General Real Estate Guide in the Philippines
As a rule, only Filipino citizens and corporations or partnerships with least 60% of the shares are owned by Filipinos are entitled to acquire land in the Philippines.
Aliens can acquire land in the Philippines only on a few exceptions: 1) Acquisition before the 1935 constitution. 2) Acquisition thru hereditary succession -if the foreigner is a legal heir. 4) Purchase of not more than 40% interest as a whole in a condominium project. 4) Purchase by a former natural born Filipino citizen who acquired foreign citizenship & has not applied and granted dual citizenship can purchase up to 1,000 square meters of residential land and 1 hectare of agricultural or farm land.
Modes of Acquiring Land:
Private Grant – voluntary transfer or conveyance of private property by a private owner, such as sale or donation.
Public Grant – acquisition of alienable lands of the public domain by homestead patent, free patent, sales patent or other government awards.
Involuntary Grant – acquisition of private party against the consent of the former owner, such as foreclosure sale, execution sale, or tax sale.
Inheritance – acquisition of private property through hereditary succession.
Reclamation – filling of submerged land, subject to existing laws and government regulations.
Accretion – acquisition of more lands adjoining the banks of rivers due to the gradual deposit of soil as a result of the river current.
Prescription – acquisition of title by actual, open, continuous, and uninterrupted possession in the concept of owner for the period required by law.
A foreign national and or corporation may enter into a lease agreement with Filipino landowners for an initial period of up to 50 years and renewable for another 25 years. Or lease the property in your Philippine Corporation name for an unlimited period of time.
Acquisition is the act of procuring or getting a hold of real estate property. Disposition is the manner of alienation, transfer of possession and ownership thereof as prescribed by the Philippine law. The acquisition and disposition of real estate is embodied in written agreements or contracts voluntarily entered into and subscribed by the selling and buying parties thereof, before a public officer designated as the Notary Public of the City or Province where the subject property is located. Thereafter, the instrument embodying the particular real estate transaction is required by law to be recorded in the Registry of Deeds in the City or Province where the real estate property is involved and located. The Philippines uses the “Torrens” system of real estate ownership.
The Bundle of Rights Theory
The bundle of rights theory inherent to property ownership are the right to use (Jus-Utendi), the right to enjoy the fruits of (Jus-Fruendi), the right to dispose (Jus-Disponendi), the right to abuse (Jus-Abutendi), the right to recover (Jus-Vindicandi), and the right to possess (Jus-Possidendi). The rights incident to ownership are, the right:
- to enjoy and dispose of a property without other limitations than those established by law;
- to file action against third parties to recover ownership;
- to use force as may be reasonably necessary to repeal or prevent an actual or threatened unlawful invasion or usurpation of his property (Art. 429, NCC, relate to Art. 312, RPC);
- to enclose or fence property – walls ditches, live or dead hedges – or by any other means without detriment of servitudes constituted thereon;
- to demand indemnity for damages caused to property;
- to compensation in the event of expropriation;
- to be restored to possession in case of unlawful dispossession;
- to the surface and subsurface of the land, right to construct thereon any works, plantation and excavation without detriment to servitude and subject to special laws and without right to complain of the reasonable requirements of aerial navigation;
- to hidden treasure;
- to accession and fruits of the property;
- to “quiet title” to real property or any interest therein.
Limitations on right of property ownership:
CONSTITUTIONAL – such as police power, eminent domain or expropriation of private property for public use, taxation and escheat when revision of private property to state ownership in case of death of property owner without an heir;
LEGAL – zoning ordinances, regulations on subdivision projects, building code, and other special laws and regulations; and
CONSENSUAL/VOLUNTARY – easements and servitudes, usufructs, lease agreements, restrictions in subdivision and condominium deeds or restriction.
The Regalian Doctrine of property ownership
A principle in law which means that all natural wealth – agricultural, forest or timber, and mineral lands of the public domain and all other natural resources belong to the state. Thus, even if the private person owns the property where minerals are discovered, his ownership for such does not give him the right to extract or utilize said minerals without permission from the state to which such minerals belong.
The Steward Concept of property ownership
The Steward Concept is a legal doctrine which holds that property ownership presupposes concomitant obligations to the state and the community and that property is supposed to be held by the individual only as trustee for people in general; and that as mere steward, the property owner must exercise his rights to the property not just for his own exclusive and selfish benefit or interest but for the good and general welfare of the nation as a whole.
The National Housing Authority
Presidential Decree No. 957, which regulates the sale of subdivision and condominium developments, and providing penalties for violations thereof. The National Housing Authority has exclusive jurisdiction to regulate real estate trade and business, a function, which is presently exercised by the Housing and Land Use Regulatory Board (HLURB). Certain conditions are required before a license to sell condominium development units and or subdivision development lots and homes is issued to a Filipino or Foreign owned individual or corporation. The requirements include a certificate of registration, a performance bond, and an approval of the building plans and specifications. Violation of these rules could mean fines, cancellation of license and or imprisonment.
