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!
Hi Bob, as I understand there is much land still under the CARP program in Samal and therefore titles to these land are questionable. Also, Samal is beautiful, but one has to be careful and ask the right questions. There are several areas in Samal where the water quality is not good, i.e. a bit salty. Either you have your own tanks to collect rainwater, or you have to purchase your water. If a person is willing to finance the sale of his property – and I say this is not the norm here at all – then he must have his/her own reasons. I am all for buying land – don't get me wrong – just cautioning to ask the right questions.
I agree cash is king here and if you can buy with cash, use cash. The financing schemes available here are to provide a means to the majority of the locals who have very little chances of getting an approved credit with banks. Those who have access to cash overseas, through friends, relatives or foreign spouses, then use that vehicle. I agree that I still shake my head when I look at the financing available here – but with so much losses from bad debts and scams, I can also see why they charge high interest rates. This is also the reason why if you read contracts, you wil also see that there are very strong wordings in them to protect the seller. This is the Philippines. What can I say? If you have the money, then don't get into credits. If you don't have the money, then you have very little option here to choose from that is comparable to the USA. Btw, I say USA for comparison purposes, because in Canada we have stricter regulations in getting consumer loans, compared to US.
Maayong Buntag Bob
With interest rates like that you may want to loan money out. I can see it now “El Banko de Mindanao Bob”. That has a nice ring to it. 😉 You are right that cash is king in the RP and interest rates are another reason to have as much money as possible before moving to the RP. Every dollar my wife and I can save while we are in the states is about 2 to 5 dollars we can spend in the RP considering how much father a dollar goes in the RP.
Hi Ellen- It is true that titling can be a problem for Samal properties. I just want to be clear though – on the property that Feyma is helping with there is clear title, that is not a problem.
I agree on the fact that most contracts are most certainly written in the best way for the seller, so the buyer should beware. No argument there at all.
Hi Larry- 😆 Yeah, that's a profitable business! Rates for personal loans are actually much more than that too, but that's a business that can be pretty dangerous! I think I'll stay away.
Great strategy on stashing those dollars away!
Intrest rates should at least be on par with inflation. How high is the inflation rate in the Philippines? If the banks would loan money at a rate lower than inflation they would lose money.
Keeping intrest rates too low for too long time in the US is what created the real estate bubble.
Interesting. I for one am more interested in receiving interest so my quality of life is better here. I can use what I receive for example to possibly be able to finance a condo for example for no cost and leverage my money if I so desire. I have made a few investements here with companies that lends out to others. 19% is nothing here in the Philippines.
In the past 3 years without fail I have earned from one company who finances overseas workers an average of 23% annually. The other company I have as much as 62% and they have never missed a payment. I have have short term money with them earning about %36. Now I am not here to tout them as many will say they are extorionists and take advantage of others on the lending side. I don't want to go there. All I know is that this is a dog eat dog world and just ask the millions who just had their butts handed to them in the market. Make it where you are able as long as no one gets hurt and it is all vokluntary
Hi Luc- Yes, that is certainly true, and since inflation is higher in the Philippines, it is understandable that interest rates would be higher. I believe that the official interest rate here is around 12% right now.
Hi richard- Wow 23% return! That's a nice income you are making! 62% – unbelievable! Great job on the rates you are getting, richard!
Morning Bob – Wow! Let me get this straight. In-house interest rates are about 19% for nine years. Based on a P4M loan for a condo, your monthly payment will be close to P100k and interest paid over the life of the loan will be more than double the principal! That is amazing and highly exorbitant rate! Only the rich, OFW and expats can afford those rates.
Hi Gerry- Yep! None of the condos in this particular development reach P4M, the max is about P2.8M, but your figures are pretty close!
Bob – since we are in the real estate topic… do you happen to know realtors in the area that can help me lease our commercial property along JP Laurel Ave in Bajada… It is right next to the Abreeza project. Have they started the groundworks for the Abreeza? Thanks for any leads.
