The Philippines has become a preferred destination when foreign investors buy real estate in Asia. It’s not strange as it has low living costs, cheap real estate, many long term visas and a quickly growing economy with preferable demographics.
Still, investing in real estate in the Philippines always brings some risks. You must have a good knowledge of local regulations beforehand.
In this article, you will learn about ownership regulations, property taxes, visa options and which places that should be of interest when you buy real estate in the Philippines.
Can foreigners buy property in the Philippines?
The Philippines is similar to other Southeast Asian countries in terms of foreign property ownership. Here, individuals can buy and legally own condominiums and houses, but not the land that these structures are built on. Simple as that.
Looking at ownership of condo units, foreigners are allowed to own 40% of the units in a given condominium project according to the Condominium Act, the rest need to be allocated to local citizens.
Can a dual citizen buy property in the Philippines?
This question is often asked by people who were born in the Philippines but have got a second passport by pursuing careers overseas.
Dual citizens have no issues to buy property in the Philippines as you won’t lose your citizenship by acquiring citizenship in another country. You can buy and legally own land as many properties you want in your name, there are only limitations to the land area. You are treated in a similar way to locals.
Foreigners face more hurdles when investing in real estate. Foreigners can’t own land in most Asian countries and the Philippines is no exception. For the record, Malaysia is the only Southeast Asian country where you can buy land as a foreigner.
But there are ways to get around this and to indirectly own, or should I say, control land. Opening a company to buy real estate is a popular option. Filipinos need to own at least 60% of the shares in a company.
Steps When Buying Land in the Philippines
Having a plot of land is a preferable choice for people who plan to stay long term in the Philippines. Might they buy or build a new house.
Also, novice investors sometimes target land plots as these can increase exponentially in value.
If you plan to buy land, you should pay attention to following:
The best land to acquire is titled property
You need to present verified documents like a tax declaration, a tax map, and a certified copy of the title to the relevant authorities. There should be no encumbrances and liens at the back of the title. This should be confirmed with the help of a solicitor
If there’s an encumbrance, like existing mortgages or similar, make sure that it’s cancelled or released before signing the contracts
In case you decide to make a spot cash payment, you need to provide a Deed of Absolute Sale and Acknowledgement Receipt in front of a notary public
If you agree to make payments in installments, you and the seller should sign a Contract to Sell and an Acknowledgement of Receipt. Your lawyer might also provide additional documents
When the contract and documents are finalized, the Bureau of Internal Revenue will process the documents for payment of taxes, after, a Certificate Authorizing Registration (CAR) is issued
When the process is completed, transfer taxes will be paid at the City Assessor’s Office and Registry of Deeds
When you’ve paid the taxes, the Registry of Deeds issue the new title in your name. This is referred to as the Transfer Certificate of Title when buying land, when buying a condo, it’s referred to as a Condominium Certificate of Title.
Property Taxes in the Philippines
As late as December 2018, President Duterte signed the Tax Reform for Acceleration and Inclusion (TRAIN) Act, which aims to make the Philippines’ tax system more efficient, fair, and clear.
The new policies issued under TRAIN mainly benefit people in the low- and middle class. Real estate taxes are affected by the new policies as well.
Let’s have a look at the latest tax rates that apply when buying, holding, or selling property.
Documentary Stamp Tax (DST)
The Documentary Stamps Tax (DST) is set to 1.5% and multiplied with the sales value, or the zonal value, whichever is higher.
Transfer Tax
In addition to the stamp duty, you need to pay a transfer tax of 0.5% – 0.75%. It’s multiplied with the sales value, or zonal value, whichever is higher.
Rental Income Tax
Rental incomes are treated as personal incomes in the Philippines and fall under the same tax rates.
