Purchasing and Building Property in the Philippines
If you decided that it’s time to live in the Philippines or you married a local, or perhaps you are just seeking an investment opportunity. Then you need to prepare yourself properly before jumping into the property market in the Philippines.
Before we discuss property types legal and tax issues, lets, just take a quick look at the Philippines as a place to live. The Philippines is an island based country; this means that it is split up over many thousands (7,000) islands, where there are about 7 mainland masses, and the rest are small pockets of dry land above sea level. The main islands all have a major city and lots of small towns. The major cities are all a hubbub of old and modern mixed together, and property prices are always higher than in the provinces. The provinces are a loosely used term for anything that is not in a city. There are eight languages spoken in the Philippines, but Tagalog is the official language, the second most spoken language is Visaya (or Bisaya), and that is sometimes called Cebuana, after the main city of the Visaya island area, Cebu and is also the Philippines second largest city.
When considering buying a property, all foreigners must understand that they cannot own the land, only the house built on it. If they want to own land, they must either contract a local partner or marry a local citizen. If they marry, then they are co-owners together with their spouse. If they contract a local partner as part of a business agreement, then they can own up to 40% of the land. Residential land ownership is only up to 1,000 meters in urban areas and one hectare in rural or provincial areas, above that it becomes a commercial lot, even if you build a house on it.
The actual process of buying a property, if it is without the land, is based on a standard agreement between buyer and seller. If it involves buying land, then it becomes a bit more complicated since it requires surveying and property status confirmation. If you decide to build, then it becomes even more complicated, and we will discuss that in another article.
Buying a Condo
The easiest type of property to buy is a condominium or apartment. The actual purchasing process is for the condo and not the land it is on, so a foreigner may buy a condo without any problems. If you want to buy a complete project, then the same limitations apply as if you were to buy land, you can only own up to 40% of a condominium project. If you buy a single condo unit, then expect to make an initial downplayed between 10% to 30%, and you will need to get your Condominium Certificate of Title (CCT). Once you complete the final payment, then the title will be placed in your name. The exception to the rule is foreign holders of Special Resident Retiree’s Visa (SRRV), SSRV’s have the right to reside permanently in the Philippines and get additional concessions when purchasing the property.
Buying a House
If you wish to buy a free-standing property on a plot of land, especially one with a great view, either of the sea or from a mountainside, then you can buy the house but not the land. This can be reached through the Investor’s Lease Act of the Philippines. This act allows foreigners to lease land from a Filipino for up to 50 years and then get an extension for a further 25 years.
Buying through a Company
If you prefer to buy your condo or house or even land through a company and not personally own, then you can do this together with a local partner only. As a foreigner the 40:60 rule applies, so you will need to set up a company in the Philippines where you hold 40% and the Filipino holds 60%. The process of setting up and registering a company is via the Board of Investment (BOI), and the purpose of the company must include property/real estate transactions.
If you have come to the Philippines for marriage and intended to live here, then the whole process becomes easier. It also becomes, even more, easier if you intend to live in the area that your wife’s family lives. In this case, you will gain access to various municipal employees and property specialists that will ease the whole process as well as make it cheaper. If you decide to live in an area, your wife is not local too then don’t expect any difference to what would happen if you were alone. The Philippines is a country where connections are key to success. This is most obvious when buying land.
If you have decided to build a house in the Philippines, then you are in for a pleasant surprise unless you build it in one of the Major cities, and then you will be unpleasantly surprised. So, the first step is:
Choosing your location
If you are building a retirement home or a vacation home, the Philippines is the best place to build it. You will come to a country that is both modern and medieval in one. You will find large villa’s on sprawling landscaped properties that house a family of five built next to run down shacks housing twelve family members. This is usually due to a family member working abroad and sending home money every month. A thousand dollars can build a small wooden house in the Philippines, and $15,000 can build a 90-meter house. If you have a larger budget, then you can invest in prime land locations and build a Hollywood palace at a fraction of the cost it would be in any first world country.
Location prices vary according to land types and specific locations. The closer you are to the sea line the higher the property value goes up, and this is only due to Philippine’s understanding that foreigners love to live by the sea. Inner land tracts cost a fraction of the price.
There are two types of land to buy, registered lots and agricultural allotted lots, the first is more expensive and will cost you face value but will give you a title deed. The second belonged to a citizen that was granted a tract of land by the government for agriculture but is used to build residential homes on it; these contracts can be reached through a family member, and the price of the land is 10% of title deed land. If you don’t mind waiting 10 years for the land to be in your local partner’s name, then this is the best deal you will get.
Just to get an idea of prices, in the provinces (not a major city) a seaside land lot of 10 x 10 meters (100) meters can go for around 500,000 PHP to 5,500,000 PHP depending on the specific location, is it a white sand beach or rocky. Is it near a city, a tourist attraction or in a provincial area? The same lot in a standard area will sell for 250,000 PHP to 750,000 PHP, and if it is on an agricultural allotment, then it will sell for as low as 50,000 PHP to 200,000 PHP.
Just to get an idea of size, $1 is approximately 50 PHP, so a 100-meter lot in an agricultural allotment will cost you about $1,000 to $3,000, or by the sea in a tourist area between $10,000 to $110,000.
