decisions from there.
Future of Ohmyhome
Our core mission has always been to help our customers transact hassle-free, and at the best price. We have stayed true to this.
We are also working hard to make Ohmyhome the top-of-mind partner for everyone in whatever property transaction they are planning, be it in Singapore or any of the other markets we will operate in.
Lastly, we want to build implicit trust in our platform as the gateway to explore what investments in real estate are safely available in other countries.
Read more: Should I Invest in Real Estate or ETFs?
This article was originally published on Ohmyhome, your one-stop property solution.