Feasibility Study: Condominiums

CE40-A1
Group 4 (Reyes, Santillan, Salvador, Sultan, Tan, Tapanan, Tiongco)

Executive Summary
Condominiums are real property. Real property is an immovable asset that earns its
income through rent payments or unit selling. Condominiums are a way for foreigners
and locals to own a property in a certain area without the need of acquiring a deed of
land. It has become a modern trend to own at least one unit of a condominium. Not all
condominiums are the same, since they vary in architectural style; unit amenities;
project amenities; number of units selling; pricing of units; square footage; association
or maintenance fees; etc.

An important thing to consider in buying and building a condominium is the location of

the real property. Strategic placing would acquire the property a lot of buyers, which in
turn would increase its value and its stakeholders. This sounds like a good idea to buy a
unit now given the sales talk of information, but is it worth it in the long-run? This could
only be answered if you’ve experienced owning one.

I. Introduction

It is a basic need of man to own a property for shelter given it is a right of a citizen of a
nation, but can everyone afford it? In this feasibility study, our group focuses on
condominiums. We’ll discuss and analyze every known data given about this type of
Real Property. Since land is not depreciable, does this affect the condominium’s value
in a positive way or negative way? Is it a wise investment, or a risky purchase?

II. Project Strategic Context

Condominium development is different as compared to other types of residential

properties. Blueprint usually covers a wide assortment of properties within a project
rather than a single home. This eventually diminish marketing cost for both realtors and
developers however plan should’ve details on entire construction and individual units.

1.The marketing objectives

Objectives of condo marketing are divided into two categories; development

marketing and individual units within a specified development. Primary aim is to create
awareness among property hunters in terms of price, location, amenities and other
features that may relate to residential project. Targets can be sales oriented such as
selling particular number of units with three months or achieve target price per unit. All
the efforts are directed towards a unified goal; sell a condo or as many as you can
hence better come-up with an excellent strategy.

2.Target audience

Strategy may be aimed at targeting particular audience based on geographic,

demographic and psychographics. These units maybe developed to appeal young
professionals, retired personnel, married couples with or without children or singletons
looking forward to an attractive lifestyle. Being versatile, they appeal to all audience with
different preferences.

Location is also important such as condominium project near seaside may attract
young families whereas a more secluded location is excellent for retired or elderly.
Available amenities also makes a difference such as easy access to transport, leisure,
educational institutions, healthcare facilities, shopping strip and much more. Price would
vary per available facilities and overall construction.

3.Market evaluation

It comes after careful study of economy and how latest happenings affect real estate
with-in a country. The rule of economics says that during economic recession, market
moves slowly hence pricing and investment should correspond to fiscal market. In a
competitive market; developers and real estate agents, all struggle to take an upper
hand with highly creative and interactive ads created with mutual coordination of all
company employees. In the end, market findings would help you devise or revise
strategies thus lessening chances of discrepancy.

4.Online information

Today is the era of internet and as per research report by National Association of
Realtors, more than 70 percent property hunters around the world rely on the
technology. Not just the written content but images, interactive maps and social media;
all combined to create a one, giant and highly effective source of information. 

