Several countries in Asia have deliberately formulated rules of property purchase to protect their own people from being swamped by overseas buyers, and in the Philippines foreigners are not allowed to own land. Foreign ownership of property in the Philippines is most commonly established via the purchase of condominiums (apartments/flats) in central locations within the so-called Central Business District (CBD) areas of the major cities throughout the country. Building condominiums has become a rapidly increasing industry in its own right, and Overseas Filipino Workers (OFWs) and more and more foreigners have been latching on to this trend. However, many foreigners who settle down in the country prefer living outside these central areas, choosing countryside residences far from the busy cities.
The key here is in knowing the basic rules – foreign ownership of property in the Philippines can occur under the following circumstances:
i) The foreign investor has a Filipino spouse through which they buy the property
ii) The foreign investor purchases a condominium unit, as long as not more than 40% of the building is foreign owned.
iii) The foreigner holds a Special Retirement/Investment Visa
iv) The foreigner purchases property via 40% ownership of a local company. (When buying property in the Philippines through a company, a minimum of five shareholders are required, and the Filipino shareholding must be at least a 60%.)
Under the Special Retirement/Investment Visa, foreign ownership of property in the Philippines is allowed, provided the individual is at least 35-years old, injects a minimum of US$50,000 into a Filipino bank (this sum can be withdrawn after six months, but must be used for investment purposes in the Philippines, such as buying additional property), and pays a processing fee of US$1,500.
Foreign ownership of property in the Philippines tends to be more prevalent in major residential projects built by large, reputable property developers, as these developments minimize the risk of legal problems. Well-established developers minimize the risk of purchase, especially for projects sold ‘off-plan’.
Foreign ownership of property in the Philippines requires the payment of taxes, which include a documentary tax of 1.5%, a transfer tax of 0.5%, 10% Value Added Tax (VAT), and income tax on the rent of 5.13%, along with other fees.
On the mortgage front, aside from the many reputable local banks, leading international banks can be approached for loan facilities. Currently, more international banks are setting up in the country under the considerable recent relaxing of rules of establishment.
Foreign ownership of property in the Philippines can be made easier by the property management services. Investors can benefit from outsourcing activities such as organizing property maintenance and refurbishments, arranging property security, obtaining property valuations, finding tenants, and ad hoc problem solving.
Loans can cover up to 80% of the assessed value of the property in question. Financing programs are available through a range of banks in the country, providing facilities that enable Filipinos and non-Filipinos residing and/or working abroad an easy way to purchase residential real estate in the Philippines. Programs allow the purchase of housing lots, of houses on lots, condominiums, townhouses, and semi-detached (row-houses) properties. In addition, housing loans are made available for house construction and home improvements, for the refinancing of existing Philippine Peso home mortgage loans, as well as for the reimbursement of acquisition and construction costs. Needless to say the normal collateral for loans is secured by the real estate being purchased.
Loan periods allowed vary from 1 year to up to 20 years and the current interest rates, which vary widely, are around 7.5% for 1 year loans, 8.5% for 5 year loans, and 9% for 10 year loans among the Philippine banks, but can range between 10% and 15% with Philippine real estate developers handling their own projects.
Relevant home insurance is a base requirement and, bearing in mind that bureaucracy is highly regarded in the Philippines, the paperwork required and certificates and proofs for loan applicants will always be substantial.
A loophole often used by knowing foreigners in the country is the law that allows individuals, corporations or associations to lease land for a period of 25 years, renewable for another 25 years under P.D. 471 “Fixing the Maximum Period for the Duration of Leases or Private Lands to Aliens” (‘Alien’ is the official term used to classify a foreigner). Additionally, individuals and corporations investing in the Philippines may receive government permission to lease land for up to 50 years with a further 25 year extension permissible.
Purchasing property in the Philippines is popular among people from many nations, and provided all the relevant (and numerous) boxes are ticked correctly, and recommended local professionals are engaged to insure correct completion, the foreigner can settle down, relax and enjoy life in a welcoming country, allowing them to live a life among a people mostly friendly beyond compare.