How difficult is the property purchase process in the Philippines?
Foreigners cannot own land, but can own condominium units or apartments in high-rise buildings as long as the foreign proportion does not exceed 40%. They can also buy a house but not the land on which it is built. Leases on land up to 50 years, renewable for another 25 years, are available.
If a foreigner is keen on acquiring land, there are several options. One, if married to a Filipino citizen, is to have the ownership of the land under the Filipino’s name. However, in the event of death or separation, the land cannot be transferred to the foreigner. Another option is to acquire land through a corporation. Corporations can only be, at the maximum, 40% foreign-owned.
The maximum area that may be acquired for residential purposes is 1,000 square meters of urban land or one hectare of rural land.
When buying new property, it is important to look for properties backed by established developers and licensed real estate agents/ brokers, especially in cases of off-plan or pre-selling (the property is at the planning stages and non-existent during the time of the sale).
In general, property can be acquired by simple agreement. After deciding what property to buy as well as inspecting the premises and documents, the buyer usually signs a binding notarized Deed of Sale. Employing the services of a reputable sales agent is convenient because they not only provide vital information regarding the transaction and property, but also assist the buyer in getting mortgage loans.
A down payment of 10%-30% is usually required. Ownership of condominium units is evidenced by the Condominium Certificate of Title (CCT) but the transfer of title is usually not executed until the property is fully paid. Foreigners can only own up to 40% of a condominium project.
Holders of Special Resident Retiree’s Visa (SRRV), a non-immigrant resident visa, can get additional benefits aside from being allowed to buy a condo unit or lease a parcel of land or a house and lot. The SRRV holders can reside in the Philippines permanently, with multiple-entry privileges and zero travel taxes. Other benefits and information about the SRRVisa is available on the Philippine Retirement Authority Website.
The process of buying land in the Philippines is cumbersome and tedious. Aside from the fact that foreigners are not allowed to buy land, the system of land registration and classification should make any investor think twice. The farther you are from the capital the more caution one must take.
However, serious land problems also exist in the NCR. There are 11 laws directly related to land registration and nine others indirectly related to land disposition and administration. Aside from the Department of Environment and Natural Resources and the Bureau of Lands, there are several agencies that have direct and indirect control over land. The courts also have the authority to award land ownership.
Legal Procedures in transfer of title (land and apartments)
- Owner and Buyer agree on sale of a piece of land. Through a lawyer, a Deed of Absolute Sale (DOAS) is created and notarized.
- A Land Tax Declaration is secured from the Bureau of Internal Revenue (BIR) and submitted to the city or municipal Assessor’s office.
- Buyer pays real estate tax to the City Treasurer’s Office.
- The Assessors office assesses the market value of the property.
- Transfer taxes are paid by the buyer to the Assessors Office.
- Capital Gains Tax and Documentary Stamp tax are paid to BIR.
- The Registry of Deeds (RD) cancels old title and issues a new one in the name of the buyer.
- The buyer, now the new owner, obtains a photocopy of the new title and requests tax declaration from the Assessors office.
Ownership is evidenced by the Transfer Certificate of Title (TCT) in the case of single houses and raw land, and The Land Registration Act requires the owners of property to register titles with the Registry of Deeds. The titles must be registered in the same province as the property. However, the records are inaccurate in such that overlapping might exist. There is a proliferation of fake and double titles. The completion of survey of all the lands in the country, mandated by the 1903 Public Land Law, is nowhere in sight.
The whole process of registering property may take around 33 days to complete eight procedures.
Value Added Tax
According to RA 9337, the following sales of property are VAT-Exempt
- Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business;
- Sale of real properties utilized for low-cost housing as defined by R.A. No. 7279, otherwise known as the “Urban Development Housing Act of 1992” and other related laws, such as R.A. No. 7835 and R.A. No. 8763 wherein the price ceiling per unit is P750,000.00 or as may from time to time be determined by the Housing and Urban Development Coordinating Council (HUDCC) and the National Economic Development Authority (NEDA);
- Sale of real properties utilized for socialized housing as defined under R.A. No. 8763, wherein the price ceiling per unit is P225,000.00 or as may from time to time be determined by the HUDCC and the NEDA and other related laws;
- Residential lot valued at one million five hundred thousand pesos (P1,500,000) and below, house and lot, and other residential dwellings valued at two million five hundred thousand pesos (P2,500,000) and below: provided, that not later than January 31, 2009 and every three (3) years thereafter, the amounts herein stated shall be adjusted to their present values using the Consumer Price Index, as published by the National Statistics Office (NSO).