As the saying goes, “build it and they will come”. Here, it’s as early as, “announce the plan for it, and they will come”.
As supplement to the previous post on whether an asset bubble is imminent, another
Inquirer article on demand for office spaces caught my attention. It basically says that demand for office spaces increased for 2012 (led by BPO firms) and that companies are also already committing for and reserving office spaces to be available by 2013, 2014 and even 2015. This bodes well for the property development and real estate sector.
So apparently, even companies now purchase pre-sell properties. Being the individual small time consumer that I am, I’m only aware of pre-sell purchases of condominiums, but hey, most likely the set-up is quite similar so that’s why even businesses already buy pre-sell.
Property developers are having a party now because of this pre-sell set-up. Imagine, just announce a future building 3-4 years from now, select a location and have a planned layout, and people and businesses are already starting to buy now. They haven’t even started ground breaking and actual digging, yet there are cash inflows already for them by way of reservations, down payments, lease agreements etc. This makes it easier for the developer since they will need less of their own cash to finance the construction. It has become a sort of self-liquidating (pays for itself) venture. As the saying goes, “build it and they will come”. Here, it’s as early as, “announce the plan for it, and they will come”.
And mind you, once they have started digging, and the closer to completion date, the higher the purchase prices usually gets. These milestones are likely the trigger for the property firms to implement price hikes. Makes sense since one will only wait for a shorter time (compared to those who reserved first), and that time and capital has been invested already in the project. Money invested earlier on in a project that has yet to start has more opportunity costs in it, hence purchase price should be rightfully cheaper. Sort of advantage of the first mover.
Lending and Risk
That’s why consumers and businesses now reserve as early as possible, to get the cheapest offer prices. Technically, such customers are lending to the property firms. They lend property firms on account of a promise that 3-4 years from now, a condo unit will be available for you. At the back of my mind though, what if the project does not push through? Or what if economy turns sour and property prices drop? To these questions I don’t know the answer yet. Most likely it is in the documents I signed but did not really digest.
But on the other hand, if the buyer fails to meet the down payment requirements, s/he loses the unit (sadly) and developer is free to sell it again to a new buyer. Shrewd right?
Was blessed enough to be able to reserve a unit in SMDC’s development in Taguig (PSE: SMDC), right outside BGC and nearby DMCI’s prime developments (PSE: DMC). I chose this over getting a car. Have already paid some amount but as far as I can see, ground breaking and construction has yet to begin. I’m just seeing the familiar blue fences in the site, not even their big red and yellow logo is installed there yet.
I just wish construction commences as soon as possible, (by 2013?) not just for resale value to increase, but also for my peace of mind that finally, my own humble condo unit is now slowly taking shape.
42 months to go before estimated turnover date. X months to go before start of construction. Few hours to go before Christmas. Can’t wait.