Foreclosed properties in the Philippines

There are a great deal of foreclosed properties in the Philippines, and like Japan there is a great deal of perceived risk to buying such properties. In reality, the risks are less significant compared to the lack of bargains. The Philippines economy has been growing at 7.6% lately, and the money supply has been growing by as much as 25%, though it has since been slowed by the Philippines central bank BSP. For that reason there is comparatively little attractive foreclosed property inside the National Capital Region (NAR).
Here is a sample of the properties offered in the Paranaque area of NAR. Paranaque hosts about 15 subdivisions, the largest and most prestigious is the BF Homes area. Despite its age, there are still vacant lots for sale. Some areas are more sought-after than others. Because of poor planning, some areas are a little remote from the main roads, and suffer from excessive traffic because the narrow roads are congested by on-street parking and tricycles. The resulting land value is anywhere between 7000-10,000m2 per m2.

There are several readily apparent problems with the BF Homes area:
1. The area has no piped water supplies yet
2. The area has narrow, congested streets
3. The area is unlikely to overcome these problems

For the later reasons I am inclined to think that the best strategy for investors is to avoid old developments, and BF Homes was one of the largest ones. For that reason it has some appeal because it’s one of the most established. It has a sense of community and modern bars and restaurants that might appeal.

We were interested in foreclosed properties in the lower end of the market, and the result of our search was the following list of properties:
1. Townhouse in Paranaque City: Address Unit B6, V.Recto Street, BF Homes, Paranaque. The lot size is 66m2, floor area 160m2, 2-storey concrete brick building, 3bedrooms, 2toilet & bathrooms offered for P2.08million ($US24,000). This property is located in a partially developed precinct close to the shops. The property was spacious inside, though the buyer would be a minority owner of the common area since just one of the 6 units belonging to the owner are being foreclosed. It had good size rooms, though the confined space means there is very little natural light in parts of the building. The block is crowded with no off-street parking. The lack of value value makes this property less attractive, and minority interest in the common area is a reason for concern.
2. House & lot in Paranaque City: Address 21 W.Vinzons Street, BF homes, Paranaque. The lot size was 280m2, the floor area 180m2. It is a 1-storey semi-destroyed building, originally a 3 bedroom home, with 3 toilet & bathrooms priced at P2.5milion. The building is in poor condition, there is structural damage and the roof has been almost completely destroyed. The lot therefore should be valued at land value less demolition & removal costs since there is little opportunity to use the waste as landfill on this level block. This is an attractive subdivision with good access to the main road. The lot is selling for slightly less than land value. It strikes me as easier to just buy a vacant lot.
3. House & lot in Paranaque City: Address 137 Dela Rama & Benitez St, BF Homes, Paranaque City. This 316m2 lot has a 1-storey house with a floor area of 260m2. It includes 5 bedrooms, 6 toilet & bathrooms for P2.7million. The property is in very poor condition so it would require a lot of work to renovate. The biggest problem is the rotting timber in the roof, requiring the replacement of the roof. The kitchen and toilets are old, so they would require replacement. The building structure is good, though the use of space in the house design is not useful. The lot was neighbouring on a poorer area of the BF Homes area, indeed there were ‘slumish’ areas in close proximity to the lot. The building does have attractive marble floors in the foyer, though the wood tile floors in the bedrooms require replacement. The electrical system would require rewiring and you would need to buy water for the next few years until the water authority offers piped supplies. The broken windows might be a testimony to the quality of the neighbourhood, but it does have a structurally sound house close to the main road. Its not the best neighbourhood though, but it might suit a builder who can fix it up over time.
4. House & lot in Paranaque City: Address 209 Ferrari St, Camella Homes, Sucat, Paranaque, lot area 201m2, floor area 140m2, its a 1-storey house with 4 bedrooms and 2 bathrooms. Price P2.5mil. This property was not viewed.
5. House & lot in Paranaque City: Address 135 Pleasure St, Better Living Subdivision, Paranaque. This lot has an area of 240m2, and 225m2 of floor area divided between 2 buildings. The house has 3 smallish bedrooms as well as 2 bathrooms. The kitchen & toilets are old so will require renovation. The property has a great 3-level ‘out-house’ at the back of the property that could offer investment rental as well as a ‘nookie’ with views. The main building needs a new roof, the wood floor tiles would require replacement. The main house had a good size living area. The house is priced at P2.7million, though the property was not readily accessible because of windy, narrow streets congested by tricycles and parked cars. There is very little implied building value to this property. This property I believes offers the best value among those we saw because the removal of the roof presents the opportunity to convert the rooms. I would be inclined to fix the 'nookie' at the back first for living.
6. Townhouse in Paranaque City: We believe there are 2 townhouses here for sale, though we were only offered one. The address is: 76 J.Elizaide Street, BF Homes, Paranaque. The lot area is 222m2, and the 2-storey townhouse comes with 5 small bedrooms & 4 bathrooms. The price is P2.8million. The townhouse to the left requires more work, and in fact the caretaker Ted is living in that one. The electricals appeared to be in poor conditions, and the lights were stripped out, so it appears there were bad tenants in the building. The toilets need to be replaced. These townhouses were on a busy street, though they had a good size backyard. Since these townhouses could be built new for P1.0 million each and the land value is around P1.5mil, they are by no means a bargain, but they suit people who need an instant home and can fix the more dilapidated townhouse.
7. House & lot in Paranaque City: Address 553 St Jude San Antonio Valley I, Paranaque. We only looked at this 300m2 lot from the street because we did not like the quality or position of the building. The 2-storey house has 7 bedrooms and 2 bathrooms within its 221m2 floor area. The property is offered for P3million. This was a poor quality house in a busy backstreet area. Based on limited observation I would not be interested in this property under any circumstances.

The implication of this site visit was that there is unlikely to be much value in the foreclosed properties offered in the Philippines market - its just too late. It seems more likely that there will be more offered in several years. Returning to our home it was apparent that there are greater opportunities in the private market. Home owners dont like to deal with agents, and agents are pretty unethical anyway. A great deal of Filipinos dont have financial literacy skills, so they are all too keen to take the best price offered. If you mount a semi-logical argument and dont comprise you might just get a 'bargain'.

Here is a case in point. A single mother previously married to a foreigner for 3 years. He constructed a nice house in her name, she ended up owning it. She left him, but she can't get a job, so she wants to go off to the USA where she has a job lined up in a casino. She has no money, just the house. She wants some cash upfront, though she would accept a rent-to-own proposition. She needed the money to go to the USA, so she had some urgency. What more could a buyer want. Unfortunately the house is on the main road, so there were other buyers interested.
She did not understand the time value of money, so she was failing to consider any interest in the 'rent to own' payments. There are a great many people who dont have financial literacy skills in the Philippines, generally because in poor countries such desperate people get ahead because they have superior 'social skills'. I have some sympathy with these people because they are struggling to get ahead despite their poor education, so I'm inclined to scale back my 'predatory instincts'. Having said that if they are good people they tend to have the support of friends. Perhaps more likely they are going to be screwed by friends they trust. Fortunately for this girl, she had the good sense to seek legal advice.