Quick Guide on How to Buy and Own a Real Estate in Philippines

Real Estate Ownership by Foreigners?

Generally, only Filipinos are allowed by Philippine laws to acquire by purchase, transfer or assignment any lands in the Philippines. However Foreigners may be able to acquire properties in the Philippines by any of the following:

  • Lease the Property — You can lease public and private land for 25 years with an automatic renewal for 25 years, (just enough time for return on investments). This is also a cheap alternative, but it makes it difficult to make any sort of investment return on a property. However, it is ideal for those thinking of retiring here. Unlike many countries such as Thailand or Indonesia, a lease on property for a foreigner is a very easy and straightforward step to take in the Philippines. This is the easiest, least time-consuming, and safest way for a foreigner to purchase small areas of land within the Philippines. It can be done directly with the owner.
  • Through a Filipino Trustee or wife – Have a Filipino (you can trust) where you can put the title or ownership of property in his/her name. This is the most common way for small-scale investors to buy property here.
  • Purchase land as a Balikbayan – The Government of the Philippines has recently passed the Dual Citizenship Act which gives all former Filipinos the right to purchase land within the Philippines.
  • Buy A Condominium Unit — You can own 100% of the unit but not more than 40% of the entire condominium project.
  • Form a Corporation – You can form a corporation with Filipino partners with the sharing of 40% foreign – 60% Filipino capital. This is the most iron-clad form of property ownership for foreign investors, and definitely the preferred form of property ownership for those thinking of establishing a resort, or tourism facility. In fact, the majority of existing resorts and businesses owned by foreigners are using this form of ownership.
  • Inherit the land if your Spouse dies: This simply means, when your Filipina wife dies, you as the compulsory heir, together with your children if you have any, will become the legal owners of her property.

Here is the Ideal Setup that Protects the Interest of Foreign Buyers/Investors of Real Estate Properties:

This setup involves a combination of lease agreement thru a Filipino trustee and the execution of a Special Power of Attorney in favor of the foreigner-buyer.

  1. The property shall be placed under the name of a Filipino trustee or in most cases, the Filipino wife. However, it will be the foreigner-buyer who shall have the actual possession of the owner’s copy of the certificate of title. In this process, the exchange of money for the price shall be exclusive only between the foreigner-buyer and the seller, and does not have to go thru the Filipino trustee.
  2. The foreigner-buyer and the Filipino trustee (to whom the property is named) shall execute a long term lease contract, for say 50 years, in which the foreigner-buyer shall be the lessee and the Filipino trustee as the lessor. The lease contract shall be noncancellable without restrictions as to its use. Further, the lease contract shall carry with it the option to buy at negligble price when the lease term ends.
  3. The Filipino trustee shall execute a Special Power of Attorney (SPA) authorizing the foreigner-buyer to sell the property whenever the latter wants to. The SPA shall be indefinite and without restrictions as to the manner of payment, price and others. It will give the foreigner-buyer sole authority and discretion to dispose of the property whenever he/she wants to and to sign all papers and documents in that regard.

The above setup provides several advantages and protection to the foreigner-buyer without violating the constitutional prohibitions on land ownership. This setup provides the foreigner-buyer free use of the property without restrictions as covered by the long term lease agreement. And most importantly, this provides the foreigner-buyer the sole authority to dispose of the property whenever he wants to because of the SPA that was issued to him.

Land Ownership by Former Filipinos in the Philippines?

Natural-born Filipinos who have acquired American citizenships are entitled to own or acquire lands in the Philippines.

Article XII, Section 8, of the Philippine Constitution provides that a natural born citizens of the Philippines who has lost his or her Philippine citizenship may be a transferee of private lands, subject to limitations provided by law.

Section 7 of the same Article entitles former Filipinos to own and acquire lands through hereditary succession, i.e. by virtue of inheritance.

Tips Before Buying Real Estate in the Philippines

Here are tips a buyer must remember before buying any property in the Philippines, specially if you are buying a single property from an individual:

  1. Make sure the “Transfer Certificate of Title” is authentic. The easiest way to check if the title to the property you are buying is authentic is by getting “Certified True Copy” of the title from the Register of Deeds. This office is usually located at the city or municipal hall where the property is located. Ask the seller of the property for a photocopy of the title -you will need the title number and the name of the owner to get a certified true copy of the title from the Register of Deeds.
  2. Verify that title is clean – meaning the property is not mortgaged (no liens & encumbrances on the property). You can see that at the back of the title with the heading “Encumbrances” . This page must be empty if you are told that the title is “clean”. But sometimes the space for the technical description of the property on the front page of the title is not enough and the description of the property is continued on the “Encumbrances” page, this is of course all right.
  3. Make sure that the land described on the title is really the land that you are buying. You can validate this at the Register of Deeds or by hiring a private land surveyor or a geodetic engineer. Land titles don’t have any street name and number to pin point a property, it is a must to confirm that the actual property you are buying matches the technical description on the Transfer Certificate of Title.
  4. Make sure that the sellers are the real owners. If you are buying from an individual property owner, ask for identification papers like passport or driver’s license, it is also a good idea to talk to the neighbors or the Barangay Captain to confirm the identity of the sellers (you might as well ask some history of the property).
  5. Confirm that the yearly real estate taxes are paid. Ask for certified true copies of the Tax Declaration and original Tax Receipts to confirm that real estate tax payments are up to date. If the above check list is in order, it is generally safe to proceed with the purchase of real estate in the Philippines.

Typical Transaction Costs/Taxes

Purchases from Individuals

a. Capital gains tax – 6% of actual sale price. This is paid by the seller but in
some cases it might be expected that the buyer pays. This percentage could differ if the property assessed is being used by a business or is a title- owned by a corporation, in this case the percentage is 7.5%

b. Document stamp tax – 1.5% of the actual sale price. This is paid by the seller
but in some cases it might be expected that the buyer pays.

c. Transfer tax – 0.5% of the actual sale price.

d. Registration fee – 0.25% of the actual sale price.

Purchases from Developers

a. Capital gains tax – 10% of actual sale price. This value might be expressed as part of the sale price.

b. Document stamp tax – 1.5% of the actual sale price.

c. Transfer tax – 0.5% of the actual sale price.

d. Registration fee – 0.25% of the actual sale price.

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