Resort Condo Rental Investment On Boracay Island, The Philippines
Yields Of 6% To 19.5%
June 29, 2009
Boracay,
Philippines
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Dear Overseas
Opportunity Letter Reader,
"An investment in real
estate in the Philippines may seem a stretch for most
North Americans," writes resident global real estate
investing expert Lief Simon, "especially with the real
estate meltdown in the U.S. still sorting itself out. But if
you let yourself think outside of the box, you'll understand
the attraction. I'm very bullish on this market.
"Most countries in Asia impose restrictions on foreign
ownership of real estate. In Thailand, the Philippines, and
other countries in the region, foreigners are permitted to
own condos (again, sometimes with restrictions). To own
land, you must put some kind of workaround in place, using a
local corporate structure (not generally the safest idea),
working with a local partner, or leasing the land and
holding title to the construction sitting on it (a valid
option in Thailand and the Philippines).
"In some
cases, the cost of buying land, including beachfront land,
is so low that the risk is mitigated. This can definitely be
the case in the Philippines, where white sandy beaches can
come super cheap. This is not to say, though, that there is
no risk, no matter what you read on Philippine expat
discussion boards. I took a quick look this morning and
found postings from expats claiming that anyone who tells
you you can't own land outright in this country is wrong.
Land ownership is possible, they maintain. They've bought
land themselves...
"They may have purchased land,
but I'm telling you that they don't own it (unless perhaps
they've married a Filipino, in whose name the land is held).
It's not difficult in markets like this one to find an
attorney willing to help an unsuspecting foreign buyer pay
for something the attorney knows full well the poor guy
doesn't own.
"Contacts in the country report that the
Philippine government is considering changing the property
laws to allow foreign ownership of land. If this happens, we
could see a big jump in beachfront property prices. However,
this is utter speculation right now and not what I'm
recommending.
"What I am recommending is resort condo
ownership. Yields are the name of the global property game
in the current climate, and a resort condo in particular
areas of the Philippines can make a strong addition to your
real estate investment portfolio.
"Resorts in the
Philippines are major destinations for wealthy Asians from
Korea, Japan, Hong Kong, and even Russia.
As I explained last week, Philippine real estate is
priced for Filipinos; however, resort rentals are priced for
the foreign tourist. This is the kind of market distortion
that creates opportunity. In this case, the distortion is
creating inflated rental yields.
"I've seen gross
rental yield projections for condo resort projects ranging
from 6% to 19.5%. I have trouble buying the upper end of
this. Nearly 20% rental yield? Hard to believe.
"The
6% yield, on the other hand, is the rate currently
guaranteed by a development in Boracay called Eden On The
8th (it's on the eighth fairway of a golf course). The yield
projections are much higher, but the 6% is being guaranteed
to give buyers some comfort level.
"At Eden,
developer Jeff Finney is offering fully furnished
condo-resort units for less than US$70,000, and, in
addition, he's offering a program whereby you put your unit
in the rental pool for an initial term of 10 years
(something like the French leaseback program). You get 30
days personal use a year, and you're guaranteed an average
rental yield of 6% a year for the first three years. Your
yield could be higher; actual projections are in the range
of 10% to 12% range a year.
"Boracay is an island
about 35 minutes by plane from Manila. The government is
investing in a big way to make this little sand-fringed spot
the Philippines answer to Phuket, Thailand, or Bali. Boracay
is already an on-the-radar destination among Asians, with
hotels, resorts, and the golf course that Eden sits on. It
has everything the sea, sun, and sand vacationer could look
for.
"One of the benefits of buying in the
Philippines is that foreigners can get financing. Loan terms
are generally up to 70% loan to value borrowed over 10 to 15
years. Given the rental yields you can expect in this
market, you should be able to structure your investment to
pay for itself.
"You
can find out more about current offerings at Eden On The 8th
here."
Kathleen Peddicord
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