I’m not a property broker, financial consultant, or any other form of qualified expert in this space. I have, however, been doing quite a bit of information gathering recently and thought it would be worthwhile summarizing some of the main points to consider if you’re one of the many foreigners who are looking to the Philippines as a potential retirement or property investment destination.

Keep in mind that this is intended to be an unofficial guide and not professional advice! I don’t want to receive any emails saying “I invested all my retirement savings on the basis of your article and now my Filipina wife Pepay has run off with a helicopter pilot from Makati and I’ve lost everything!!”

With that said……

Can foreigners buy property in the Philippines?

Under the Constitution, only Filipino citizens can own land, however, there are still plenty of scenarios in which a foreigner can purchase a residence or a property.

1. Buy a house or villa, but not the land on which it’s built

In the Philippines, it’s possible to purchase a house in combination with a lease for the land on which it’s built. Under the Investors’ Lease Act, a foreign national can enter into a lease agreement with a Filipino landowner for a long-term lease with an initial period of up to 50 years, with a one-time option to renew for another 25 years, after the initial period expires.

One thing to be aware of, however, is that the land could literally be sold from under you after the lease expires. For most of us, what might potentially happen in 50 years’ time might be the least of our worries but, if you have potential concerns about inheritance or bequests, it could be something to consider. As to any claim for compensation with respect to the value of the physical structure on the land itself, this can become somewhat complicated. The recommendation here is, in the case where you are thinking about (or in the process of negotiating) a purchase on this basis, invest in good locally experienced legal advice before committing to anything.

2. Buy an apartment or condominium

Many expat residents, foreign investors and retirees opt to purchase an apartment or condominium in a high-rise building or development. In this situation, you can buy an apartment outright as long as the total proportion of foreign ownership in a single development doesn’t exceed 40% (the standard 60:40 rule that applies to most business investments in the Philippines).

3. Buy property in your spouse’s name

If you’re married to a Filipino, you can purchase land in your spouse’s name. Your name won’t be listed on the title, but it can be included in the contract to buy the property – helpful in asserting any financial claim to an interest in the property in the event of death, divorce, or other event. If your spouse dies or you legally separate and/or divorce, you will still be prohibited from owning the land, but you’ll be able to sell the property and receive the money from the sale. Alternatively, the property can pass to your spouse’s heirs or other relatives. Be aware that in a divorce situation between a foreigner and local, dealings with property can become……”complicated”(!).

4. Buy property through a corporation

Corporations can own land in the Philippines, as long as the corporation is 60% Filipino-owned. The rest can be owned by a single foreign partner or by a group of partners, as long as their ownership doesn’t exceed 40%.

In order to meet this requirement, the corporation must be registered with the national Board of Investment (BOI) in order to secure permission to buy, sell or act as an intermediary in a real estate transaction.

5. Retirees

If you’re a foreign national planning on retiring in the Philippines, first you’ll need a Special Resident Retirees Visa (SSRV). This visa is issued by the national Bureau of Immigration and it grants you multiple-entry privileges and the right to stay in the country permanently or indefinitely. An SSRV also grants you the legal right to own property in the Philippines that has an investment value of at least US$50,000. If you are over 50 years old, it will cost approximately $1,500 to get the visa, which must be renewed every year. The term “property” here includes both residence and land. Under an SSRV you can own a residence/condo/apartment, but can also purchase land through a corporation (bearing in mind the 60% national-owned requirement for the corporation).

It’s important to note that the largest piece of residential land you can own as a foreigner – whether that’s in partnership with your Filipino spouse or through a corporation – is just 1,000 square metres of urban land (approximately the same size as a quarter acre block), or one hectare of rural land (around 2.5 acres).

Select the area you want to live in

After identifying the budget you have for your new property, your biggest issue may be deciding on the area you want to call home.

There are many attractive areas to consider in the Philippines. Metro Manila will be an obvious drawcard for many expat workers. It’s one of the world’s megalopolises, with over 18 million people living within the city limits.

Like all big cities, every area has its own drawcards and drawbacks. Makati, Quezon City and Taguig have big concentrations of apartment buildings and plenty of upper-class local and expat residents. You’ll find many multinational companies operating out of these areas, along with all the facilities and entertainment you’d expect in a modern city.