If you’re a resident, the tax rates are as follows and applicable until 2022:
PHP 0 – 250,000: 0%
PHP 250,000 – 400,000: 20% of the excess over PHP 250,000
PHP 400,000 – 800,000: PHP 30,000 + 25% of the excess over PHP 400,000
Over PHP 800,000 – 2,000,000: PHP 130,000 + 30% of the excess over PHP 800,000
Over PHP 2,000,000 – 8,000,000: PHP 490,000 + 32% of the excess over PHP 2,000,000
Over PHP 8,000,000: PHP 2,410,000 + 35% of the excess over PHP 8,000,000
Non-resident foreigners are taxed at a flat rate of 25%, but can’t make any deductions, such as for maintenance fees or depreciations of a property’s value.
Real Property Tax (RPT)
Local governments collect a yearly property tax to finance public services in the local area where your property is located.
The rate is 2% in Manila and 1% in other provinces. But, the tax becomes almost negligible as it’s multiplied by merely 20% of the appraised value for residential property.
For commercial real estate, the tax rate is multiplied by 50% of the appraised value.
You can pay the property tax yearly or quarterly.
Capital Gains Tax
The Capital gains tax is 6% and levied on the sales value or the zonal value.
Usually, the seller pays for the tax, but it’s not rare that the buyer pays for the tax.
Sometimes, it’s also included in the sales price.
If you need a house loan, you should contact a handful of banks earliest possible to let them do a background check and see what options they have and if you meet the loan requirements.
During this time, the banks check your visa-type, financial situation, age, employment, credit history, and more, to confirm that you’re eligible to receive one of their loan packages.
Some of the biggest banks you should
contact include: BDO, UniBank, Metrobank, BPI, Chinabank
If you want to save time, you can also contact a broker to help you find banks and good deals. This will set you back some money but can be worth it. Nowadays, you can find many loans comparing websites that are worth visiting as well.
Best Places to Buy Property in the Philippines
The Philippines is a diverse country and it’s important that you get guidance to find the best areas to live and invest in property.
Let’s have a look at the two prime spots that attract foreigners the most.
Metro Manila
Manila is the capital with a population of more than 13 million people in the urban area. It can proudly claim itself to be one of the most densely populated places in the world.
Then there’s Metro Manila, which is not a city by itself, but consisting of a number of cities and municipalities. Together, the area has a total population of more than 20 million people.
Some of the areas surrounding Manila that attract many foreigners include Makati, Quezon City, and Taguig.
Much investment takes place here and you’ll find many new or off-plan projects.
Cebu City
Cebu City is the third largest city and attracts many tourists.
Compared to Manila, it’s considered more relaxed, safe, and a great place to be if you want to practice scuba diving and visit islands (there are 167 of them in total).
Prices are lower compared to prime areas in Manila, making it a better place to reside for many retirees or foreigners who simply want to own a holiday property abroad.
The city doesn’t rely on tourism merely, but is a large producer of ships and goods.
In fact, 80% of all the ships are built in this city, making the Philippines the 4th biggest shipbuilder in the world.
Real Estate Agents in the Philippines
A local real estate agent can help you to reduce the hurdles as they can present the most interesting areas, what kind of property you should buy, how much you should pay, and more.
For example, they can tell you what properties have been sold for recently, areas with high vacancy rates, and where prices are predicted to grow the most. Of course, you can do some research on your own, but I highly recommend you to hire a credible agent to help you throughout the process.
Commission Rates for Agents and Brokers
Brokers charge between 3-6% of the sales value, while the rate for agents is 2-3%.
Conclusion
The Philippines is a preferred choice among foreign property investors. It grows fast economically, has promising demographics, low living costs, and a developed hospitality industry.
At the same time, property prices in prime areas in Manila and Cebu are significantly lower compared to places like Shanghai, Hong Kong, and Singapore.
You can’t own land in the Philippines as a foreigner, so the preferable choice is to buy one or more units in a condominium project. Areas of interest should be Makati, Quezon City, Taguig, and Cebu.
I hope you found this information useful and recommend you to read our other articles related to buying property in the Philippines.
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