An effective marketing plan should be able to communicate with potential buyers and
clients in a clear way. It should entail complete details on independent listings or those
managed by realtors who specialise with condominiums.
III. Technical Analysis
 It is no secret that Metro Manila is the most populous region in the Philippines, a
sprawling megalopolis of over 12 million people. There is a high demand for residential
space as a result of continues population increases, causing the remaining developable
space in the metro to shrink, with the average size of condos shrinking along with it. In
an analysis of condo space’s conducted by Lamudi Philippines, it was revealed that 42
and 41% of for-sale and for-rent condos, respectively, have floor spaces of 50 sqm or
smaller. There’s no doubt that the Philippine real estate industry can anticipate another
year in 2018. But the factors that are expected to drive that promising growth will slightly
differ compared to what has driven the industry in the past decade.
Such factors are diverse offices tenancy as well as the rising demand for flexible
workspace’s and warehousing, according to the latest report of colliers International
Philippines entitled, “Top 9 Predictions For 2018.” Other factors that have and will help
drive the strong performance for the property sector include a sustained GDP growth over
the next three to five years.
“Perennial growth drivers such as household consumption remain robust while
manufacturing and foreign investments’ combined contributions to aggregate economic
output continues to expand,” Joey Roi Bondoc, manager for research at colliers, said in a
separate interview with the Inquirer “Overall, OFW (overseas Filipino worker) remittances
and outsourcing revenues should sustain strong domestic demand partly shield the
Philippine economy from global economic shocks, and provide benefits to key segments
of the economy, including property,” Bondoc further explained.
Here meanwhile are the Top 9 predictions for the real estate industry according to
colliers.
1.   Infrastructure-led GDP to buoy property
Much of the country’s growth will hinge on ramp-up infrastructure spending, which
should support the Duterte administration’s commitment to build crucial projects
throughout the country. The ushering in of the “golden age of infrastructure” also lends
support to the government’s decentralization push which should unlock land values in
areas outside of Metro Manila and stimulate business activities in the countryside.
Ultimately, we see the government’s infrastructure policy dictating the strategies of both
local and national developers.
2.   Metro Manila condominium leasing to remain challenging
Residential condominium leasing in Metro Manila remains challenging, driven by the
influx of new condominium completions in major business districts and fringe locations.
Colliers expects developers to continue venturing into residential projects in second-tier
and third-tier cities all over the country, where demand primarily comes from end-user
buyers. The markets may be smaller compared to Manila but more stable in terms of end
user housing demand.
3.   Diversified office tenancy mix to be led by non-BPOs
Offshore gambling has filled the void left by business process outsourcing companies
(BPOs). With the Philippine Amusement and Gaming corps. (Pagcor) issuing 51
Philippine Offshore Gaming Operators (Pogo) licenses thus far, requirements from Pogos
have sprung across Metro Manila. We see less office launches next year following the
decline in BPO companies’ office space demand. Colliers expects traditional companies
taking on a bigger role in 2018 in terms of space absorption.
4.   Flexible workspaces to accelerate
There are over 2.15 million sq.ft. of (available) flexible office space in Metro Manila. The
profile of tenants varies from start-ups, to law firms, Fortune 500 companies and
freelancers. As mobility, and flexibility become the norm in working in the 21st century,
occupier demands will also change sharply, requiring more flexible office spaces over the
near to medium term. The challenge for the developers is to adapt to the demands of the
market to remain competitive in this growing office segment especially as international co-
working brands enter the market. Outside Metro Manila, growing hubs for flexible
workspaces are Iloilo, Bacolod, and Davao.
5.  Growing popularity of e-commerce to drive warehousing, logistics demand
The warehousing and logistics market in Metro Manila is tight, operating at an average
of 98 percent occupancy. Warehouses in the country’s capital have been dwindling as
land values rise and demand for residential and commercial projects increase.
We see logistics and warehousing to be a major driver of Northern/Central Luzon
economy over the medium term in light of the planned expansion of Clark airport and
construction of Subic-Clark cargo railway. Opportunities abound and are enticing
developers to acquire warehousing and logistics businesses. Among the most aggressive
are the SM Group and Davao-based businessman Dennis Uy of Udenna.
6.   Industrial park developer head north of Luzon
Major developers are heading north of Manila. Recently, doubled acquired a 6.2-
heⅽtare lot in Luisita Industrial Park in Tarlac. A proof of Northern and Central Luzon’s
rising viability as an industrial hub is the Xu Liang dragon Group’s commitment to develop
a 3,000 mixed-use special economy zone in Pangasinan. Other industrial developments
in Pampanga are Ayala’s 31-hectare industrial park in Alviera estate in Porac and
Filinvest’s 100-heⅽtare industrial estate in Clark Green City.
7. More townships outside Metro Manila
Colliers expects developers to continue pursuing satellite communities in and outside of
Metro Manila. Townships offer a better value proposition (live-work play-shop lifestyle)
than standalone projects since they offer mixed-use developments.
We see developers pursuing more township projects in areas outside of Metro Manila
such as Cavite, Laguna, Bulacan, Pampanga, Cebu, and Davao over the near to medium
term as land values are being unlocked by an aggressive expansion of road networks.
8.  More resort-oriented hotels across the country
We believe that the development of 3- and 4-star hotels in resort destinations will be
more visible over the next two to three years. Colliers believes that among the most
attractive locations for these developments are Cebu, Bacolod, Iloilo, Palawan, Davao,
and Bohol.
New airport infrastructure is essential in further expanding both local and foreign tourism.
Colliers believes that the expansion of international airports in major destinations such as
Bohol, Bacolod, Iloilo, and Davao will allow foreign tourists to bypass Manila.
 9.  Continued growth of e-commerce and experiential retail
To attract more customers, we encourage malls to provide more lifestyle amenities and
technology-driven customer experiences that generate a sense of destination.
Developers and retailers in the Philippines do not migrate totally to e-commerce but in
fact use online shopping and social media platforms to complement their physical stores.