Hi Gerry- That area is going to boom soon, as soon as the mall gets open up, and especially with the BPO facilities! Feyma is not a real estate agent, but I feel sure that she could help you, as she is involved in the field (just not an agent). Contact her through our "Contact Us" link at the top of the site.
Regarding Abreeza – they have not started actual construction yet, but they are really busy with some ongoing preparations on the site.
Hi Bob,
One Oasis by Filinvest offers, 20% downpayment payable in one year with zero interest.
The In-house financing interest rate for the 80% balance is very high but clients have an option to use either: bank loans at (9.5% to 12% p.a. ) or for OFW, Pag-ibig housing loan at 6% to 12% per annum interest.
I can't blame the developers also if they charge 13-19% per annum interest, because they have to allocate an allowance for bad debts.
Our other business is to lend out with titles as collaterals, believe me bob, people here would fake documents to get money out of you and issue post dated checks that either bounce or close account. Very frustrating…
In other words, the high interest rate is the developers way of saying, we don't want credit. 🙂 Or get a bank loan if you can't pay cash.
RE: Ellen's comment: yes, there are indeed a lot of properties in samal that are covered by CARP. Hence, a buyer should check through the Registry of Deeds in Tagum to find out the status of the property he/she is buying. Then check also the Tax Declaration at the City Assessor's office if the zoning is residential for subdivision lots. There are so many subdivided lots that has no development permits and no license to sell. Hence, considered illegal by the government.
Re: water, most areas in Samal have water now provided by Samal Water District. It is not salty. Because the source is Hagimit Falls. Resorts normally have salty water because it's taken from a deep well developed by them.
Thank you again for letting me share Bob.
Lea
Hi Lea C. Walker- Your good information is always welcome, and I appreciate it very much. I hope you know that!
I am interested in what you said about PDC checks bouncing. What about the estaffa laws? It has always been told to me that bouncing a check is a serious crime here, with even jail time being a possible punishment. Doesn't that help in collecting bounced checks?
BDO offers this:
http://www.bdo.com.ph/Personal_Banking/Consumer_L…
Hi Ellen- That's an interesting product. Much cheaper than the in-house financing, yet still pricey by western standards. Thanks for pointing it out, Ellen.
Hi Lea, thanks for the info. One question regarding water, do subdivision lots have direct connection to the water district? Or do they have to do their own piping to the main water line? Hagimit Falls, that's one area I want to visit soon. It looks nice in the picture. How far north does it supply its water to?
Cheers, Ellen
Hi Bob, I just wanted to point out this because it states all the requirements as well. But, don't compare to the west, we are here, not there. If you can borrow there and buy here, that's fine. But I doubt you can use the land titles here as collateral over there. Cheers.
Hi Ellen- I have never been to Hagimit either, but I want to go check it out. However, a friend of mine when there and told me that he was unimpressed. He said there was a lot of litter all around the place. I don't know this for sure, but this is what I was told.
Hi Ellen- Yes, absolutely we are not in the west, and things are different here. I only said that it was expensive by western standards, because the vast majority of my readers ARE in the west, and thus inevitably compare it to what they can find where they are now.
Personally, I think that what you pointed out is a highly competitive product. Especially because inflation is high here, and that affects the cost of money greatly. I do appreciate you sharing that with us, Ellen.
Whats the possibility of loaning out the $ for a condo with title held by the lendor till paid off?
Richard…I would love to know more of what you spoke about. Any problem with fwd my email address Bob??
Richard
The rates you are getting are very interesting. I imagine there are more risks with returns like that but if the returns are good you can tolerate the risks. If you do not mind I would like more info on the investments
Bob
Could you also forward my Email add?
Thanks
One thing to remember about loaning money here is you do have the option to pay the loan off early with a signifigant reduction in interest. Sometimes in the states there is an early repayment fee if you pay off a loan before the end of the term. 5/6 Loaning is only as dangerous as the ceditor makes it. I.E. most are selective about whom they loan to and unlike loan sharks in the states they can't send the "Knee Breakers" to use enforce repayment. Most that I know just target the Sari-sari store market as invarioubly the families that own a sari sari tap into store funds and then don't have the money to restock the store.
