Real Estate Investment: Understanding Backlog

For aspiring real estate investors, the term “Backlog” is crucial to grasp. It’s a significant indicator of a project’s future direction and investment risk. Here are four key things you should know about Backlog:

𝗣𝗿𝗲𝘀𝗮𝗹𝗲 𝗮𝗻𝗱 𝗕𝗮𝗰𝗸𝗹𝗼𝗴: Real estate transactions differ from other goods. They involve the period between the purchase-sale contract and delivery. This timeline is longer than typical product sales, giving rise to terms like “Presale” and “Backlog.”

𝗣𝗿𝗲𝘀𝗮𝗹𝗲 𝘃𝘀. 𝗕𝗮𝗰𝗸𝗹𝗼𝗴: Presale refers to reserving a house or condo during a specific period, often with installment payments. Backlog, on the other hand, accumulates presale amounts awaiting delivery upon project completion.

𝗕𝗮𝗰𝗸𝗹𝗼𝗴 𝗜𝗺𝗽𝗼𝗿𝘁𝗮𝗻𝗰𝗲: Backlog is more critical for investors than presale amounts. Presale is essentially a reservation and doesn’t indicate actual project income until ownership transfer. It can’t be recorded as accounting income until then.

𝗥𝗲𝗰𝗼𝗴𝗻𝗶𝘇𝗶𝗻𝗴 𝗕𝗮𝗰𝗸𝗹𝗼𝗴 𝗮𝘀 𝗜𝗻𝗰𝗼𝗺𝗲: The period for backlog to become recognized income varies based on project type:

𝗣𝗿𝗼𝗷𝗲𝗰𝘁𝘀 𝗼𝗽𝗲𝗻 𝗳𝗼𝗿 𝘀𝗮𝗹𝗲 𝗯𝗲𝗳𝗼𝗿𝗲 𝗰𝗼𝗻𝘀𝘁𝗿𝘂𝗰𝘁𝗶𝗼𝗻: 6-8 months for low-rise, and over a year for high rise condos.

𝗣𝗿𝗼𝗷𝗲𝗰𝘁𝘀 𝗯𝘂𝗶𝗹𝘁 𝗯𝗲𝗳𝗼𝗿𝗲 𝗯𝗲𝗶𝗻𝗴 𝘀𝗼𝗹𝗱: Shorter timeframes depending on construction progress.

𝗥𝗲𝗮𝗱𝘆-𝘁𝗼-𝗺𝗼𝘃𝗲-𝗶𝗻 𝗽𝗿𝗼𝗷𝗲𝗰𝘁𝘀: Approximately 1-2 months.

Timing Matters for Real Estate Investment: Purchasing during the presale period offers advantages like developer promotions and lower prices.

However, the stability indicator lies in the backlog. Investors should consider buying during later presale rounds when there’s a sufficient backlog, reducing the risk of project abandonment or deposit seizure.

While initial presale rounds may provide more benefits, they carry higher risks. Waiting for a solid backlog offers a balanced approach to real estate investment.

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