The analysis was ostensibly corroborated by the 2014 fourth quarter report of colliers
International. Out of the more than 30,000 preselling condo units expected to deliver in
the Makati, For Bonifacio, Rockwell Center, Ortigas Center, anⅾ Eastwood City from
2015 to 2018, 75 percent are studio and one-bedroom units, with unit sizes ranging
from 18 to 90 sqm. Some developments outside these areas are even selling condo
units no bigger than 15.5 sqm. colliers indicated that the rise of smaller properties is to
seemingly cater to young urban professionals, as well as investors looking to diversify
their portfolios. Going smaller seemingly is the trend for Metro Manila’s condo market.

According to Jose Romarx Salas, a real estate consultant and head of research at
Pinnacle consulting, a condo project with 200 units in just one tower was unheard of in
as recent as the late 1990s. “Now it has become the norm with some developers going
as far as launching projects with 30 units per floor, or essentially 1,200 total units in a
40-story high rise.” The new trend is quite prevalent in Metro Manila’s most populous
and popular cities, with a significant percentage of the total condo units in each area
being of the “shoebox” variety, as seen with Lamudi’s latest property inventory. Despite
what seemingly would be more affordable residential properties due to their smaller
overall sizes, shoebox condos do not always turn out to be the money-saving
alternative. When seen in the perspective of prices per square meter, small units are not
that much cheaper than that of other residential real estate. While the metro still has its
fair share of reasonably large condos, smaller units look to become the wave of the
future, as it better caters to the increasing population. While the averages sizes supplied
now only apply only to the percentage of the total condos in Metro Manila that are
considered small units, it is foreseen to be the overall average in the immediate future.

IV. Institutional Assessment

Condominium ownership is a popular way of owning a home, though condos do come
with unique features. Communal responsibilities of owners distinguish condominiums
from single-family or any type of home. Condominium communities consist of individual
units as well as common areas owned by all community members. A condo community
maintains its common areas using an association that charges assessments and
special assessments to enable upkeep.

1. Condo Association Assessments

Condo communities generally use condominium associations to properly maintain
community common areas such as building exteriors, roofs and roads. However, it costs
money to maintain a condo community, and all community members pay for such
maintenance through assessments, fees or dues. Typical condo association
assessments go toward sewerage and water bills, lawn cutting and community
insurance.
2. Condo Special Assessments
Occasions arise when condominium communities and their associations face the need
for additional money to handle maintenance or other issues. For example, your condo
community and association may be hit with an unexpected parking lot repaving
expense, with no money in reserve to cover it. Unfortunately, if your condo association
needs additional money for unplanned expenses you could be assessed for a payment
portion. Part of condo ownership means agreeing to share in your condo community's
unexpected expenses.
3. Paying Condo Assessments
Generally, members pay a condominium association's regular assessments on a
monthly, semi-annual or annual basis. Condo assessments, fees or dues are an
expense separate from any mortgage payment you have. A condo community's
association special assessments and any payments required are normally handled with
community members' financial situations in mind. Condo association special
assessments to cover shortfalls in association budgets or for unexpected expenses
should rarely occur if your association is being properly run.
4. Overseeing Condo Associations
Condominium associations are sometimes known as homeowners associations, or
HOAs. As a condo owner, you have the right to seek a role in the running of your HOA.
Typically, condo HOA leaders are elected from members of the particular condo
community, with such members taking on responsibility for HOA operations. Condo
communities are also required to maintain stable reserve funds subject to periodic
audits. Condo community members and their HOAs should also meet regularly to
review community expenses and assessments.