Hi brian- I have sent your e-mail address to Richard, it's up to him if he decides to respond! It certainly is nice money!
Hi Larry- I have also forwarded your e-mail address to Richard as well.
Hi BrSpiritus- Usually on a mortgage in the west you can also make an early payoff and save the interest. The big penalties usually come in on personal loans and the like. Of course there could be some mortgages with such penalties too.
Hi Bob! I think people and their greed are responsible for the cycles of calamity that strike us. To much cream continually skimmed off leaves nothing but water eventually and people starve! God you just have to love us right?
Hi JOHN- Greed is something that we are all prone to, to one extent or another. I agree that greed creates a lot of problems.
Thanks Bob, re: Greed, there is a fine line between greed and capitalism, obviously its the driving factor for business i.e. make money, i think you have to rephrase it as : 'excessive greed is bad'
Hi brian- No problem, happy to help.
Speaking of greed…. remember the movie back in the 80's, "Wall Street" with Michael Douglas as Gordon Gekko (sp?). Did you know they are doing a sequel? I hear that they are hoping to bring Douglas back in his role, but Charlie Sheen won't be back this time. It was a good movie! I will never forget Gekko's crede – "Greed is good."
GM Bob (evening here) –
Local financing for constructing our provincial house up north was non-existent for all practical purposes. Having a credit card that wasn't used in over 10 years with a substantial credit balance available, we were able to negotiate a "special offer" cash advance interest rate of 2.99% for the life of the balance. So, we developed our own mortgage/construction loan. 😉
Sometimes one has to become creative in the world of finance. (I think that's rule # 13 for Fannie Mae/Freddie Mac!) 😆
24 more days, then home!
Hi Paul- That is a real nice rate on a cash advance! Perfect for a "self made" mortgage!
Sorry bob. My email [email protected] is no longer valid. I deleted that account but forgot to change it here. Now you have my new one
Paul's on the right track I think – build a great credit rating in the states, get no collateral loans when necessary at attractive rates (by Phils standard) using a US credit card.
Hi richard- When the mail bounced, I figured it was something like that! I'll pass along those e-mails shortly.
Hi Gary- I agree, that is a nice strategy!
Hi Bob,
Zero interest sounds very attractive.
What are the terms re deposit and period of the loan?
BTW i work in a university in Aus and one of my professor mates told me today that the latest modelling for global warming is predicting 6 metre plus increases in sea levels. He said when the ice moves off the land shelves in the arctic regions there could be very rapid rises in sea levels, like in a matter of weeks. He said this new information is being suppressed by the government.
Your view land in Samal would be the way to go.
Hi Michael- the terms depend on the piece of land, but generally he offers 20% down and 2 years to 4 years to pay with no interest. He is usually negotiable, though, if the buyer needs to be. Another thing that is nice is that he will usually take installments on the down payment too.
re Hagimit Falls Bob i have been there a few times i never really noticed rubbish maybe your friend when he went there just visited on a bad day, its well worth a visit imo. The water is cold refreshing/ I like watching the big black buterflies to me is paradise.
As the conversation has come back to Condos and Land purchasing, in my very honest opinion i cannot see the Philippines escaping from the world recession and im expecting land prices to come under pressure also i have a gut feeling that in Davao the Condo and Mall constructions will come unstuck.
Anyway time will tell if im right or not, i like to invest here but seeing whats happening worldwide! im certaininly not rushing into anything here.
It will be nice to hear from realators that are posting here if they have noticed a slowdown on enquiries on purchasing land and or house and lots etc in Davao/Samal, im sure if its been OFWs who have been fueling the market then thats going to come to a shudering halt soon.
the world of credit cards and easy credit is going to change very soon, the amount of credit given has already dropped, won't be suprised to see the 15-25K
avalibility type cards to disappear altogether. I know people who have carried 20-40K balances for years and have paid no more than 2.5% by transfering balances to "promo offers". I've done it myself when I use to purchase property with 5 or 6 cards….beat the heck out of 6-7% interest mortgages !!!
