Guide to Buying & Selling Properties in the Philippines
How easy or difficult is it to purchase or sell properties in the Philippines?
It really depends on the kind of property you want to buy or sell.
There are different property types:
- Lot or Land (residential, commercial, industrial, agricultural, ancestral domain)
- House and Lot (residental, industrial, commercial)
- Condominium Units (residential, commercial)
- Apartments, Townhouse
- Other commercial properties (warehouse, building, hotels, other establishments)
For foreigners whether in a permanent resident status here in the Philippines or not cannot own land. But, they can own condominium units or apartments in high-rise buildings for provided that the foreign proportion (owners) does not exceed 40%. They can also buy a house but not the land on which it is built. Leases on land up to 50 years, renewable for another 25 years, are available.
If a foreigner is keen on acquiring lot or land, there are several options. One, if he/she gets married to a Filipino citizen, the ownership of the land will under the Filipino’s name. Even though a foreigner cannot buy land, he may acquire land through inheritance. Another option is to acquire land through a corporation. Corporations can only be, at the maximum, 40% foreign-owned. The maximum area that may be acquired for residential purposes is 1,000 square meters of urban land or one hectare of rural land.
When buying a new property, it is important to look for properties backed by established developers and licensed real estate agents and brokers, especially in cases of off-plan or pre-selling properties or those properties that is still at a planning stage with just a presentation of model house units and are subject to completion (common in condominium units).
In general, property can be acquired by simple agreement. After deciding what property to buy as well as inspecting the premises and documents (title, tax declaration, proeprty taxes, to make sure that the ownership of the property is legitimate and without any liens or encumbrances), the buyer and seller excutes Deed of Sale. Employing the services of a reputable sales agent is convenient because they not only provide vital information regarding the transaction and property, but also assist the buyer in getting mortgage loans or transfer of property to new owner.
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A down payment of 10% to 30% is usually required. Ownership of condominium units is evidenced by the Condominium Certificate of Title (CCT) but the transfer of title is usually not executed until the property is fully paid. Foreigners can only own up to 40% of a condominium project.
Holders of Special Resident Retiree’s Visa (SRRV), a non-immigrant resident visa, can get additional benefits aside from being allowed to buy a condo unit or lease a parcel of land or a house and lot. The SRRV holders can reside in the Philippines permanently, with multiple-entry privileges and zero travel taxes. Other benefits and information about the SRRVisa is available on the Philippine Retirement Authority Website.
The process of buying land in the Philippines is cumbersome and tedious. Aside from the fact that foreigners are not allowed to buy land, the system of land registration and classification should make any investor think twice. The farther you are from the capital the more caution one must take.
However, serious land problems also exist in the NCR. There are 11 laws directly related to land registration and nine others indirectly related to land disposition and administration. Aside from the Department of Environment and Natural Resources and the Bureau of Lands, there are several agencies that have direct and indirect control over land. The courts also have the authority to award land ownership.
How to transfer property to new owner (buyer).
Typically, a seller will have a broker and the buyer will also have a broker and these brokers will assist them in the entire transaction including transfers. But what if you don’t have a broker? Or what if you can’t pay PHP 10,000 to PHP 15,000 fee for the agencies who can do the transfer for you. Here, let me help you. I will give you a simple example of property transfers in Manila only. Other cities will basically be the same except for the place and rooms of the offices.
Procedures in transfer of title (land and houses, condo units) in City of Manila (may vary):
Owner and Buyer agree on sale of a piece of land. Through a lawyer, a Deed of Absolute Sale (DOAS) is created and notarized.
A Certified True Copy of Land and Improvement (if any) Tax Declaration is secured from the City Assessor’s Office (Rm 205).
Secure a Certified True Copy of Title (blue) must be secured from Register of Deeds (Rm 222).
Having these 3 most important documents, make sure you have your IDs (original and photocopies), Special Power of Attorney (if you are just a representative) before going to the Bureau of Internal Revenue (BIR – Intramuros). See other requirements below.
Proceed to the RDO assigned to your District. Beware of fixers. Submit the requirements and they will give you a computation of the different taxes you will need to pay your taxes and get the following:
- Certificate Authorizing Registration (CAR). Please take note that the CAR for the transfer of real property shall be released by the Revenue District Office (RDO) where the real property is located. Thus, it is important for you to determine the correct RDO since you will be paying the taxes in the Authorized Agent banks (AAB’s) e.g. Land Bank of the Philippines (LBP) or Band of the Philippine Islands (BPI) of such RDO. Usually six (6) percent of the “amount” *** (find below).
- Documentary Stamps Tax (DST). This is usually 1.5 percent (%) to keep it simple. (Refer to BIR website for detailed description)
***These two are being computed (just for reference) based on the BIR Zonal Value, City’s Market Value, Selling price in the Deed of Sale. The higher “amount” among the three will be used by the BIR.
- Mandatory Requirements for a sale of real property considered as a capital asset subject to capital gains tax (CGT), the mandatory requirements are as follows:
- Tax Identification Number (TIN) of buyer and seller [If one of them does not have a TIN, get a TIN by filling out and submitting BIR Form No. 1904]
- Notarized Deed of Absolute Sale/Document of Transfer. Bring the original and at least two photocopies. The photocopies will be compared against the original and the BIR will retain only the photocopies.
- Notarization fee is usually 1% of the selling price, but some may charge a lower fee or fixed fee. Just make sure that the notary public is not a fake. You may go to the offices of the City Councilors in Manila City Hall if you can’t find one. (Again if the property is in Manila only)
- Prepare at least five copies of the Deed of Absolute Sale (one for the notary, one for the buyer, one for the seller, one for the BIR, and one for the Registry of Deeds).
