Philippine Real Estate Primer

It is the #1 Question of Foreigners

Can I own Land in the Philippines?

Philippine Real Estate, it is a prime topic of foreigner conversation. In this article, we will address the hottest topic out there in terms of foreigners living in the Philippines. The ownership of real estate here.

Let’s have a look at ownership of Philippine Real Estate.

In short, you cannot own land in the Philippines unless you are a natural-born Filipino Citizen. But, if you want more detail, read on, we will be covering this in detail.

Can you own a house in the Philippines?

A lot of readers write to me and ask about buying a house here in the Philippines. Be careful, though. If you are no a Filipino, you cannot own Philippine Real Estate. This is a provision in the Constitution of the Philippines. Unless you are a Philippine Citizen or a Former Philippine Citizen (already naturalized in another country) you cannot buy land here, PERIOD. A couple of points to consider on this, though. First, if your wife is a Citizen of the Philippines, she can own Philippine Real Estate here. However, it cannot ever be yours or even part yours. For example, if your wife dies, you cannot inherit the property, it will go to one of her other legal heirs (children, siblings, etc.). A second consideration… if you or your spouse are former citizens, your Philippine Real Estate ownership rights are limited to only a small parcel of land.

Do you like Condo life?

Here is another thing that you can consider. If you really want to own your home is that, as a foreigner, you can own a condominium. Condominium ownership is limited to 40% of a complex, though. In other words, if there are 10 condos in a development, only 4 can be owned by foreigners with a balance of 6 only saleable to Filipinos. So, the rules really limit foreigners from owning even condos.

One reason that I write about this is that you must be very careful about this. People here selling real estate will try to sell it to you, even though it is illegal. Then, if somebody files a complaint, you will lose everything. There are ways to monkey around with the system, but it always leaves the foreigner vulnerable. For example, dummy owners will be set up, where the foreigner puts up the money and some other name is put on the title. This is dangerous, don’t do it! If the lawyer or other people who set this up wants to, they can pull the Philippine Real Estate right out from under you. There is always a strong possibility that you will end up on the short end of the stick.

An Easy Way to buy Philippine Real Estate?

It’s pretty common knowledge. at least among the readers here of LiP (they do tend to be of well-established intelligence and awareness) that foreigners are NOT allowed to buy Philippine Real Estate (land) here in the Philippines.

This does tend to irritate many among the foreigner community, and of course, it’s easy to see why.  The laws in the two countries are completely different.  For example, a Filipino can come to the USA and buy any piece of property he or she desires … no issue at all.

Philippine Law

But the current law of the Philippines, the 1987 Philippine Constitution (also known as the “Cory” constitution specifically restricts any “non-natural born” Filipinos from own Philippine Real Estate (land).  Foreigners can buy property in the legal form of a condominium (that is where the land under a dwelling unit or units is owned by a Philippine corporation (at least 60% Filipino owned, but the foreigner can not own the land itself.

This little fact of life has probably caused as much whining. dissent, outright anger, and schemes to defy the law itself as any three aspects of living in the Philippines, bar none.

Do you want to defy the law?

Foreigners try to openly defy the law by any number of ill-advised schemes.  Most common that I have seen are:

• Dummy Corporations:  That is the foreigner will pay Filipinos to set up a corporation (the foreigner can legally own up to 40% of that corporation), and the corporation will take title to the land, supposedly letting the foreigner occupy the land happily.  Of course, setting up a dummy corporation in itself is a serious breach of the law and even if that little detail can be overcome, the Filipino members of the corporation still own at least 60% … and last time I checked, 60% outvotes 40% every time.
• Another really popular scheme is to get a girlfriend or other close acquaintance to secretly take the foreigner’s money and then buy the land in a regular real estate transaction, the foreigner’s name appearing nowhere in the documentation.  I really shouldn’t have to say how risky and unsound this seems to me, but a lot of foreigners line up, year after year to put their money into such schemes.  Not recommended.
• The last “trick” I want to mention today is an old, old scam and troublesome area of the law here … the Open Title gambit.  Thousands and thousands of Filipino citizens themselves fall into variations of this film-flam themselves every year, so little wonder that many of us foreigners do as well.

