Philippine Real Estate Laws

1. Property Registration Decree Also known as Presidential Decree No. 1529, this law governs the registration process for real estate properties. It establishes the Land Registration Authority (LRA) as the central agency responsible for registering land titles and ensuring the accuracy and integrity of land records. 2. Torrens System The Torrens System, adopted in the Philippines from the Australian Torrens system, provides a secure and efficient method of registering land ownership. It guarantees the indefeasibility of registered titles, offering protection against fraudulent claims and providing certainty in land transactions.

1. Condominium Act (Republic Act No. 4726) The Condominium Act regulates the creation, establishment, and management of condominiums in the Philippines. It defines the rights and obligations of owners, establishes condominium corporations, and sets guidelines for the administration and maintenance of common areas and facilities. This law particularly plays a part in the rise of condominium buyers in the National Capital Region. 2. Residential Real Estate Act (Republic Act No. 9653) This law provides protection to buyers of residential properties, particularly in housing subdivisions and condominiums. It sets standards for developers, mandates disclosure of project details, and establishes mechanisms to address complaints and disputes. 3. Realty Installment Buyer Protection Act (Republic Act No. 6552) Also known as the Maceda Law is a significant legislation in the Philippines that protects the rights of buyers in real estate transactions, particularly those involving residential real estate properties. Enacted in 1972, the law aims to provide safeguards for buyers who purchase properties through installment or deferred payment schemes.

Real Estate Service Act (RA No. 9646) It regulates the practice of real estate service professions, including real estate brokers, appraisers, consultants, and salespersons. It sets the qualifications, licensing requirements, and professional standards for these practitioners.

Foreign Investment Act (RA No. 7042) This law sets out the rules and restrictions on ownership of foreign nationals and investment in the Philippines. It identifies areas where foreigners are limited or prohibited, including in the acquisition of private lands and properties

The Anti-Dummy Law prohibits Filipino citizens or entities from using or allowing a foreign national to use their names or identities to circumvent the constitutional restrictions on ownership of foreign nationals in certain industries, including real estate. It’s important to consult with legal professionals or seek expert advice when dealing with specific real estate transactions or issues to ensure compliance with these laws and regulations. Remember that this knowledge of Philippine real estate laws is not only beneficial for individuals directly involved in real estate transactions but also for prospective buyers, tenants, landlords, investors, real estate developer, and real estate developers.

1. Lease Agreements: Commonly used for renting or leasing real estate properties. These agreements outline the terms and conditions of the lease, including rent, duration, maintenance responsibilities, and termination procedures. It is essential to have a clear and legally binding lease agreement to protect both the lessor and the lessee. 2. Taxation: Income Tax: While real estate properties are subject to various taxes, such as capital gains tax and documentary stamp tax, income tax may also apply in certain cases. For example, if you earn rental income from a property, you may be required to declare it and pay income tax on the rental earnings. Real Property Taxes: Real property taxes are imposed by local government units and are based on the assessed value of the property. These taxes contribute to local government funds and are used for public services and development projects in the area. 3. Condominium Ownership: Condominium Corporation: When you purchase a condominium unit, you automatically become a member of its corporation. It is entirely responsible for the administration and maintenance of common areas, facilities, and services. As a condominium owner, you have the right to participate in meetings and decision-making processes. 4. Consumer Protection: Various laws aim to protect consumers and buyers in real estate transactions. These include the Residential Real Estate Act, which provides safeguards for buyers of residential properties, and the Housing and Land Use Regulatory Board (HLURB) guidelines, which set standards for developers and protect the rights of subdivision and condominium buyers. 5. Land Registration and Titles: The registration of land titles in the Philippines is governed by the Property Registration Decree. It establishes the Land Registration Authority (LRA) as the central agency responsible for maintaining and ensuring the accuracy of land records. Properly registered land titles provide security and evidence of ownership.