Buying the Lot
Once you have decided on the lot you want to buy, you must now perform three actions;
1. Contact a Lawyer to prepare a contract for sale
2. Check the Property
3. Pay all Fees and Taxes
Contacting a Lawyer
You cannot do anything without a Philippines partner; whether you marry one or do business with one, you need a local partner to perform any property deals. You will need a lawyer to set up a partnership contract. Make sure you have an experienced lawyer and make sure you ask as many questions as possible including this one: “Please tell me about all laws and regulations relating to…,” and add this “I don’t know anything, so do not assume I know something, I don’t.”
Once you have contacted the lawyer, you will go through the following steps. Remember, if you are connected locally through your partner or wife then the whole process will take up to 30 days at the most if not, it can stretch out for much longer.
· The lawyer prepares a Deed of Absolute Sale (DOAS) and notarizes it.
· You get from the Bureau of Internal Revenue (BIR) the Land Tax Declaration which you submit to the municipal Assessor’s office.
· You pay real estate tax at the Municipal Treasurer’s Office.
· You get a surveyor to survey the land.
· Your survey document is processed at the Assessor´s office for estimating the properties market value.
· You then pay Transfer taxes to the Assessor´s Office.
· The seller pays Capital Gains Tax and the BIR Documentary Stamp tax.
· The lawyer uses the Registry of Deeds (RD) to cancel old title issues a new deed in the name of the buyer is published.
· You get a photocopy of the new title and the request tax declaration form from the Assessor´s office.
All these steps can be done quickly if you contract a good lawyer if you have connections in the municipality you will get the process over quickly. The BIR is always found in the largest cities on the island, so prepare for some travelling if you are buying land in the province.
Here are some important rules to follow when purchasing land:
1. Double check the legal status of the “Transfer Certificate of Title.” You can do this by asking the seller for a copy of their TCT, and it must include the TCT number and the landowner’s name on it, you then verify this by going to the Register of Deeds in the municipality and asking for a “Certified True Copy.”
2. Make sure that the land or property is clean of any issues, such as taxes, liens or mortgages. You can see this in the TCT you have received from the municipality on the page headed “Encumbrances.” If this page is clean, it means the property is clean too.
3. To verify that the land you are buying is what is being offered in the TCT, contract a surveyor to survey the land. They will perform a land survey for a standard fee and will produce an official survey document that you will need in case you intend to build on the land. It also shows you the exact borders of your land on the map as well as conform to the location mentioned in the TCT.
4. Verify that the sellers actually own the land and that there are no more “owners.” It is best to check with the Barangay Captain on this issue, and if your spouse is local, have her check with her family and friends make sure there are no hidden claimants such as inheritors to the lot.
5. Make sure that the seller has paid all the taxes. As for an original Tax Receipt, it is showing that there are no outstanding tax debts on the property.
To sum up, once you have made sure that the land being sold is “kosher,” then you can go ahead and purchase the land together with your partner or spouse.
A quick note about the building:
If you thought to get the permits was hard, then think again, the construction process is where it gets interesting. If you want a high-quality property built, then you need a construction engineer and the architect to oversee the actual construction process. This will make the work longer, more expensive, but produce better results. If you can give up some levels of quality, then use a local mason to oversee the construction and be there yourself to oversee everything.
Remember, don’t trust any estimations, double check. I have found that they tend to underestimate, and you end you making repeat orders. This leads to waiting time and more logistics expenses.
Also, don’t trust accuracy, make sure you are on the construction site every day and don’t get angry. You might have to explain twenty times to get masons to understand. Do not leave them unattended. They tend to make decisions by themselves, and this can cost you in design issues, such as placing kitchen tiles in the terrace or bathroom fixtures in the wrong place.
Expect to spend a total of $15,000 for a 90-meter house with terrace. This will build you a good quality house, if you want it to be Italian/French Riviera quality, then expect to spend double that for all the imported marble, special furniture and finishing.
Fees and Taxes
VAT: houses are exempt from VAT according to the “Urban Development Housing Act of 1992.”
Notary Fee: If your partner/spouse knows the lawyer then you will be able to negotiate lower fees, in general, the rule is 1% — 2% of the property value.
Local Transfer Tax: This tax is 0.50% in the provinces and 0.75% in cities.
Documentary Stamp Tax: This tax is set at 1.5% and is set according to the higher of two values; the sales price or the estimated fair market value of the property.
Capital Gains Tax: This is paid by the seller, at 6% and set according to the higher of two values; the gross selling price of the estimated fair market value. This tax is only payable if the property is for personal use, if the property is used in trade or commerce such as rental properties then it is not subject to this tax.
Real Estate Agent´s Fee: You don’t find many real estate agency fees when dealing with residential lots in the provinces. In the cities, you will do and will be subject to a 3% to 5% fee.
The Bottom Line
The Philippines is like anywhere else in the world, prices fluctuate according to supply, and demand and they also vary according to location. In the Philippines, there is a lot of demand for beachfront properties, so expect to pay full price for lots on white beach fronts, slightly less for rocky beach front and much less for jungle areas. If you buy in a city or even a town, the price in town is higher then outside, and in the city, it is exponentially high.
It is important that your local partner or spouse is connected personally with friends and relations to all the key personnel, the time it will take to get all the documentation from purchasing the lot to getting building permission, can take one month. If you don’t, it can take half a year. This means if you decide to build in an area that neither you nor your local partner is directly related to in any way, expect a long haul. If you decide to build where you’re local partner grew up or does business, it will shorten the process to one month as well as reduce costs by 80%.