V. Environmental Assessment
 VI. Stakeholder Analysis
Stakeholder Role Responsibility

Owner Full Authority and provide Ensure that the project

resources can succeed

Contractor Construct the condominium Quality of the work

Structure Consultant Design of the condominium Workmanship for the

condominium
Electrical Contractor Provide the appropriate Safety of the work
electrical wiring

PMC Manage the condominium Ensure the quality

Labor Contractor Labor of the condominium Quality of work

Financer Finance the project Provide sufficient funds

on time

VII. Financial Analysis

The condominium investment will involve the construction of residential buildings and
the modification of the environment and the sale of individual units of condominiums
with public sharing of certain facilities. The main factors that are known to impact on the
profitability of condominium projects include cost, revenue, period of selling, taxes, and
loans and interest rates. In the following section only two of the main factors will be
analyzed; cost and revenue.
Costs to be involved in the condominium project will include the pre-construction costs,
construction costs and operating costs. The pre-construction costs in this case include
costs such as those related to land acquisition, architects and engineers’ fees, and
other consultants’ fees and construction management costs. Construction costs include
the cost of construction materials, labor costs incurred during actual construction,
landscaping costs, machines and equipment, and interior design and finishing costs.
Operating costs include costs related to management, marketing, transfers, sales, and
tax.
 If you are buying real estate to establish your home, your parameters should be more
focused on what is most convenient for yourself and your family. As a home, it should
not be looked at as a financial investment. Rather, it should be considered as a life goal.
However, if you just want to invest, please make sure that you have carefully analyze a
real estate investment versus other investment options based on your personal financial
plan. 

If you definitely want to just invest in real estate, choosing between a condominium
and a house and lot would use the same parameters in analyzing its financial viability.
Here are some of them.

1. Location which includes convenience and attractiveness of neighborhood and

security. 

2. Reputation for quality of development of the builder

3. Rules of the association governing the neighborhood and costs in relation to this
association 

4. Your ability to maintain all amortization and maintenance payments.

If you intend to rent out your condominium, you need to projects your income, costs
and assume that there will be times when the unit will be vacant and will need repair.
Rental rates normally over around 5% of the market value of the condo unit provide
rental income is constant throughout the 12 months in a year. Vacancy rates therefore
have a very strong impact on the effective return on the rental property. In considering
buying a condo unit for rental purposes, you must assume at least a 20% vacancy rate
over the life of the property.

The condominium requires you to live in closer proximity to others and that could be
difficult. At the same time, it gives you better security because you can leave your unit
and it will be more secure. It is all a matter of personal preference. There will always be
a group that will prefer an individual house and a group that will prefer a condominium.

Many who have cash to invest like to buy condominiums that they will have their
children inherit eventually. In the meantime, they believe that the condominium will bring
them some income in the meantime plus even increase in value. However, as children
grow older, more and newer condominiums will be built. Your choice may not be your
children’s choice.

As a financial investment, condominiums do not generally perform well over the long
term compared to stock mutual funds or even balanced mutual funds and other types of
securities. Except for a few notable offerings, the costs of owning condominium units
drag down the resale value. Physical depreciation of units, monthly membership and
maintenance dues plus real estate taxes imposed on condominium owners can be quite
substantial over the economic life of the unit. There is also the issue of capital gains tax
and the VAT applicable when the unit is sold. All these taxes have to be paid before you
can transfer the ownership registration of the condominium unit to the buyer. If you
include all these ownership costs and the reduced rental earnings due to the 20%
vacancy rate, the percentage net return per year when you sell the unit can be very
disappointing. Simply put, the cost of acquiring a condo unit is not your only cost. The
cost of ownership and the cost of selling are real costs to the owner. And these
generally make condo units marginal investments. 

IS IT FINANCIALLY WORTHY TO PUT UP A CONDOMINIUM IN THE PHILIPPINES?

Given that the population in the Philippines, is booming, and that there is an ongoing
demand for houses, and little to no supply of land, it will be financially worthy to put up a
condominium in the Philippines.