For Foreigners Ownership of land in the Philippines is highly-regulated and reserved for persons or entities legally defined as Philippine nationals or Filipino citizens. For this purpose, a corporation with 60% Filipino ownership is treated as a Philippine national. Foreigners or expats interested in acquiring land or real property through aggressive ownership structures must consider the provisions of the Philippines’ Anti-Dummy Law to determine how to proceed. A major restriction in the law is the restriction on the number of foreign members on the Board of Directors of a landholding company (which is limited to 40% foreign participation). Another concern is the possible forfeiture of the property if the provisions of the law is breached. Exceptions to the restriction on foreign acquisition of land in the Philippines are the following: Acquisition before the 1935 Constitution Acquisition through hereditary succession if the foreigner is a legal or natural heir Purchase of not more than 40% interest in a condominium project Purchase by a former natural-born Filipino citizen subject to the limitations prescribed by law (natural-born Filipinos who acquired foreign citizenship is entitled to own up to 5,000 sq.m. of residential land, and 1 hectare of agricultural or farm land). Filipinos who are married to aliens and able to retain their Filipino citizenship (unless by their act or omission they have renounced their Filipino citizenship) Land Ownership as a Corporation Foreign nationals, expats or corporations may completely own a condominium or townhouse in the Philippines. To take ownership of a private land, residential house and lot, and commercial building and lot, they may set up a domestic corporation in the Philippines. This means that the corporation owning the land has less than or up to 40% foreign equity and is formed by 5-15 natural persons of legal age as incorporators, the majority of which must be Philippine residents. Leasing of Real Estate Property Leasing land in the Philippines on a long-term basis is an option for foreigners, expats or foreign corporations with more than 40% foreign equity. Under the Investor’s Lease Act of the Philippines, they may enter into a lease agreement with Filipino landowners for an initial period of up to 50 years renewable once for an additional 25 years. Owning Houses or Buildings Foreign ownership of a house or building in the Philippines is legal as long as the foreigner or expat does not own the land on which the house was built. Owning Condominiums or Townhouses The Condominium Act of the Philippines (R.A. 4726) expressly allows foreigners to acquire condominium units and shares in condominium corporations up to 40% of the total and outstanding capital stock of a Filipino-owned or controlled condominium corporation. However, there are a very few single-detached homes or townhouses in the Philippines with condominium titles. Most condominiums are high-rise buildings. Being Married to a Filipino Citizen If holding a title as an individual, a typical situation would be that a foreigner married to a Filipino citizen would hold title in the Filipino spouse’s name. The foreign spouse’s name cannot be on the Title but can be on the contract to buy the property. In the event of the death of the Filipino spouse, the foreign spouse is allowed a reasonable amount of time to dispose of the property and collect the proceeds or the property will pass to any Filipino heirs and/or relatives. For Former Natural-Born Filipino Citizens Any natural-born Philippine citizen who has lost their Philippine citizenship may still own private land in the Philippines (up to a maximum area of 5,000 square meters in the case of rural land). In the case of married couples, the total area that both couples are allowed to purchase should not exceed the maximum area mentioned above. Former Filipino Citizens, Balikbayans, and OFWs Former natural-born Filipinos who are now naturalized citizens of another country can buy and register, under their own name, land in the Philippines (but with limitations in land area). However, those who avail of the Dual Citizenship Law in the Philippines can buy as much as any other Filipino citizen. Under the Dual Citizenship Law of 2003 (RA 9225), former Filipinos who became naturalized citizens of foreign countries are deemed not to have lost their Philippine citizenship, thus enabling them to enjoy all the rights and privileges of a Filipino citizen regarding land ownership in the Philippines. How to Gain Dual Citizenship If you are in the Philippines, file a Petition for Dual Citizenship and Issuance of Identification Certificate (pursuant to RA 9225) at the Bureau of Immigration (BI) and for the cancellation of your alien certificate of registration. Those who are not BI-registered and overseas should file the petition at the nearest embassy or consulate. Requirements: Birth Certificate authenticated by the Philippine National Statistics Office (NSO) Accomplish and submit a Petition for Dual Citizenship and Issuance of Identification Certificate to a Philippine embassy, consulate or the Bureau of Immigration Pay a $50.00 processing fee, schedule, and take an “Oath of Allegiance” before a consular officer The Bureau of Immigration in Manila receives the petition from the embassy or consular office. The BI issues and sends an Identification Certificate of citizenship to the embassy or consular office. If a former Filipino who is now a naturalized citizen of a foreign country does not want to avail of the Dual Citizen Law in the Philippines, he or she can still acquire land based on Batas Pambansa (BP) 185 and RA 8179, but limited to the following: For Residential Use (BP 185 – enacted in March 1982): Up to 1,000 square meters of residential land Up to one (1) hectare of agricultural of farmland For Business/Commercial Use (RA 8179 – amended the Foreign Investment Act of 1991): Up to 5,000 square meters of urban land Up to three (3) hectares of rural land Real Estate Transaction Costs in the Philippines Purchases from Individuals Capital Gains Tax – 6% of actual sale price. This is paid by the seller but in some cases, the buyer might be expected to be the one to pay. 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%. Document Stamp Tax – 1.5% of the actual sale price. This is paid by either the buyer or the seller upon agreement. Normally, however, it is the buyer who shoulders the cost. Transfer Tax – 0.5% of the actual sale price Registration Fee – 0.25% of the actual sale price Purchases from Developers Capital Gains Tax – 10% of actual sale price. This value might be expressed as part of the sale price. Document Stamp Tax – 1.5% of the actual sale price Transfer Tax – 0.5% of the actual sale price Registration Fee – 0.25% of the actual sale price

1. General Rule – Only Filipino Citizens and corporations or partnerships at least 60% of the capital of which is owned by Filipinos are entitled to acquire land in the Philippines.

2. As exception to the general rule, alien acquisition of real estate in the Philippines is allowed in the following cases:

a.. Acquisition before the 1935 Constitution;
b.. Acquisition thru hereditary succession. If foreign acquiree is a legal heir;

This simply means that when the non-Filipino is married to a Filipino citizen and the spouse dies, the non-Filipino as the natural heir will become the legal owner of the property. The same is true for the children. Every natural child (legitimate or illegitimate) can inherit the property of his/her Filipino father/mother even if he/she does not have any Filipino citizenship.

c.. Purchase of not more than 40% interest in a condominium project;
d.. Purchase by a former natural-born Filipino citizen subject to the limitations prescribed by Law (Batas Pambansa 185 and R.A. 8179)

3. A Filipino who married an alien retains her Philippine citizenship (unless by her act or ommision, she is deed to have renounced her Philippine citizenship) and may therefore acquire real estate in the Phiippines.