It’s often a good idea to make your purchase in an area with a strong expat population as this can help to quickly build your sense of community and belonging. It can also help contribute to your visitors or holiday renters feeling comfortably at home.

Makati

Makati is the central business district of the Philippines, and there are more global companies headquartered here than in any other area. It’s immensely convenient for expat workers, and this popularity comes with a corresponding price tag. You can expect to pay around US$5000 per square metre for an apartment here.

Quezon City

Situated to Manila’s north, Quezon City is growing in popularity as other parts of the city start to price out expats and citizens alike. Here, you’ll pay around two-thirds of the price for a similar apartment in a more central location.

Taguig

Taguig is snapping at the heels of Makati, with some pundits predicting it will overtake Makati as the main financial centre before long.

With over 800,000 residents, it’s now a major commercial and industrial hub. Its most popular neighborhood is Bonafacio Global City, known as BGC, which is a master-planned financial centre at the south-east border of Makati. Prices are similar to those you’ll pay in Makati but, frankly, my own personal opinion is that the BGC area is a lot more ‘liveable’ than most other areas in Metro Manila and more closely resembles some of the better locations in Singapore rather than Manila. Just my opinion though!

Consider smaller cities too

Smaller cities like Cebu, Angeles City, Davao are also worth considering, or the Subic Freeport Zone. All these areas have good locations, are close to transport, often have secured residences and villages, and come equipped with family-friendly assets such as schools, as well as plenty of entertainment and leisure options.

Cebu

Cebu is the heart of ship-building in the Philippines, turning out more than 80% of the countries’ maritime vehicles. It’s also a manufacturing centre for toys, electronics and furniture and is one of the fastest growing Business Process Outsourcing (BPO) centre’s in the world.

Retirees and tourists may find Cebu a more attractive destination than Metro Manila, as Cebu has excellent beaches within easy reach of the city. A well-located property here may produce higher returns than Manila, not only because of the lower prices relative to the nation’s capital. It’s also only a short hop by ferry to Bohol if you want to get out of the city for a day or two – something that’s not necessarily as easy to do if you’re in Metro Manila.

Make sure you complete your due diligence with care if you are considering a purchase here. Apartment buildings are a relatively new development and it’s usually a better option to choose a property built by a company with a solid reputation and a number of successful developments behind them.

Davao

Outside Manila, Davao is the country’s largest city and it’s growing quickly. Although its infrastructure is currently under-developed compared to other areas, development money is pouring into the city and region at the moment in response to various initiatives by the Philippine Government. Keep in mind that, like Cebu, you’ll need to deal with a reputable company and complete thorough due diligence.

Most of the new builds are happening in the city centre and the east coast, as the region is transitioning from an agricultural focus to a services.

Work with a licensed real estate broker

Like all countries, the property market and the process of buying property in the Philippines can be difficult to navigate. It can help streamline your search significantly if you work with a broker who has good track record of professionalism, service and success. Always make sure you choose a broker (and any other professional service provider) based on recommendation from your ex-pat network, relevant Chamber of Commerce, Business Council or other professional network. As a handy extra and shameless plug, I’ve included details of a number of professional bodies and networking groups in Business Etiquette in the Philippines (The Essential Guide for Westerners).

A licensed broker will know the market intimately and can often put you in touch with people or opportunities that will help your search. In the negotiation and sale stages, you’ll appreciate having someone to handle the details for you and get you the best deal.

If you want to start looking online to get a feel for the local market, there are plenty of property websites such as:

Lamudi which has large listing of properties for sale including new listings, new developments on the market, and foreclosures;
Property 24 which is an aggregate site that collates properties being offered for sale by different agencies across the Philippines. Their mobile app is particularly useful;
Myproperty.ph is another aggregate site with over 100,000 properties to choose from at any one time.

Check the seller’s credentials and any title claims

As a common sense measure to ensure that you don’t end up as the “proud “owner” of Malacañang Palace, it’s a good idea to verify that the seller is really the owner of your potential property. Ask to see the photocopy of the title, and verify the authenticity of the title via the Registry of Deeds or the Land Registration Authority. Either you or your licensed broker can take this photocopy to the Registry of Deeds and check the title number and name against the certified true copy they hold.

At the same time, you can check that the title is clean – meaning that the property has no claims against it by another person or corporation. There is a page at the back of the title with the heading “Encumbrances”.