 In Rockwell center, the average price for a 3-beⅾroom condominium rose by

11.7% (8.1% inflation-adjusted) to PHP221,150 (US$4,249) per sq. m during
2017.
 In Fort Bonifacio, the average price for a 3-beⅾroom condominium increased
by 4.3% (1% inflation-adjusted) to PHP175,700 (US$3,376) per sq. m over the
same period.
 In Discovery Primea, located in Makati city, condo prices surged 2.15 times to
PHP322,000 (US$6,189) per sq. m. in 2017 from its launch price of PHP150,000
(US$2,883) per sq. m. in 2009.
 In Edades Tower, also located in Makati city, condo prices soar up 87% to its
current price of PHP243,000 (US$4,670) per sq. m. from its launch price just a
year earlier.
 In The Residences at Greenbelt, in Makati city, condo prices increased 2.36
times to PHP250,000 (US$4,805) per sq. m. in 2017 from its launch price of
PHP106,000 (US$2,037) per sq. m. in 2003.
 In One Serendra, located in Bonifacio Global City, condo prices more than
doubled to PHP220,000 (US$4,228) per sq. m. in 2017 from its launch price of
PHP108,000 (US$2,076) in 2008.
 In Arya Residences, located in BGC, condo priⅽes increased 2.65 times to
PHP220,000 (US$4,228) per sq. m. in 2017 from its launch price of PHP83,000
(US$1,595) per sq. m. in 2009.
 In The Grove, located in Ortigas city, condo prices rose 56% to PHP140,000
(US$2,691) per sq. m. in 2017 from its launch price of PHP90,000 (US$1,730)
per sq. m. in 2008.
  At The Pearl Palace Tower 1, located in Ortigas city, condo prices surged 89%
to PHP125,000 (US$2,402) per sq. m. in 2017 from its launch price of
PHP66,000 (US$1,268) per sq. m. in 2012.
 In the Escalades at 20th Avenue, located in Quezon city, condo prices
increased 2.52 times to PHP135,000 (US$2,595) per sq. m. in 2017 from its
launch price of PHP54,000 (US$1,038) per sq. m. in 2009.
 Condominium units saw y-o-y price increase of 14.2% (10.6% inflation-
adjusted) in 2017 from a year earlier
 For single detached/attached house, prices fell slightly by 0.3% (-3.5%
inflation-adjusted) during 2017
 Duplex house prices surged 17.3% (13.5% inflation-adjusted) y-o-y in 2017
 Townhouse prices rose by 8.1% (4.6% inflation-adjusted) over the same period

demand remains strong. In 2017, the take-up of pre-sold condominium units throughout
Metro Manila, including fringe locations, rose by 52,600 units, up 24% from a year
earlier and the highest level ever in the country's capital, according to colliers
International. This was mainly due to strong demand from starting families and young
professionals

IS IT FINANCIALLY WORTHY TO BUY A CONDOMINIUM UNIT IN THE

PHILIPPINES?
Purchasing a condominium unit is financially worthy, because not only it's much
cheaper compared to a regular house and lot (here in Metro Manila), it also allows you
to choose one that's near your work
Socio-Economic Analysis
The Philippines is an island nation with a unique geography, a very diverse culture and
history.  The country is composed of over 7000 islands, of which approximately 2000
are inhabited, and lies in the western Pacific Ocean.  The Philippines archipelago is
divided into 18 regions, the three main island groupings are Luzon in the north, the
Visayas in the middle, and Mindanao in the south.   The Philippines strategic positioning
as a gateway between the Pacific and the rest of Asia, in particular its proximity to the
region’s two largest economies, China and Japan, provides it with several vital sea
routes for trade and commerce.  However, to the west is the South China Sea, and the
subject of China’s expanding footprint in the region.  This dispute, along with China’s
ongoing maritime disputes with neighbouring ASEAN countries, i.e. the 9 dash line is
putting bilateral trade between the Philippines and these other ASEAN nations at risk.
Nonetheless, a more recent conciliatory tone from Manila towards Beijing has shown
promise that intra-ASEAN and Philippines-China tensions may now be subsiding. As a
result, the country is enjoying renewed interest from foreign investors, both in light
manufacturing, and service industries such as business process outsourcing.
The climate is predominately hot and humid, marked by a rainy season from June to
November which brings plenty of rain and a few typhoons every year.  November to
February tends to be cool and dry, while March to May tends to be hot and dry.  Since
2015, the Philippines has been hit by the El Nino weather phenomenon that has had a
serious effect of water and agriculture issues.  The country’s location on the Ring of
Fire, along the Pacific Rim, also increases the risk of earthquakes and volcanoes.
Generally speaking, the climate is monsoonal with calmer weather during the winter
months, being hot and humid in summer.