Think you don’t have to follow the law of the Philippines?

I know in advance a lot of people won’t care for this article.  They have this idea that they, somehow, are not going to have to subject themselves to following the laws of the Philippines and they often get really annoyed when some “upstart foreigner” reminds them that the law is the law … or in more flowery language … dura lex sed lex … my free, non-legal practitioner’s definition of that is, “The law Is Hard But It Is The Law.”

I can sum up my personal opinion of the foreigners (and Filipinos as well) who fall into the “Open Title” scams in a way my daddy would have described it.

How do you learn?

There are basically three ways men learn how to get through life:

1. Some men learn by reading and studying what others have written.
2. Some men learn by carefully observing and copying what experts do.
3. The rest?  Well, they just have to learn for themselves by pissing on the electric fence until they figure it out.

How Do “Open Title” Scams Work?

Basically, it’s quite simple. A person looking to make a fast buck notices some land .. often building lots in desirable subdivisions, prime units in retail areas and such.  The scam artist then makes the representation that he or she either owns the Philippine Real Estate or is a licensed real estate agent, offering the Philippine Real Estate up for sale.  Often the asking price is way lower than one would think the asking price should be … a real “steal of a deal” and who can miss out on that, eh?

Then, just as if you and the scam artist were ‘fated” to meet, you just happen to get together and then the story unfolds.

Philippine Real Estate Scenario

There’s sickness in the family, someone has to go off to college in the USA, something is happening in the owner’s life that puts the owner “over a barrel” so to speak.  There he or she is a great big fat tuna, in distress, just waiting for a foreigner “sushi chef” to come along and carve out the prime “belly” cuts really cheap.  A deal too good to pass up.

And then the scam artists springs the best part of the “velvet trap” scheme.

When you buy Philippine Real Estate there are a number of taxes and transfer fees that have to get paid.  Often this adds up to quite a bit, can easily come up to 12%, 15% or more of the purchase price.

But Guess What?

Your new-found friend has a great solution for you.  0% tax, zero paperwork at all, the transfer can take place as early as tomorrow, or next week, or whenever you the “mark” .. I mean new owner, can produce the cash.  It seems your friend already has the title in hand, and the name on the title is someone like that of his paternal grandfather, or his mother’s great-aunt Tillie or some such “voice from the past”.  You see these people, being smart, “tipid” Filipinos, never bothered with all those outrageous taxes and fees and paperwork.  They just passed the title, with the “sellers” information filled out and signed, and the “Buyer’s Information” left “open”.

It’s So Simple

It Almost Sounds Too Good To Be True

Ummm, maybe perhaps because it is?  Let’s review this procedure for a sanity check, shall we?

1. Knowing that you are trying to do something illegal, you press on anyway, because you “want To”.
2. Knowing that proper recording of the title is the only true, legal possibility of proving the title over the years, you choose to ignore the facts.
3. You dig deep and pony up hundreds of thousands, even millions of Pesos in cash to someone whom you don’t really know.
4. Knowing that buying a forgery of a title is ridiculously easy, you chose (apparently) that the one your new friend has found for you happens to be real.
5. Knowing that under the law, the way you are proceeding, with no rights or recourse under the law is the right thing to do.
6. With no true legal holding in the Philippine Real Estate, you perhaps even go out and spend millions on a building project which you can never actually own.
7. And then you kind of hurt yourself, contorting your shoulder to enable yourself for being so much smarter than those “sheep” who actually follow the law.
8. And, especially after a few drinks, you routinely tell how you are carrying this phony title around in your pocket, not even caring (or knowing) who else knows your secret.

Ridiculous Situation?

When this is all laid out in black and white, doesn’t this look like a ridiculous position to be in?  I think so.  Yet I see time and time again. The same people who are way too smart to, say, buy shaky looking stock, who would never play poker for high stakes, who won’t even drive recklessly or smoke cigarettes because that’s dangerous, will reach right into their bank accounts and hand over money for “Open Titles” and even brag about how they “beat the system”.