An encumbrance could be as simple as an annotation by a bank signifying that there is a mortgage over the property, or it could be something more complex. A check will help to ensure that your potential purchase is not tainted by any unexpected matters or disputes.

Make sure that the land described on the title is what you are actually purchasing (refer Malacañang Palace above!). You’ll need a surveyor or engineer to match your potential property against the technical description on the Transfer Certificate of Title. Land titles don’t have any street names or numbers.

Lastly, make sure that the owner has paid their yearly real estate taxes. Request certified true copies of the Tax Declaration and original Tax Receipts, to confirm that real estate tax payments are up to date.

What is the legal process for buying property in the Philippines?

In general, once you’ve made your decision and inspected a property and checked all the necessary documentation, a property purchase can be fairly easily negotiated between the buyer and seller.

The steps take place in this way:

Buyer and seller agree on the sale.
A lawyer draws up a Deed of Absolute Sale (DOAS) and notarizes it. This is the document that shows the legal transfer of property ownership.
A Land Tax Declaration must be obtained 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 Assessor’s office determines the market value of the sale property.
The buyer pays transfer taxes to the Assessor’s office.
Capital Gains Tax and the Documentary Stamp tax are paid to BIR. The payment of CGT must take place within 60 days of the date the DOAS was notarized.
The old property title is cancelled by the Registry of Deeds (RD), who then issues a new one in the name of the buyer.
The buyer obtains a photocopy of the new title and a tax declaration from the Assessor’s office
Your agent or real estate broker will generally perform all these steps for you. It usually takes around 40 days to complete the full process.

What are the costs of buying property in the Philippines?

If you buy property in the Philippines, you can expect to be required to pay an initial deposit and a range of standard fees and taxes. Deposits are usually between 10-30% of the total purchase price.

Notary fees must be paid in order to notarize your Deed of Absolute Sale (DOAS). Normally paid by the buyer

Documentary Stamp Tax is 1.5% of the sales price, zonal value or fair market value, whichever is higher. Paid by the buyer

Local transfer tax is 0.5% (or 0.75% in Metro Manila) of the sales price, zonal value or ‘fair’ market value, whichever is higher. Paid by the buyer

Title Registration Fees are charged in accordance with a standard published registration fee table. It’s generally around 0.25% of the sales price. Paid by the buyer

Capital Gains Tax is calculated at a flat rate of 6% of the property’s sales price, zonal value or fair market value, whichever is higher. It must be paid within 60 days of the sale. Normally paid by the seller, but on some occasions, it’s rolled into the sales price or the buyer pays it. Check your contract carefully.

Real estate agent’s fees can be between 3% and 5% of the property’s sale price. Paid by the seller

It’s worthwhile noting that the various Title Transfer activities and expenses are typically considered a separate set of transactions from the sale itself. This means that you shouldn’t automatically assume that your real estate agent or broker will handle these. Be sure to check! If not, there are a large choice of Title Transfer companies specializing in this space.

What are property taxes like in the Philippines?

Property taxes in the Philippines are at the higher end of the scale if you’re not a citizen, and especially if you’re not a resident. This is one area you should consider carefully before you invest in the Philippines.

An annual tax is applied to property in the Philippines, based on its appraised value. The tax varies, depending on the district the property is in, but it’s capped at 1% for properties within Metro Manila and 2% for properties that are located outside the city.

Rental income is taxed, of course, and if you’re a non-resident you can expect to pay the highest rate of around 32% on your rental income for taxable amounts over 500,000PHP (approximately US$10,000).

You can claim some deductions if you’re a resident, such as costs for repairs, maintenance, depreciation and other fees and expenses including taxes. If you’re not living in the Philippines, there are no deductions or allowances that you can claim.

Conclusion

If you’re living in the Philippines or you plan to move there in the future, buying a local property can be an attractive option. As a potential investor, a property purchase can be a good way of leveraging your earnings potential, by tapping into the sound Philippines economy and the large numbers of expats workers and visitors who are locating there.

In either case, make sure you take the time to understand the rules and regulations governing property purchases in the Philippines to ensure that your transaction is conducted legitimately and doesn’t cause unexpected issues for you down the track.

Finally, and repeating what I mentioned at the beginning of this piece, this is intended to be a starting point and introduction only! I take no responsibility for any decisions anyone might make as a result of reading this as it’s assumed you would consult with the appropriate range of qualified professionals in any property purchase.