For the past few months, I have been doing my rounds giving investment seminars to prospective investors in different countries. While most of the participants are keen on investing in properties in the Philippines, they are more particular about the higher rental yields and capital gains than their personal use of the units.
Thus, while features and amenities may be good selling points, there is one thing that really gets their attention, and that is, guaranteed yields!
There are also a lot of things that hold back their decisions about investing especially in pre-selling projects. Not only are they not familiar with the actual market condition in the Philippines, they are also committing to a property which is not even constructed yet.
There are also other questions in their mind like, who is going to handle their property, who is going to look for tenants, facilitate the lease transactions, lease rates, take care of the tenant’s maintenance concerns, pay utilities, pay insurance, collect payments, inspect the units after the tenants leave, handle the repairs and refurbishments, pay taxes? And their biggest worry is…what if there are no tenants?
A lot of condominium buyers unfortunately have had the experience of having their units vacant for several months for many reasons. Sometimes, even with the best efforts of the broker, the unit owner insists on their ideal rental rate and thus loses the prospective tenants, not realizing that with each month that the unit is vacant, plus their additional cost in paying the monthly association dues, their actual effective return significantly diminishes.
But really, in most cases, these foreign investors feel that their agents abandoned them after they got their commissions.
Professional asset management
With all of these considerations, I believe that projects that offer professional asset management will really have an edge. I am referring to a separate company that really specializes in managing hotels or serviced residences. This is the reason why I find it safer now to present projects that offer guaranteed rental yields in one form or another. These guarantees can be in form of an actual contract with specific rates of rental yields or just the mere track record, brand name and actual performance of the hotel/serviced residence operator are already a guarantee in itself.
As I have carefully studied several projects before including them in our investment seminars, there are really a lot of advantages in investing in units that are enrolled in the rental pool of professionally managed serviced residences, such as Anya Resort and Residences in Tagaytay City, Centro Tower in Quezon City, and Somerset, that most people do not realize.
First is that they do not have to worry about finding tenants for their units since they enjoy their monthly share of the pooled rental income whether their units are occupied or not. This can range from 6% to 10% net for a specific number of years, depending on the project and occupancy rate. To be safe, all the projections that we present for different developers are based on very conservative occupancy levels and lower daily rental rates. This means that the rental yields can really be much higher.
At Anya Resort and Residences, in particular, the units fall into the hotel inventory if they are not being used by the investors. This setup provides the buyers a faster return on their investments through quarterly cash yields. Anya is operated by the Fuego Hotels Group, which also runs Punta Fuego. It is a member of the international Small Luxury Hotels group, which is its source of clients.
Somerset, meanwhile, belongs to the Ascott group, which is the largest operator of service residences in the world. On average, the properties that Somerset manages do not go below 85%-occupancy.
Getting more popular now are serviced residences because they have lower operating costs as compared to full hotel set-ups since they have more long-staying guests and does not require heavy staffing. This translates to higher profits that will be shared with the investors/unit owners.
These operators really actively and professionally market their rooms and they have the advantage of having existing networks of corporate clients, tie-ups with local and international travel agencies and event organizers. Multinational companies usually prefer to house their top expats in these hotels/serviced residences run by reputable operators for safety, security and most of all, convenience.
Another advantage of investing in professionally run rental pools is that it is practically hassle-free ownership. They don’t have to worry about paying their bills, insurance, commissions, and utilities; be bothered by maintenance, collections, and refurbishing. The units are preserved since the operators see to it that they are kept in very attractive and marketable conditions.
One particular international serviced residence operator keeps the units they manage in top condition since they are also open to buying back the units from the investors at a pre-determined premium.
In the absence of a guaranty contract, it is very important to check out the company that will operate the rental pool of the hotel or serviced apartments. Their brand, track record and careful study of the market are sometimes an even better assurance than a contract. I believe that once the market becomes fully aware of the presence of these options in real estate, those who are coming in purely for investment will be taking a closer look at this. This may be the trend in the next few years.
Have you made a condo investment recently? What has your experience been? Share your story with us by leaving a comment below!