Don’t do it, folks.  Trust me, you can take my word for it.  Peeing on the electric fence will sting like you can’t believe.  You really don’t have to try it for yourself … unless you enjoy pain.

Philippine Real Estate  Purchase? Need a Mortgage?

In my years of living in the Philippines, I had never heard much about banks giving mortgages. So, I assumed that they were quite rare. If you go to local banks they have lists of houses that have been foreclosed on for sale. Because of this, I knew some mortgages were being issued.

Can I obtain a Mortgage?

Last week, I got an e-mail. The fellow who was asking if he could obtain a mortgage to buy a house for his girlfriend. Here is what he had to say (names have been deleted to maintain privacy):

Hi Bob. My Filipina girlfriend is pregnant for me and I want to buy a house her. I work in London. However, I am not rich and but would like to buy a three/ four bedroom bedroom house. Maybe I would need my girl friend to take out a mortgage. I want the house to be situated in a nice safe neighborhood. But a neighbor for foreigners or for the rich. My main requirement is that the area is safe and clean. Can you help with prices? Is it cheaper to build? Or is there a house now that I can already pay down on. I would really appreciate your help. Thanks

Difficulty ahead?

Well, my first reaction was that finding such an arrangement would be quite difficult! Like I said earlier, I thought that mortgages were quite rare here. However, since I was not sure, I sent an e-mail to Lea. Lea is a local Real Estate agent that I use to handle inquiries that I get through my website. I contacted a Philippine real-estate expert named Lea.

I asked a Philippine Real Estate expert

Lea’s response to my e-mail kind of surprised me! It turns out that mortgages on properties indeed can be obtained. Here is what Lea had to say:

Getting a bank loan in the Philippines is very difficult. But it can be done. We just have to lengthen our patience. 🙂 The fastest approval period is 5 days. But releasing of the money takes almost a month due to paperworks. Let me explain the procedure. After submission of the documents, the bank will appraise the Philippine Real Estate for a fee of Php3,000.00. Approval is 60-70% only of the appraisal. In most cases, that’s 50% of the total selling price. Hence, you have to prepare 30-50% as downpayment. That’s how conservative the banks are.

After approval, the bank will issue a bank guarantee to the owner of the Philippine Real Estate. Then, we start transferring of the title to your name. (We will do this after paying the owner the downpayment and giving them the bank guaranty which will serve as full payment. So the owner will sign the Deed of Absolute Sale and give us the title. ) Once the transfer of title is done, (usually takes a month) we will give the new title to the bank so the bank will deposit the approved amount to the owner’s account. As you can see, it’s very complicated and the process is real slow.

I would need the following documents:

* 2 valid id’s
* marriage certificate (since you’re not married, i’m afraid that she won’t be qualified.)
* financial documents ie:
bank statement for at least 3 to 6 months
income tax return (for 3 years)
* Certificate of Employment if working
* Business Permit (if in business)
* Latest payslip (if working) at least 3 months

Now we Know!

OK, with that information, we can see what the Philippine banks are looking for with a mortgage application.

With this information in hand, I still have some questions, though. Maybe Lea will stop in and leave a comment. Here is what is on my mind:

1. What if your income is from abroad? Will the bank consider that, or is it a problem because it is harder to verify?
2. What about foreigners, would we qualify for a mortgage? I understand that we are mostly married to ladies from the Philippines. However, what if our wives are naturalized in our home country?
3. Can you tell me what kind of interest rates banks in the Philippines are getting these days?
4. Do you know how long the mortgages are for?

Philippine Real Estate Follow-up

I did get a follow-up note from Lea with some very interesting information too. She said that if you don’t qualify for a mortgage from the bank, there may be another option. In many cases, the land developer in a Subdivision will self-finance the house for you. They are often much more flexible in accepting those who are refused by the bank. There is a catch, though…. expect to pay interest rates of 14% to 18% on the balance! OUCH!