- Prepare photocopies of two government-issued ID’s each of the buyer and the seller. You need the information in the said ID’s in the acknowledgment of the Deed (indicate the name, ID number, date issued, place issued, date of validity).
- Owner’s copy of the Transfer Certificate of Title (TCT), Condominium Certificate of Title (CCT), or Original Certificate of Title (OCT). Bring the original and at least two photocopies. The photocopies will be compared against the original and the BIR will retain only the photocopies. You may also get a Certified True Copy (CTC) of the TCT, CCT, or OCT from the Registry of Deeds.
- If applicable, Certificate of No Improvement issued by the City Assessor’s Office. (To get one, please prepare a request letter for ocular inspection and pictures of the vacant lot. Submit to information together with other requirements and they will tell you when you can get it. Usually not more than 3 days.)
- Get a Certified True Copy of the latest Tax Declaration from the City Assessor’s Office. Get 2 to 3 copies (original CTC will be submitted to BIR and Registry of Deeds, you may want one or a photocopy for Tax clearance from City Treasurer’s office).
- Official Receipt/Deposit slip evidencing receipt by the owner of the payment of the purchase price
- Duly validated tax return as proof of payment of taxes
- k. Requirements as added by RMC No. 76-2007: Photocopy of the official receipts issued by the seller, for purposes of determining whether the sale of real property is on cash basis, a deferred payment sale (when payments in the year of sale exceed 25% of the selling price) or on installment plan (when payments in the year of sale do not exceed 25% of the selling price). The original copy of the official receipts shall be presented to the Bureau for authentication during the processing of the application for Certificate Authorizing Registration (CAR). However, if the seller is not engaged in business, the acknowledgement receipts issued by the seller to the buyer or any proof of payment shall be presented.
- Certified true copy of the original CAR (copy of the Registry of Deeds) pertaining to the transfer of property prior to the issuance of Original/Transfer Certificate of Title (OCT/TCT) or Condominium Certificate of Title (CCT) which is the subject of the current sale/transfer, or certification issued by the Registry of Deeds indicating the serial number of the CAR, date of issuance of CAR, the Revenue District Office Number of the district office that issued the CAR, the name of the Revenue District Officer who signed the CAR, the type of taxes paid and the amount of payment per tax type.
- Notarized Special Power of Attorney (SPA), if the person who signed the document is not the owner which appears on the Title.
- Certification of the Philippine Consulate, if the document is executed abroad. The SPA will be either consularized or authenticated. The document will usually have a red ribbon in front.
- Location plan/Vicinity map if the zonal value cannot be readily determined based on the documents submitted. (optional)
You must have a checklist of documentary requirements ready, and have one file containing all the originals and two sets of photocopies so that the BIR One-Time Transaction (ONETT) officer will have an easy time evaluating your documents.
Take Note! Penalties will be incurred if you don’t pay the CGT, DST, and other applicable taxes within 30 days from the notarial date (execution) in the Deed of Sale.
While waiting for the BIR documents to be released, you may go to the City Treasurer’s Office (CTO) to pay real estate tax of the property. You may also apply for tax clearance. Make sure you include the improvement (house or building) if there’s any. While in the building, you can already ask them to compute for your transfer tax.
Take Note! Penalties will also be incurred if you don’t pay the transfer within 60 days from the notarial date (execution) in the Deed of Sale.
Transfer tax is usually 0.75% or Market Value (based on Tax Declaration), selling price (Deed of Sale), whichever is higher (no more zonal value). Pay all the necessary fees. Transfer taxes are paid by the buyer to the CTO.
When you get the CAR and other documents from BIR, and if you have paid and secured all the certifications from CTO as mentioned in the above paragraph, you may proceed to Registry of Deeds (with all your papers).
The Registry of Deeds (RD) cancels old title and issues a new one in the name of the buyer.
The buyer, now the new owner, obtains a photocopy of the new title and finally goes to the City Assessor’s office and process the transfer of tax declaration to new owner.
That’s it. New owner must pay yearly real property taxes to avoid penalties. Get the 20% discount if you pay on or before January 31 of each year. Good luck.
*** Also take note of this:
Value Added Tax
According to RA 9337, the following sales of property are VAT-Exempt
Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business;
Sale of real properties utilized for low-cost housing as defined by R.A. No. 7279, otherwise known as the “Urban Development Housing Act of 1992” and other related laws, such as R.A. No. 7835 and R.A. No. 8763 wherein the price ceiling per unit is PHP450,000 (US$9,575) or as may from time to time be determined by the Housing and Urban Development Coordinating Council (HUDCC) and the National Economic Development Authority (NEDA);
Sale of real properties utilized for socialized housing as defined under R.A. No. 8763, wherein the price ceiling per unit is PHP450,000 (US$9,575) or as may from time to time be determined by the HUDCC and the NEDA and other related laws; iv. Residential lot valued at PHP1,919,500 (US$40,840) and below, house and lot, and other residential dwellings valued at
PHP3,199,200 (US$68,068) and below: provided, that not later than January 31, 2009 and every three (3) years thereafter, the amounts herein stated shall be adjusted to their present values using the Consumer Price Index, as published by the National Statistics Office (NSO).
Ownership is evidenced by the Transfer Certificate of Title (TCT) in the case of single houses and raw land, and The Land Registration Act requires the owners of property to register titles with the Registry of Deeds. The titles must be registered in the same province as the property. However, the records are inaccurate in such that overlapping might exist. There is a proliferation of fake and double titles. The completion of survey of all the lands in the country, mandated by the 1903 Public Land Law, is nowhere in sight. (exceprt courtesy of Atty Castillo).