Hi Graham- Yes, very possible that my friend visited Hagimit on a bad day.
I'll also be watching the Davao economy. So far, things are looking good here, I hope it stays that way! 😆
Hi brian- I believe you are right on the mark here.
Hi Bob
Here in Denmark is a "new" credit comming up, a credit with no interest to pay, however they only lend out money to muslims, since they are not allowed to pay or take interest according to their belief.
To comment on a post above that mentioned not blaming developers charging 19% because of bad loans. When a developer requires 20% down there is almost no way there can be a bad loan. If the borrower fails to pay, the deposit is lost and the property is taken back by the developer to resale.
Hi Preben- Hmm… not sure if you are joking or serious…. I never heard of this before. Thanks for your comment.
Hi John- You know, I did not think about that, but you are 100% correct. Getting the 20% down makes it a good loan no matter what happens.
Hi Bob
No joke.
Hi Bob,
Thank you.
RE: PDC's , bouncing checks are covered with Batas Pambansa (BP) 22. If you file for a criminal case, then the issuer of the check goes to jail. If proven guilty, that is. Meaning, there was an intent on her/his part to swindle you. It's a lot of hassle actually.
That's why in most cases, the lenders sue to collect the money. That makes it a civil case which takes forever. 🙂 After the initial hearing, the judge will refer both parties to the mediation board. If it's not settled there, you proceed with the hearing after waiting for months. In other words, one has to be patient enough to proceed with the process so that you can collect eventually.
If that fails, that's when the lender proceed with Real Estate Mortgage foreclosure. After the judge's decision, the lender has to wait for another year before she can transfer the title to her name because the law says she has to give the borrower the chance to redeem the property.
That's the bad side of the credit business in the Philippines, Bob. 🙁 The borrowers tend to forget after getting the loan…
Re: Ellen's question, one of the requirements when a subdivision applies for a Development Permit is to get a water district clearance. Normally, the water district team will inspect the said subdivision to check if they can provide water at the main highway near the said subd.Then, the developer will tap from the main line at the highway going inside. To ensure that water is distributed well to all the homeowners, the water district will require the subdivision development plan of the developer and check if all pipes are in accordance to their specifications.
Samal is abundant in water. You see spring water almost everywhere. In our farm lot up in the mountains, we just dug about 3-4 ft deep and we already had water. 🙂 Even if it's on top, we have a spring and a deep well.
Thank you all and God bless.
Lea
Hello Graham, there will be a big open house event tomorrow at the Holiday Oceanview Samal at the very northern tip of Samal. By Invitation only and as I understand it, only those VERY interested will get an invitation. 500 invitations were sent out and request for invitations has been closed. Did you get an invitation? 🙂
Cheers.
Hi John,
This is in reply to your comment to what I said yesterday. Actually, the deposit and any other payments will not be lost incase the contract between the buyer and the developer is cancelled because there is a law that protects the buyer from transactions like these.
Republic Act 6552, known as the Maceda Law, is a Realty Installment Buyers Protection Act.
The provisions are kinda long, but in essence it gives the buyer a grace period to pay the unpaid installment dues without additional interest/penalties. And if the contract is cancelled, the developer is supposed to return a minimum of 50% but not more than 90% of the total payments made.
For all the buyers out there, you may invoke this law incase you have problems with the developers you bought your properties from. Your lawyers should know this. For those who want a copy of this law, just drop by my office to get one. Please email me so I can give you the address.
You are right John, the developers will re-sell the properties eventually. But this law applies first specially for those who paid a minimum of 24 months payment already.
Thank you and God bless.
Lea
http://www.lawphil.net/statutes/repacts/ra1972/ra…
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.