THE CONDO LIQUIDATION PLAY

Let's say you came up with a clever money-making idea.

Find an old low-storey condo building sitting on a big lot. The building is tired. The units are relatively cheap. You figure that one day it gets condemned, the land gets sold, and the owners split the money.

You have P50 Mn to spend.

A studio costs P2.5 Mn.

A 3-bedroom costs P10 Mn.

So do you buy 20 studios or 5 three-bedrooms?

You read that under RA 4726, the Condominium Act, owners get equal shares in the common areas. One unit, one share.

So why buy a 3-bedroom when a studio gets you the same share for a fraction of the price?

You buy 20 studios.

Years later, the land sells. After debts, taxes, and fees, P750 Mn is left for the owners. There are 100 units. With equal shares, each unit gets P7.5 Mn.

Your 20 studios bring you P150 Mn (vs. the P50 Mn invested). You tripled your money. Great job.

Had you bought 5 three-bedrooms, you'd get P37.5 Mn back and lose P12.5 Mn.

Now here's the problem...

Equal shares is only the default.

The law says it applies UNLESS the registered Master Deed provides otherwise. Many projects allocate shares by the unit's share of the common area.

Say this building has 10,000 sqm of total common area. Your 40 sqm studio is 0.4% of that.

The 200 sqm 3-bedroom is 2%.

Run the numbers again...

Each studio gets P3 Mn.

Each 3-bedroom gets P15 Mn.

Your 20 studios bring you P60 Mn. You still made P10 Mn. Not bad.

But the 5 three-bedrooms would have brought you P75 Mn. That's P25 Mn profit on the same P50 Mn. The "cheap" units were the expensive way in.

And that's if the sale even happens.

Selling the whole project has its own conditions under the law. Some of those are counted by percentage interest, not one vote per unit. So your 20 studio units may carry less weight than you think, both in the vote and in the payout.

Lesson: the law isn't always the final word. Sometimes it's just the default. Do your homework before you try anything clever.

Know what you own before you decide what happens to it.