1. Mode of acquision is not limited to voluntary deeds (such as sale or donation) but includes involuntary deeds (such as tax sale, foreclosure sale, or execution sale).

2. Maximum area that may be allowed is as follows:

a.. For residential purpose – 1,000 square meters of urban land or one (1) hectare of rural land (BP 185)
b.. For business or other purpose – 5,000 square meters of urban land or three hectares of rural land.

“Business or other purpose” refers to the use of the land primarily, directly and actually in the conduct of business or commercial activities in the broad areas of agriculture, industry and services, including the lease of land, but excluding the buying or selling thereof.”

3. In case of married couple, one or both of them may avail of the privilege, provided that the total acquisition shall not exceed the maximum area allowed.

4. A transferee of residential land under BP 185 may still avail of the privilege granted under RA 8179.

5. A transferee who already owns urban or rural land for residential purpose, may acquire additional urban or rural land for residential purpose which, when added to that already owned by him shall not exceed the maximum area allowed by law.

The same privilege applies to a transferee who already owns urban or rural land for business purposes.

6. A transferee may not acquire more than two urban or two rural lands which should be located in different cities or municipalities.

7. A transferee who has already acquired urban land for residential purpose shall be disqualified to acquire rural land for residential purpose and vice versa. The same rule applies to a transferee of land for business purpose.

Dual Citizens

Dual citizenship means having two citizenships and passports from two different countries. Dual citizenship allows the citizenship holder full rights of possession of Philippine real property. This is a new law and it is still unclear as to the procedures involved to implement it. Dual citizenship is now available for the following:

Former Filipino citizens born in the Philippines , who have immigrated to another country and obtained citizenship of that country.

Note: For former natural born Filipino Citizen, please visit the Philippine Embassy in your country for more information or to apply for Dual Citizenship.

Foreign nationals or corporations may completely own a condominium or townhouse. To take ownership of a private land, residential house and lot, and commercial building and lot, foreign nationals or corporations should form a Philippine corporation. The corporation is to be 40% foreign-owned (maximum) and 60% Filipino-owned (minimum), and with at least five [5] incorporators. Upon incorporation, a main bank account should be tied to it. A foreign national may be the sole person in the bank account, allowing him/her total control over the funds derived from the corporation and the income or sale of the asset or property.

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.

How is a “Contract to Sell” different from a “Contract of Sale”? Such a small variation in the words, but such a huge difference in meaning and effect.

To the sharp observer, the difference is easy to see. But to the layman, it may not be easy to spot. It can be as confusing as the zonkey above (it’s both a zebra and a donkey). In fact, a lot of people really confuse these two. They even use it interchangeably, thinking they are the same. Let’s try to clarify that here.

Contract to Sell

A Contract to Sell is an agreement between a buyer and a seller whereby the seller promises to sell something to the buyer and the buyer promises to buy it. But generally, in this kind of contract, the ownership of the subject “thing” is not transferred to the buyer upon the signing of the contract. There are usually conditions to be complied with by one or both of the parties. And the transfer of ownership will only happen when those conditions are met.

In real estate transactions, it is quite common for developers or individual sellers to enter into a Contract to Sell with a buyer. In cases like this, the agreement contained in the contract basically goes like this:

The seller/developer promises to build the house or condominium building.

The seller/developer promises to sell the house or the subject condominium unit to the buyer.

The buyer promises to buy the house or condominium unit. This can be in installments or in full cash, or in any other arrangement.

The ownership of the subject property will only be transferred to the buyer when the house or condominium unit is completely built AND when the buyer has fully paid its price.

In the above scenario, the conditions are the completion of the building by the developer and the full payment by the buyer.

Contract of Sale

A Contract of Sale is an agreement between a buyer and a seller whereby the seller agrees to give or deliver something to the buyer for a certain price which the buyer agrees to pay. In contracts like this, when the buyer pays and the seller delivers, the transfer of ownership is also done at the same time.

This is usually not applicable to situations where the seller is not yet ready to deliver the thing being sold. Nor is it applicable where the buyer is not yet ready to pay the price in full.

However, even if the buyer cannot pay in full right away, both parties may still agree on the transfer of ownership to the buyer. This is, provided that the seller can readily deliver what he is selling. And subject to what we call a “resolutory condition” that when the buyer fails with his payment(s), the seller will take back the thing sold.

In real estate transactions, this type of contract is usually executed only when the property is ready to be turned over and if the buyer is ready to pay the price in full.

Posted by: Nimrod Flores in Real Estate Documentation, Real Estate Laws On:February 24, 2016 Last updated: April 1, 2018

Contract “to Sell” vs. Contract “of Sale”