The population of the Philippines is currently at 101.6 million (World Bank & Philippine
Statistics Authority), and the 12 th largest globally.  Since 2015, the Philippines has
entered the ‘demographic window’ with 70 percent of the population being of working
age, with a current median age of 23.4 years.  Population growth currently stands at 1.9
percent, although this is accepted as a rather contentious figure.  Additionally, about 12
million Filipinos live and work overseas, and form one of the world’s largest diasporas,
that generates an inward remittances flow of approximately US$26 billion annually,
according to the Bangko Sentral ng Pilipinas. 

The move to invest in a condominium in Philippines will certainly be of great benefit to

the Philippines. Firstly, the investment will benefit the economy because it will help
create jobs for the local population who will be hired to help in the construction of the
houses and other infrastructures at the site. This will certainly help alleviate many
people from the kind of poverty being experienced in the country. In addition, the
establishment of the condominium in the country will help Philippines raise revenue
from taxes on houses. Further, the houses will open up the country, as it will promote
tourism being that the tourists who visit the country will find where to stay thereby
earning the country foreign exchange. The project will provide room for investors and
expatriates to live in as they conduct business in the country. This will certainly help
generate more revenue for the country thereby boosting the country’s economy further.

VIII. Conclusion

Buying a condo is similar to any other home purchase. It’s helpful to work with an
experienced real estate agent who can help you develop a list of things on which you’d
be willing to compromise. You might be able to score a great deal on a condo if you’re
willing to live a little further away from town or if you could do with less square footage.
Your real estate agent can help you decide.

Financing a condo is easier than it was following the financial crisis of the late 2000s,
but it can still be a challenge since lenders always evaluate you and the entire
development. Depending on the condo, you may be able to qualify for a FHA or
conventional loan, but if the condo is identified as non-warrantable, your best bet might
be an all-cash transaction.
 If you’re in the market for a new home, a condo might be worth considering. They offer
flexibility, low maintenance, a sense of community, convenience and security. In
addition, many condos are available for a fraction of the cost of comparable single-
family homes in the area. If you decide to go with a condo, be sure you do your
homework and find out about HOA fees and any CC&Rs that might affect.

IX. Project Implementation Plan

The construction of a condominium must require strategies and plans in order to

become economical. Examples are planning phases or creating a ladder
implementation plan in order to keep things well controlled. This type of planning
answers the question of when will you start the construction project, when will you make
the condominium open for occupancy, for how long will you plan to operate the
condominium, and more other questions alike.

A simple example of planning/phases for a condominium:

Phase 1:
-Designing and cost estimation of condominium
-Construction of the buildings
-Hiring/training proper staffs/managers for the place

Phase 2:
-Start of advertising condominium
-Opening doors and getting finished rooms ready for occupancy
-Deployment of staff/security
-Finish of construction

Phase 3:
-Maintenance of the condominium and its amenities
-Continuous acceptance for tenant feedbacks for improvement
-Collection from lease/rent or sold units, and maintenance fees

One cannot be on the other way around, and each plan was placed on a particular
phase for a purpose. Even each of the phases in the example could still be broken
down into much more complex stages. Proper creation of project implementation plan
also allows you to see what truly is the goal of this project. For this case however, the
obvious goal of the project is to profit - hence why engineering economy is valuable to
this point.

