Philippines is emerging as one of Asia’s paradise for both foreign and local retirees and émigrés alike. It is in the process of transforming its diverse, multi-cultural islands into residential avenues for local and overseas buyers by providing condominiums, gated communities and luxury accommodations like hotels and resorts.

Philippines, despite the annual typhoon visits, has great weather, good food and affordable cost of living which also provides good exchange rate and promising capital growth for property buyers.

Most Favourable Locations

Foreign investors and business-oriented buyers tend to get hold of properties in either the bustling cities of Manila, Cebu and Davao or tourist spot beach resorts.

Manila, as the capital of the country may have appalling reputation for its pollution, congested areas and shocking urban squatters, is in fact the centre of trade and commerce of the country. Foreign offices, multinational company headquarters and commercial establishments are mostly located in Manila.  

Cebu, as the country’s second city is also a popular investment and residential area for buyers, particularly foreigners who prefer to enjoy the natural surroundings in relax city life.

Davao is the most popular city in the south which offers friendly and safe environment, contrary to what people may think of its location—Mindanao.

Other areas like Baguio, Tagaytay and Batangas are also popular for buyers who want cool weather and mellow way of life.

Angeles is also popular for expatriates and the property market is catching up with the original hotspots in the country.

Most of these popular locations and islands are more geared up for property enthusiasts and have been developed to cater their needs accordingly. There are hotels and resorts who are trying to attract a more high-class clientele by providing country club and golf membership for long term tenants, with which reflects the dear accommodation price. Therefore, if you are on a budget, try to avoid the ever popular, expensive areas.

Buying Pre-requisites

Buyers, particularly first time buyers should not make an offer on a prospected property until a lawyer carried out all of relevant searches and information on the property and the seller. However, if you do make an offer before seeking any legal help do not hand over a deposit or sign anything without your lawyer’s presence.

Once your lawyer gives you the go-signal, make sure that the name in which you purchase the property is exactly the same as that on your passport. This is to avoid any unnecessary confusion or problem in the future. Generally, you will be required to pay a ten percent deposit especially on a condominium, until the purchase agreement is executed. This can be refunded if the purchase doesn’t go through—provided it is not your fault.

A final contract will be signed on the date stipulated in the preliminary contract, which will require you to pay the outstanding balance as well as relevant taxes. The deeds are then registered with the Registry of Deeds, making the purchase complete.

Legal Issues

The Philippine Constitution prohibits foreigners from purchasing land however they can get a freehold title in owning a building. Consequently, foreigners opt to buy condominiums in the country. If however, you have decided on buying a house or land, there are a couple of ways which you can gain the freehold title.

The first way is to set up a corporation with 60% Filipino equity and 40% foreign ownership. A corporation with the accepted Filipino/foreign equity share percentage is allowed to acquire lands in the national territory. However, the corporation should apply to the Board of Investment (BOI) for the permission to buy, sell, or act as an intermediary in a real estate transaction, which usually takes 60 to 90 days to process.

The second option is to lease the land that you have bought. Generally, foreign corporations that are investing in the Philippines can lease land for up to 50 years and is renewable for another 25 years.

The third option is to purchase units in a condominium project. According to RA 4726 also known as The Condominium Act Filipino citizens, foreign corporations with at least 60% of the capital stock owned by Filipino citizens and hereditary successors can own units in condominiums in their own names. Foreigners can also own house and lots provided the property has a condominium title.

The last option maybe unusual but possible, is to marry a Filipino woman. A foreign man who marries a Filipino woman is entitled to own a freehold land through hereditary succession—death of the Filipino wife. The children whether Filipino or foreign citizens have also the right to the property as direct heirs. The law does not require the children to be Filipinos to exercise such rights.

Furthermore, Filipinos who have dual citizenships are entitled to buy a residential land for up to 1,000 square metres and agricultural or farm land for 1 hectare only.

Finances

International and local banks in the Philippines offer different lending percentage rates to property purchasers regardless of their citizenships. Some offer 70 percent while others 80 percent of the appraised value of the property for house and lot and townhouse; and 50-60 percent of the appraised value of the lot (land) and condominium. The average duration of a mortgage in the Philippines is ten years for the purchase of land or home improvement and up to 20 years for the purchase of house and lot, townhouse, condominium and house construction.

As a result, many overseas buyers inclined to build up finance at hosme and then transfer it into a Philippine bank account. This is also safe if you are working abroad or earning foreign currency, as no exchange rate fluctuations will alter your monthly mortgage payment.

On the other hand, if you are planning of paying your mortgage outgoings with your Philippine rental income, it may be better to have a mortgage in Pesos.

There are local banks in the Philippines who allow foreigners to apply for House Loan if the collateral is a condominium.

Fees and Taxes

As a buyer you need to budget for the transfer tax of 0.5%, registration fee of 0.25% and documentary stamp tax of 1.5% of the contract price, zoned value or fair market value, whichever is higher, of the property.

If you decide to sell your property, you will need to pay all unpaid taxes of the property, Agent/Broker’s fee (if sold through an agent), and the capital gain tax of 6% of the contract price of the property, which should be paid and submitted within 30 days after each sale, exchange, transfer or other disposition of real property. However, if you use the proceeds from the sale of a property to acquire or construct a new property within 18 months of sale or disposition, you are exempted from paying the final capital gains tax.

In most cases, estate agent fee is 5% of the sale amount of either residential or commercial property, which is paid by the seller.

In addition, your agent or broker can do the registration process without any additional payments.