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WHAT IS PRE-SELLING?

May 5, 2018

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Pre-selling means the stage when a real estate developer is offering properties either condominiums, townhouses, or raw lots before their actual completion. These are also called “off-plan” properties in other parts of the globe, as buyers are buying nothing more than a plan.

If you are a real estate investor, pre-selling condos are a promising investment since their market value can increase by the time they are finished. Given favorable market conditions, you can resell the finished units for a higher price than you put down when they were in the pre-
selling stage.

For some property buyers, especially first time buyers, buying an expensive thing that is non-existent can be hard to understand. But, there are advantages to buying pre-selling properties. Hopefully, this can guide you in your decision on whether or not to purchase that property you have in mind. (Although these advantages apply only to those developers that are reputable)

Many property developers offer pre-selling condos to buyers to finance the development itself. The customers, on the other hand, as early adopters are rewarded with a discounted price and the promise of capital appreciation once the property has been turned over and, in cases of townships and mixed-use projects, all infrastructures and amenities have been put in place.

ADVANTAGE OF PRE-SELLING

Preselling Properties Are Normally Cheaper
In the absence of the physical unit, preselling properties are normally sold at a cut-rate price of 30–50 percent off compared to the price of a finished unit. Aside from its affordable introductory price, many property developers offer flexible payment schemes and even discounted down-payment prices for their preselling projects. These same developers also offer in-house financing if the homebuyer fails to qualify for a bank housing loan.
They Give Buyers the Best Unit Options
When buying a condominium unit during the project’s preselling stage, the buyer is allowed to pick the best unit, such as those facing the best direction and located on the perfect floor, or even one of the best units that are normally reserved for repeat customers. Some condo units are just highly sought-after either because they offer great views or they come at the right size that is highly attractive to future renters.
Once Completed, They Can Provide a Steady Source of Income
Speaking of renters, once the property is completely done and is now ready for occupancy, the buyer can opt to rent it out, and through this, the buyer earns a steady cash flow. If buying a condo property to have it rented out after completion, it makes sense to buy a preselling one, especially during the project’s earliest stage, as it affords buyers the first pick of units—those that will be loved by future tenants. Alternatively, the buyer can also make more from his or her property by selling it once completed, by which time the property has increased its value.
They Are an Excellent Investment Option
The value of real estate, especially well-located ones, appreciates over time. This is true for preselling properties. At the time of their completion, the value of preselling condos or house and lots have increased considerably, that the buyer can earn a profit by selling them in the secondary market.

TIPS BEFORE BUYING PRE-SELLING PROPERTY

1.TIPS BEFORE BUYING PRE-SELLING PROPERTY
Even if you plan to apply for a bank loan to finance your purchase, you still need to shell out a certain amount for down-payment. Usually, this may cost you 20 percent of the purchase price (high-end ones usually require a higher down-payment).
Some developers also require a reservation fee, but this will eventually form part of the down-payment should you decide to push through with the purchase. However, in most cases the reservation gets forfeited if the buyer decides against buying after a certain number of days, so make sure to ask this. It’s also prudent to have at least an amount equivalent to 5 percent of the purchase price ready for taxes and other fees associated with the purchase.
2. Check Developers Track Record
Some buyers are apprehensive about buying preselling condos because they fear that the finished product may not turn out to be what the sales agent promised it to be. Or worse, the project may not materialize at all. This, sadly, is sometimes true. But it can be prevented by carefully choosing your developer.
This is an easy toss between developers who have just launched their first project and established ones who are generally well-funded, have a reputation to protect, and highly unlikely to default.
First-time developers are generally cash strapped and are up against the odds when trying to market preselling properties. Hence, they are in urgent need of buyers to help them cover their upfront financial requirements and help ensure the success of the project. When they fail in this, the project will surely not materialize.
Established developers, however, are more financially secure and are highly likely to deliver their promise since they have a reputation to protect. Therefore, it makes more sense to purchase from them.
3. Prime Location Matters
They say that the worst house in a good area is still better than the best one in a bad area. The same is true for pre-selling condos. But this doesn’t mean that only those within newly minted townships or mixed-use projects are worth buying. If you can’t afford to pay a premium for a luxury apartment in, say, Rockwell Center, why not look for a less pricy one located along its fringes. Make sure to research the area, though. Is it served by good transport links? Is the area prone to flooding? Knowing these things will allow you to plan your purchase accordingly.
4. Get Financing Ready
If you plan to purchase your preselling condo through bank financing, make sure to have your loan approved. The first step to getting your loan approved is to have all the required documents ready, which typically will include credit history, financial statements, bank statements, and proof of income.
Also, one of the common mistakes many homebuyers commit when applying for a home loan is getting the lowest rate without carefully studying the terms. In many cases, very low loan rates are offered only on a promotional basis, and the borrower gets hit with the “real” rate later on. This is often the case when interest rates have been falling for some time. Borrowers should instead focus on a stable rate, not necessarily the lowest, that their monthly can accommodate.
5. Consider Other Projects
A prudent and resourceful buyer knows the advantage of snooping around before making a major purchase (and house shopping certainly qualifies as one). Before entering into a contract with a developer, do a bit of background check by visiting the company’s website. Know more about the developer’s reputation and integrity first before saying yes to a purchase.
According to Portfolio Property Investments’ Josh Atherton, it will be prudent for the buyer to ensure that the developer is commencing the project by visiting the site. Another way to guarantee the developer’s financial status is to have the same written into the contract if possible, to avoid encountering financial complications with the developer. Also, ask to see the developer’s balance sheet to determine its financial strength. If the developer goes into liquidation before the property is finished you may lose your deposit and other costs.
Lastly, make sure that the developer has a License to Sell issued by the HLURB for the project it is selling. This can be verified on the HLURB website.
6. Read and Study the Contract
When buying a preselling property you’re most likely to be coordinating with the developer’s property agents or consultants. Make the most of your interaction with these people by asking the right questions. Sit down with them to discuss the contract thoroughly, and remember to ask questions to determine what is covered as part of the purchase price (fittings, floor coverings, painting, decorating, etc.). Also, discuss your expectations for the property with your developer and, if possible, have them written into the contract to avoid disagreement after the project.
7. Carefully Inspect the Display Home or Model Unit
As you’re buying an as-of-yet non-existing property, carefully inspect the display home or model unit. In most cases these model units are pushed-up versions of the actual property (fancy lightings, decor, and lavish draperies are the usual tricks used to make these more photogenic), so make sure to ask questions as to what type of finishes, fittings, and, in some cases, furnishings are included in the contract.
However, as developers are up against time to complete a project, they usually are given plenty of flexibility in how the project is to be completed. A pre-selling contract will usually stipulate that the property will be constructed following the finishes and materials described, but as a buyer, you should be aware that it also provides the developer the sole right to alter the finishes and materials in certain circumstances, provided the alternatives are of no less quality.
In the case of defects in the turned-over unit, pre-selling contracts normally stipulate that the developer is to remedy any defects identified by you as the buyer before you settle on your purchase so make sure to inspect your property.
8. Carefully Follow Market Conditions
Pre-selling condos are indeed useful for investors because of the promise that these properties’ market value will increase by the time of their completion. But then again, there’s the risk that they won’t. To counter this, make sure that you follow the prevailing market conditions. Real estate consulting firms come up with annual and quarterly data on capital appreciation and rental yields. Prevailing interest rates, on the other hand, can be found on the website of the Bangko Sentral ng Pilipinas. Knowing all these can help you plan your next move.
Investing in pre-selling property is like any other business venture—you have to play your game well to maximize your profit. One way to help you achieve this is by studying carefully the prevailing market conditions.

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