Expensive Money!
You know, with the world’s central banks slashing interest rates to try to get world economies moving again, prime interest rates in many countries are moving close to 0%. I believe that the US Prime rate now is only slightly over 1%, and other countries are moving in that direction. Of course, consumers like you and I are not able to get rates like that, but rates for individuals are getting lower because of the Prime Rate slash. Of course one of the reasons why the central banks are moving in this direction is so that banks will be able to get money cheaply, and thus start making loans again. That’s what keeps the economy going.
I was kind of surprised when I got a little primer on how much interest rates are here in the Philippines. As I told you earlier this week, I visited some Condos here in Davao
with a friend last weekend. I picked up some of the sales literature, just for informational purposes. As I looked at it, I found the interest rates quite high. I had known that interest rates were high in the Philippines compared to the West, but I didn’t realize how high they were.
To buy one of these condo units, you were expected to put a downpayment of 20%, and then it could be financed for as long as 9 years, but no longer. Mortgages in the west are typically much longer than that. I know that in the States the 30 year mortgage has been the kind of mortgages for more than a generation now. Some people are going as low as 15 years, but lower than that is uncommon.
Can you guess what the interest rate was for a 9 year mortgage? 19%. Yes, Nineteen Percent! In the west, many credit card rates are lower than that! For a 3 year mortgage, they were offering rates as low as 14%. My goodness! The thing that is really interesting is that these are in-house rates. In other words, the developer of the property will self-finance the units for you. They are a big company and certainly have the cash to do this. Generally, in-house financing like this is cheaper than banks offer, so this really surprised me. Some in-house rates in the west are high, but that is generally when they are offering financing to people who are not good credit risks.
Last year I wrote an article here on the site called “Cash is King” talking about how cash is the best way to do things in the Philippines. Forget credit. Throw out the credit cards. Cash talks. This example just shows how true that is!
As most of you know, Feyma sells property on Samal Island for a gentleman that we know. Know what? He is willing to finance property at NO INTEREST! Big difference, huh?
Not only is now not a good time to take on debt, but at 19%, I think I’ll just pay cash!
http://www.lawphil.net/statutes/repacts/ra1972/ra_6552_1972.html
you can find the R.A. 6552 here
No i did not get an invite Ellen. But i think i would only be interested in investing in Samal if i had a news guarantee that the bridge would be built 100%. makes it costly if you have to go over back and forth on the Ro-Ro a few times a week and especially sundays the waiting time can be long.
Ah ok. Just curious. I don’t know what’s happening with the bridge issue. If there was one, there will be a whole new set of problems to deal with here – i.e. traffic, overcrowding, lack of infrastructure, crime, etc. Besides with the bride, I doubt it is free. Toll charges may have to be charged to pay for the construction. So, I don’t have any opinions on what is best, other than property prices will for sure escalate.
Cheers.
we beg to differ re land prices escalating Ellen short term,( long term for sure land price will ALWAYS go up). Time will tell if im right re short term price movement.
Who are the main buyers of land and Condos in Davao and Samal at the moment? I think a very small % are foreigners, so who is the main buyers? i estimate maybe 80% + are families with OFWs. Now if you read the news its all about the world recession which has started to hit jobs in a major way. All the big car companies are laying off their workers or going to a 4 day week for one example.
Jobs will be lost and people will be tightening their purse strings. I think OFWs remitence will be hit bad, thats why short term i dont see any big gains in prices in land and a slowdown in real estate. Its already happening in the west and now its started in Asia, look at singapore property market
. I hope the Philippines will be ammune but i really cant see it. I have noticed all over Davao car`sellers have a big number of SUVs for sale now, people cant afford to run them anymore, this is a sign that things are becoming harder here.
Hope im wrong…..
I think you misunderstood me – I meant land prices for sure will escalate in the context of the bridge, if it does materialize.
I am not sure who the buyers are re land and condo. I know most of the buyers in the marina site are mixture of locals and overseas workers (Professionals). For the condo, we have not started selling. Interest come from people outside the city who probably are sending their kids to universities here. Some are foreigners who probably come for short periods of stay. Like you said, time will tell.
I don’t own a car – and not looking for one. So I am not really aware of those things. As for the global market, I know. The last of the dominos has not been reached as yet. I sure wish I was out sailing so I won’t have access to TVs, radios and internet. Now, I keep the TV on CNN or BBC to hear all the doom and gloom so I can fall asleep.
Thanks for your comments.
Hi Lea C. Walker- This is great expertise that you are sharing with us. To be honest, I didn’t know about this law, and it certainly sets the Philippines in a different light than the USA when it comes to buying property! Back in the USA, if you stop making the payments the property will be lost, and probably all your money too!
Thanks for your explanation, Lea.
Hi Graham- I think that the whole bridge idea was a farce. In April they announced that they would be building the bridge. Oops, then they said that first they would do a 3 month feasibility study, then immediately build the bridge. Six months has passed, and I’ve heard nothing. Usually, you don’t decide to build something, then do a feasibility study, it is normally the opposite of that.
Personally, I am anti-bridge, so I am quite happy if it doesn’t happen.
Hi Ellen- I am certain that you are correct when it comes to tolls on any such bridge.