Real Estate Investment for Foreigners in the Philippines
Buying a property as a form of investment is one of the most profitable passive income opportunities for Filipinos. To give equal opportunity for Filipinos to own land or property in the country, there are some restrictions for foreigners when it comes to buying real estate. This guide is for foreigners living in the Philippines who want to make money through real estate investing.
Can a Foreigner Own a Property or Land in the Philippines?
Let’s start with the basics first. In general, the Philippine laws only allow the ownership of land in the Philippines to Filipinos based on the 1987 Philippine Constitution. There are various exceptions to this law, however, that allow foreigners to buy and own a piece of Philippine land or property.
The most basic exemption to the real estate laws in the Philippines is when a foreigner is a naturalized US citizen. Dual citizenship is allowed in the Philippines. Therefore, individuals who are born to American parents in the Philippines are eligible to buy property or land in the country. If the said individual opted to let go of their rights to Filipino citizenship, they will be considered a “foreigner”. This will automatically revoke their right to buy and own land or property in the Philippines.
Exemptions to Foreign Ownership of Real Estate in the Philippines
In addition to the citizenship exemption above, there are other exemptions to existing Philippine laws restricting foreign ownership of real estate properties in the country.
1. Property acquisition before the 1935 Constitution
Any foreigner who was able to purchase and own land or property in the Philippines before the 1935 Constitution was enacted has the right to retain ownership of the said property. Since then, the 1935 Constitution had been replaced by the 1987 Philippine Constitution.
2. Property acquisition via a hereditary succession
A section of the 1987 Constitution stipulates that heirs to a property acquired by a foreign citizen are entitled to the ownership of that property, even if the heir is also a foreigner. This right is also supported in the case of the legal heir by hereditary succession is named in the Last Will and Testament by the foreign citizen property owner.
The hereditary succession for the heir follows this order: 1) legitimate children, 2) legitimate parents, 3) illegitimate children, 4) surviving spouse, and 5) siblings (or nieces and nephews, if none).
3. Ownership of a Condo Unit
Buying and owning a condo unit is the simplest and most accessible way for foreigners in the Philippines to acquire real estate property. This exemption is stipulated under the Condominium Act of the Philippines or RA 4726. This act permits foreign citizens to buy condo units in the country, as long as the condominium building is majority locally owned. Specifically, the ownership rate among foreigners in that building must not be more than 40%.
This law also allows condo unit developers and marketers to target foreign buyers and investors. The building management will be responsible for monitoring the percentage of foreign ownership in the building to avoid violation of the law.
4. Purchase of land or property through a marriage contract
Another common way for Filipinos looking to acquire property in the Philippines is through marriage to a Filipino. A foreigner can purchase real estate but the Transfer Certificate of Title must be assigned to the name of the Filipino citizen, not the foreigner. However, the name of the foreigner can be included in the Deed of Sale for the real estate property, just not in the title.
Upon the death of the Filipino spouse, the foreign citizen becomes the natural heir to the property. However, the law that restricts them from owning the land still applies. There are a few options available for foreign real estate owners: sell the property and collect the proceeds for the sale, or pass the ownership of the land to their next heir (children).
5. Purchase of land through a corporation
Foreign citizens looking to own a piece of real estate property in the Philippines can do so via a corporation. Once a company has been established under the Securities and Exchange Commission (SEC), the corporation can purchase any real estate property in the Philippines. The only requirement is that foreigners can only have 40% ownership of the said corporation while Filipinos own a majority of the stake.
Once the corporation is SEC-approved, it can purchase any property in the Philippines including buildings, lots, condominiums, etc. The foreigner can also enjoy the benefits of real estate investments. If the corporation is dissolved, the foreigner cannot hold ownership of the land that was owned by the corporation. However, the foreigner has the right on the share of the proceeds of the sale from the property once sold.
6. Foreigners who are natural-born Filipinos can purchase land
Foreign citizens who are natural-born Filipinos have the right to purchase a piece of land in the country. However, some limitations apply to this privilege.
For example, natural-born foreigners can only acquire up to 1,000 square meters of urban land for residential use (or up to 1-hectare rural land). Those foreigners who are natural-born Filipinos can acquire land for business or commercial use for up to 5,000 square meters (urban) and 3 hectares (rural).
Why Invest in Philippine Real Estate?
The Philippines is home to many foreigners who like to visit or live here because of the low cost of living. Foreigners also take advantage of the tropical climate, beautiful beaches, and friendly locals. Over the years, the Philippines has emerged as more than just a popular tourist destination for foreign citizens. It is also a hotbed of real estate properties that offer investment opportunities for those who want to capitalize on the growing economy.
The Philippine real estate industry accommodates many foreign investors. As discussed above, there are a few options for foreigners to own a piece of real estate in the country,
Despite the impressive growth rate, the Philippines’ real estate market remains one of the least expensive in the world. Investing in Philippine real estate is a good way to diversify your investment portfolio, especially if you are looking to add low-risk investments.
It is also undeniable that there is a rapid rate of new developments in various parts of the Philippines. These developments give rise to increasing the property values of existing and new real estate projects.
Fees Involved When Buying Real Estate in the Philippines
The cost involved with real estate investing in the Philippines goes beyond the actual cost of the property. There are several fees that you must account for, such as the following:
Capital Gains Tax
The capital gains tax is equal to 6% of the market value or the sales price of the property (whichever is higher). The seller shoulders this payment although there are also instances wherein the buyer pays for it (depending on your agreement).
Documentary Stamp Tax
This tax is 1.5% of the sales price or fair market value of the property, or whichever is higher.
Transfer Tax
This tax is 0.5-0.75% of the sales price and fair market value of the property. The actual fee will depend on the location of the said property.
Title Registration Fee
This fee is usually around 0.25% of the sales price of the property.
In addition to these added expenses, you must also be aware of the property tax in the Philippines. The property tax is one of the major drawbacks of real estate investing in the country. The annual tax is subject to the appraised value of the said property, which means several factors can also influence that specify the location of the property.
Non-residents investing in real estate (aka foreigners) pay a flat rate of 25% for the property. If you also decide to sell the property, there is a transfer tax of 6% to the market value of the property.
Where to Find Properties in the Philippines
The Philippines has one of the best land registry systems in the region. Therefore, it is easy to keep track of information about land titles and properties for anyone looking to verify the legitimacy of properties being sold. This is reassuring for foreign investors or anyone looking to invest in real estate.
If you are looking for the best properties for your investment, there are many options. The first option is to talk to a real estate professional. There are many real estate firms operating in the country and you can seek their help to find a suitable investment opportunity in the Philippines. They can refer you to new and upcoming developments based on your investment goals.
Another option is to do your own research online. There are several websites and online marketplaces dedicated to buying and selling properties in the country. The downside to using this option is that you will be the one to verify the legitimacy of these properties to ensure that you make a safe investment. Make sure to also use only trusted websites for these types of transactions to avoid being scammed.
