Can You Buy a House in the Philippines?

Purchasing property in the Philippines, whether for residential use or investment, requires understanding its unique legal framework. The Philippines has distinct regulations for foreign real estate acquisition, differing significantly from other nations. Navigating these rules requires careful attention to detail and an understanding of the available pathways for legal property acquisition.

Understanding Foreign Ownership Limitations

The Philippine Constitution restricts foreign land ownership. Only Filipino citizens or corporations with at least 60% Filipino ownership can acquire or hold land, including residential, commercial, and agricultural properties. This ensures control over national land and resources remains primarily with Filipinos, meaning foreign individuals generally cannot directly hold land title.

Permissible Pathways for Foreigners to Acquire Property

Despite the general prohibition on direct land ownership, several legal pathways allow foreigners to acquire interests in Philippine real estate.

Condominium Ownership

Foreigners can own condominium units under the Condominium Act. Foreign ownership in a condominium project cannot exceed 40% of the total units. While the land is owned by a condominium corporation, foreigners can hold absolute ownership of their specific unit and a share in common areas, provided the 60% Filipino ownership threshold for the corporation is met.

Corporate Ownership

Foreigners can acquire land by forming a Philippine corporation. A corporation with at least 60% Filipino ownership is considered a Filipino entity and can own land. Foreigners can hold up to 40% of the shares, indirectly acquiring land interest through the corporate entity while adhering to constitutional ownership requirements.

Former Natural-Born Filipino Citizens

Former natural-born Filipino citizens have specific land acquisition rights. They can acquire private land for residential purposes, up to 1,000 square meters of urban land or one hectare of rural land. For business or other purposes, they can own up to 5,000 square meters of urban land or three hectares of rural land. These provisions offer greater flexibility for those who were once Filipino citizens.

Marriage to a Filipino Citizen

Foreigners married to Filipino citizens cannot directly own land. The property can be registered in the Filipino spouse’s name. While the foreign spouse cannot hold land title, they can own improvements on the land, such as a house. If the Filipino spouse passes, the foreign spouse may inherit the land but might need to divest or transfer it if disqualified from direct ownership.

Key Preparations Before Property Purchase

Thorough preparations, including financial planning and property due diligence, are essential before purchasing property in the Philippines. Understanding costs and verifying details mitigates risks.

Financial Considerations

Financial considerations include various taxes and fees:

Documentary Stamp Tax (DST): 1.5% of the gross selling price or fair market value, whichever is higher, typically paid by the seller but negotiable.
Transfer Tax: Generally 0.5% of the selling price or fair market value, paid to the local government (up to 0.75% in Metro Manila).
Registration Fees: Approximately 0.25% of the property value, paid to the Register of Deeds.
Value Added Tax (VAT): 12% on sales of real properties by developers or those engaged in regular property sales, especially if the selling price exceeds Php 3,600,000. Sales below this threshold or classified as capital assets are generally VAT-exempt.
Annual Real Property Tax (Amilyar): An ongoing expense assessed by local government units.
Capital Gains Tax (CGT): 6% of the gross selling price or fair market value, whichever is higher, typically borne by the seller.

Property Due Diligence

Property due diligence ensures a secure transaction. This involves verifying the property title (Transfer Certificate of Title or Condominium Certificate of Title) at the Register of Deeds to confirm ownership and identify encumbrances. Verify all real property taxes are paid with the local assessor’s office. Confirm zoning and land classification with local government units to ensure alignment with regulations. Physically inspect the property and improvements to assess condition.

Engaging Professional Assistance

Engaging professional assistance is recommended. A reputable real estate broker can help identify properties and negotiate terms. A competent property lawyer can provide legal guidance, conduct due diligence, review contracts, and ensure compliance. Notarial fees, typically 1% to 2% of the property value, are incurred for document notarization.

Executing the Property Acquisition

After preparatory steps, the formal property acquisition process begins, involving legal and financial actions to transfer ownership.

Offer and Reservation

The process starts with an offer and submitting a reservation agreement or earnest money. This initial payment secures the property and is usually deducted from the total purchase price or down payment, signaling serious intent.

Deed of Absolute Sale

Following the agreement, a Deed of Absolute Sale is drafted and signed by both parties. This legal document formally transfers ownership and must be notarized to be legally binding.

Tax Payments and CAR

Final payment is made, and original title documents are handed over. The buyer must pay all necessary taxes to the Bureau of Internal Revenue (BIR), including Documentary Stamp Tax and Capital Gains Tax. After tax payments, a Certificate Authorizing Registration (CAR) is obtained from the BIR, essential for title registration.

Title Registration and Utilities

The final step involves registering the Deed of Absolute Sale and CAR with the Register of Deeds. This legally transfers the title into the new owner’s name. The new owner should also arrange for utility transfers and obtain necessary local clearances.