To the very smallest detail, the project must be strategized continuously with an ever
changing plans as an adjustment in case of accidents, problems, and such. This is
where proper management, operation, and maintenance takes place. Examples are
creating a marketing strategy, stakeholder consultation, and proper implementation
schedule. The more of these creates a more economical result in regarding the project.
X. Appendices

APPENDIX A: SOURCES OF RULES

The rules that govern condominium association and unit proprietors originate from
state laws, the documents received when purchasing the unit and the federal
requirement. In appendix A, we will give a short clarification of the main sources of
those principles that your condominium must follow.

STATE LAW

REPUBLIC ACT NO. 4726 June 18, 1966

In Philippines, condominiums are governed by the called “The Condominium Act”. This
law sets forth the rules that condominiums in the Philippines must follow, including how
to handle a condominium, an act to define condominium, establish requirements for its
creation, and. govern its incidents.

R.A. 4726, section 1-27, available at http://hlurb.gov.ph/wp-content/uploads/laws-and-

issuances/RA_4726

FEDERAL REQUIREMENTS

Federal Housing Administration (FHA)

An FHA loan is a mortgage issued by federally qualified lenders and insured by

the Federal Housing Administration (FHA). FHA loans are designed for low-to-moderate
income borrowers who are unable to make a large down payment. As authorized with
the passage of the Housing and Economic Recovery Act of 2008 (HERA), the Federal
Housing Administration (FHA) implemented an approval process for condominium
projects and insurance requirements for mortgages on individual units, under Section
203of the National Housing Act.

APPENDIX B: FORMS OF CONDOMINIUM ASSOCIATIONS

 A condominium is characterized by separate ownership of identified portions of the
subject property and undivided or joint ownership of the remainder. It can be bought and
sold individually, each transferred with a separate deed and subject to a separate
mortgage, as would be the case if each were a separate single-family home.  At the
same time, each condominium owner retains an undivided interest in the common
areas, such as hallways, exterior grounds, landscaping, and the like.

A condominium unit owner becomes a member of the condominium association, the

legal entity that governs the operations of the condominium. Each unit owner is a
member of the association and is able to vote on certain decisions, though members
might not have equal voting rights. Depending on the form employed, different
terminology is used to refer to the condominium association’s governing body and
charter document, as can be seen in the table below.

Legal Entity Governing Body Charter Document Taxation

Trust Board of Trustees Declaration of Trust File return under
personal income tax
provisions
Unincorporated Board of Managers Articles of File return under
Association Association personal income tax
provisions
Corporation Board of Directors Articles of File return under
Organization corporate tax
provisions

APPENDIX C: CONDOMINIUM DOCUMENTS

Article of incorporation

An article of incorporation is the document necessary to register a corporation with a

state and acts as a charter to recognize the establishment of a corporation. The
document outlines the basic information needed to form a corporation, the governance
of a corporation and the corporate statutes in the state where the articles of
incorporation is filed.

Declaration of Trust

Its provisions will cover topics such as how condominium board members are appointed
and removed and how the condominium board must take action regarding various
activities. The Declaration of Trust often also include standard provisions to ensure that
the condominium is in compliance with the FHA requirements so that future buyers can
obtain conventional financing on their units (see APPENDIX A for more information on
these requirements).
Bylaws

The Bylaws set forth more specific rules for how your condominium association
operates. These rules include provisions related to the powers of the board,
responsibility for maintenance of the common areas, methods for the assessment of
common expenses, and the type of insurance the condominium association must carry,
among others.

Rules and Regulation

Owning a house is different from owning a condominium. Unlike a house, the owner
only owns the condo from the walls in. Anything outside is mutually shared with other
homeowners. And since the owner buying into a shared community, there are rules that
need to follow including pet policies, smoking prohibitions, signage restrictions, rules
intended to preserve the architectural integrity of the building, noise ordinances, and
trash disposal rules.

CONDOMINIUM PROPERTY DOCUMENT

Master Deed

Master Deed gives a description of the land and buildings, a description of what is the
common area and what the individual owners own. It defines the sections of your actual
condominium building and designates which portions of the building are common areas
and which are part of individual units, as well as lists each unit’s percentage interest in
the common areas

Unit Deed

Unit Deed describes as owning a condominium unit and allows the unit to be transferred
to a new owner. The unit deed may also include any restrictions on the unit’s use, such
as whether it can be used for residential or commercial purposes.