Some property investors tend to think that holding off on buying pre-selling properties from developers (primary market) now and saving up their money to buy pre-owned properties (secondary market) later on, will afford them a huge amount of savings from buy-below-market value deals.
Unless you are already at the point where you have a dire need to move in or use the property, I will show you that with a little careful planning, investing in pre-selling properties in the primary market offers a lot of financial and non-financial advantages compared to saving and investing in pre-owned properties.
Benefits of Buying Pre-selling Properties from Developers
1. You maximize your capital appreciation and long-term net benefit
When you buy pre-selling properties in the primary market, you are the one who acquires the property at the lowest possible price. The capital appreciation you gain by investing early through generous payment terms will always be bigger than any savings you get from saving and investing later on, even at below market value deals.
2. You avoid huge cash outlay and be able to spread out your cash to acquire multiple properties
Buying a pre-owned property, whether it’s pre-turnover or ready for occupancy, will require you to pay a huge amount of cash in millions on the spot. But when you acquire pre-selling properties in the primary market, you are able to invest a small amount on a monthly basis and some don’t even require a spot down payment, allowing you to spread out your free cash to acquire more than just one property or to use it for other purposes deemed necessary.
3. You get to choose the exact unit that you want
When you purchase a pre-selling property from a developer, especially projects that just recently launched, you get the benefit of being able to reserve the exact unit you want in terms of your preferred floor, view and the layout of your unit. For end-users, this means being able to have a more pleasant living experience. For investors, this means being able to choose a highly desirable unit that will attract a broad number of future lessees or buyers.
Illustrative Example
Let us take a look at the example of Stacy and Abigail, both young professionals looking to invest in their first property. With that, they are now setting their sights on investing in a newly launched pre-selling unit in Property A with the following details:
Since the project is newly launched, Stacy is able to choose and reserve her preferred 2-Bedroom unit, a corner unit on a high level with a great view. In addition, her reservation locks-in her contract price at Php6,000,000. Abigail, on the other hand, has heard that you can get great savings from the pre-owned market compared to buying from the developer and chooses to save up money for now.
After four years, Stacy’s investment has grown by 10% compounded annual growth rate and now has a market value of Php8,800,000, an increase of Php2,800,000 compared to her purchase price.
Meanwhile, Abigail, who has been saving up money for four years, decides now is the time to invest in a property and begins her search for a property similar to Stacy’s. After a lot of time and effort, she finds one selling for a total contract price of Php7,200,000, but unlike Stacy’s, this unit doesn’t have a great view. In addition, the seller requires that Php2,400,000 to be paid in cash and the rest can be paid through bank financing. Abigail decides to purchase the property since it is selling below market value.
So did Abigail’s strategy end up saving her more than Stacy? Let us compare their investments now:
Because Stacy started her investment earlier, not only was she was able to lock-in her price at Php6,000,000 and maximize the capital appreciation of the property, she also had the benefit of a smaller total amount of cash paid to date, half of what Abigail has paid, which she used to acquire another pre-selling property two years ago and has, therefore, been doubling her gains since then.
A little planning for the future definitely goes a long way as you can start earning capital appreciation earlier, maximizing gains, reducing cumulative cash outflows and getting the best chance at acquiring your preferred unit.
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ABOUT THE AUTHOR
Edric Maguan is a successful real estate investor, an experienced and accredited Real Estate Broker of several top developers, and a Certified Public Accountant from University of the Philippines - Diliman. He found his passion in inspiring and empowering people to make the most out of their hard-earned money through real estate investment. Read full biography here.