Corporate News

By Patrizia Paola C. Marcelo

Why investing in a franchise or real estate pays off

Posted on July 31, 2017

To be financially healthy, one must not only save, but also invest money in one or more investment instruments. But in which specific industries must one invest? With a variety of opportunities to choose from, one needs knowledge to find the best industries relative to one’s financial targets.

Among the industries where Filipinos can invest now are franchise and real estate. Franchising is a special type of licensing arrangement or contract wherein a franchisee is granted operating assets, goods and services, trademarks, and exclusive protected territories by the franchisor, to operate the business using the franchisee’s capital and chosen location. Franchising is a popular investment in the Philippines, with business franchises ranging from food to vanity items to services.

Real estate, on the other hand, is property comprised of the land or buildings on it. With various developments on the rise in Metro Manila and its surrounding provinces, Filipinos have an array of properties to choose from.

At the 4th Philippine Investment Expo and Conference, held from July 22-23, 2017, investment experts shared their experiences and tips to visitors interested in various investment opportunities. Franchising and real estate experts shared investment tips and trends on their respective industries.

A basic principle however, advised by the experts during the conference is that one must only invest when there is available money for investing -- borrowing money just to produce financial capital to invest is not advisable.

“The money that you make out of investing will probably not be enough to pay the interest for your loans,” Janis Urste, head of Trade of Global Financial Solutions Asia, said.

Franchising, according to RK Franchise Consultancy founder Rudolf Kotik, is an old business, dating back to the 1860s. It was started by sewing machine manufacturer Singer.

The benefits of buying a franchise, said Mr. Kotik, is inheriting a proven profitable system; getting the name recall advantage of the franchise brand; involvement of less risk than establishing an independent start-up; gaining advise from the franchisor; and fast setting up of business.

Today, the most popular businesses being franchised are food carts or food stands. According to Mr. Kotik, around 60% of business franchises in the Philippines are of these businesses. They range from juice stands, French fries stalls and hotdog stands.

Mr. Kotik said contrary to popular opinion and to what potential investors believe, no special skill sets and training are needed in order to set up a franchise. “I tell you, 99% of restaurant franchisers only know how to eat,” he said, drawing laughter from the audience. One does not need to know how to cook in order to buy a restaurant franchise, or be an expert on pharmacy to buy a drugstore franchise.

There are possible pitfalls when one invests in a franchise, however. Investment in a business franchise whose business model is not yet professionally developed or does not provide proper training or operations manual is likely to fail.

So how does one begin the process of investing in a franchise? Mr. Kotik said that it involves the following steps: examining opportunities, calculating the cost of investment, knowing one’s type of interest, potential business location, and checking of the background of the franchisor.

Among these steps, Mr. Kotik said that choosing the potential business location is very important, regardless of the popularity of the brand one plans to franchise. “If you choose to put up the business in a dead end, even if it is McDonald’s, it will not [thrive],” he said.

Mr. Kotik said that one common mistake made by potential investors is being wary to be the first franchisee of a business. As long as other factors are in place, being the first actually pays off.

He also warned that franchising is not suitable for persons who cannot follow certain norms or standards, as franchising involves following the business model and the rules and principles of the business.

Setting up a franchise business does not end with buying the franchise and starting operations -- it involves hard work and commitment. One must not expect too much from the franchisor and must not take shortcuts in constructing the business, said Mr. Kotik. He also warned of fad products or businesses as these last only for two years and they do not make good investments.

Mr. Kotik also said that one must not compare fees only when franchising -- the long term benefits and yield must be considered.

With proper training, interest and commitment, careful planning, franchising provides an accessible and friendly investment opportunity for many Filipinos.

Another industry where many good investment opportunities are available is real estate. Andy Mañalac, chairman and co-founder of Havitas Developments, said that real estate property, although not easily liquidated, is a good investment because of its high tangible asset value; earning of passive income; attractive and stable income return; and appreciation and capital gains.

Mr. Mañalac also said that he wonders why it is foreigners, and not Filipinos, who see the potential in the local real estate market. Today, the market is attractive because of recent massive infrastructure spending, and the good local work force, composed of skilled and educated people in their 20s to 30s.

Joey Bondoc, research manager at Colliers International, shared investment opportunities in the real estate market. He said that given the situation in Metro Manila, with the worsening traffic, massive booking, poor transport systems, unabated population growth, and expansion of economic activities, townships or mixed-use development areas are now on the rise compared with conventional stand-alone property development.

These townships are set up in prime locations and contain residential, commercial, and entertainment properties and facilities that make them ideal places to invest in.

Good investment opportunities await in the already established townships: Eastwood City in Quezon City, Rockwell Center in Makati, Century City in Makati, and Capitol Commons in Mandaluyong.

New opportunities on the other hand are available in up-and-coming townships: Bridgetown Business Park and ArcoVia in Pasig.

Reclaimed areas also provide ample opportunities, such as Aseana City in Pasay, Vertis in Quezon City, Circuit Makati in Makati and Arca South in Taguig.

All these areas contain prime residential properties, which make good investments, being located near offices and other commercial properties in their townships and areas, and particularly with the growing trend of short-term leases such offered via Airbnb.

Mr. Bondoc said that residential units in Pixel Residences in Aseana City have already been sold out, citing the strategic location of the area -- nearness to the central business district of Makati and the Ninoy Aquino International Airport (NAIA), and within the area of Pasay City’s Entertainment City, which is filled with casinos and recreational facilities.

Mr. Bondoc said properties in these areas are millennial-friendly and will even be higher in value in the next four years, with further development and expansion of townships and mixed-use properties. He also said that Filipinos should take a look at areas outside Metro Manila where development is on the rise, such as Laguna, Cavite and Pampanga, where Clark Green City is located.

Mr. Mañalac said that if one has the money, the time to invest is now. “When will you invest, now when the developments are still on-going, or four years from now, when the values of these places have increased?”

With good long-term economic growth prospects, urban renewal efforts, and increasing interest from foreign buyers and renters, investing in real estate has never been a more attractive prospect.