How to Buy Property in the Philippines as a Foreigner

Buying property in a foreign country requires understanding local regulations. The Philippines, with its vibrant culture and growing economy, attracts real estate investors. However, foreign ownership rules, preparation, transaction procedures, and financial obligations differ significantly. Navigating these aspects requires careful planning and adherence to legal frameworks.

Rules on Foreign Property Ownership

The Philippine Constitution prohibits foreign individuals from directly owning land, a principle aimed at preserving national patrimony. While foreigners cannot hold direct title to land, various legal avenues exist for property acquisition. One exception allows for ownership through hereditary succession, where a foreigner may inherit land if they are a legal heir to a Filipino citizen.

Foreigners can acquire condominium units under the Condominium Act (Republic Act No. 4726), which permits ownership of units and shares in condominium corporations. Foreign ownership within a condominium project cannot exceed 40% of the total units or outstanding capital stock. This threshold ensures Filipino citizens maintain majority control over condominium developments.

Long-term lease agreements offer another pathway for foreigners to control land for extended periods. These leases can span up to 50 years, renewable for another 25 years. This arrangement provides significant tenure and rights over land use without transferring outright ownership. Such leases are a common method for commercial and residential development by foreign entities.

Foreign property acquisition can also involve ownership through a Philippine corporation. A corporation is considered a Philippine national if at least 60% of its capital is owned by Filipino citizens. This 60/40 Filipino/foreign ownership rule allows the corporation to own land, providing an indirect means for foreign real estate investment. However, the Anti-Dummy Law prohibits arrangements where a Filipino’s name or citizenship is used to circumvent these constitutional restrictions.

Essential Preparations for Property Purchase

Thorough due diligence is indispensable before purchasing property in the Philippines. A primary step involves verifying the seller’s identity and legal capacity to transfer the property, ensuring they have the legitimate right to sell.

Obtain and verify the Transfer Certificate of Title (TCT) for land or Condominium Certificate of Title (CCT) for condominium units from the Register of Deeds (ROD). Carefully examine the title for any encumbrances, annotations, or liens that might affect the property’s ownership or use. This review also confirms the correct property description and the authenticity of the title document.

Check the property’s tax declarations and ensure real property tax payments are current. Obtain tax declaration information from the Assessor’s Office and payment records from the Treasurer’s Office. Verify property boundaries and conduct a physical inspection to ascertain its condition and dimensions. Also, check for any existing disputes or claims that could affect the property’s clear title.

Engaging a reputable Philippine lawyer is recommended throughout the preparation and purchase process. Their expertise is invaluable for reviewing pertinent documents, drafting contracts, and conducting due diligence. A lawyer ensures all legal requirements are met and the transaction complies with Philippine laws, protecting your interests.

Financial readiness involves understanding typical payment terms, including earnest money, a down payment, and a structured payment schedule. Buyers should secure their funds and be prepared for these financial commitments. Key pre-transaction documents like a Letter of Intent (LOI) or Reservation Agreement outline initial terms and intentions. The Deed of Conditional Sale or Contract to Sell sets out conditions for the sale before full payment and final title transfer, detailing both parties’ obligations.

Completing the Property Transaction

Once preparatory steps are complete and the decision to purchase finalized, the formal transaction begins with executing the Deed of Absolute Sale (DOAS). This document formally transfers property ownership from the seller to the buyer. DOAS signing requires notarization by a public notary, which authenticates the document and makes it legally enforceable.

Following DOAS execution, the final payment for the property is made according to the terms stipulated in the deed. Tax payment is a significant part of this stage. The seller is typically responsible for the Capital Gains Tax (CGT), which is 6% of the gross selling price or the current fair market value, whichever is higher. The Documentary Stamp Tax (DST), usually 1.5% of the selling price or fair market value, is also generally paid by the seller, though negotiable. These national taxes are paid to the Bureau of Internal Revenue (BIR).

The buyer is responsible for the Transfer Tax, paid to the Local Government Unit (LGU). This tax typically ranges from 0.5% in provinces to 0.75% in Metro Manila, based on the selling price or fair market value, whichever is higher. After national taxes are paid, the BIR issues a Certificate Authorizing Registration (CAR), a necessary tax clearance for title transfer. The Register of Deeds will not issue a new Transfer Certificate of Title (TCT) or Condominium Certificate of Title (CCT) without this document.

The final step in legally transferring the property involves registering the notarized DOAS, CAR, and all tax receipts with the Register of Deeds (ROD). This registration officially records the change of ownership and results in a new TCT or CCT in the buyer’s name. After title transfer, update the property’s tax declaration with the Local Assessor’s Office to reflect new ownership for real property tax purposes. Initiate the transfer of utility accounts (electricity, water, internet) to the new owner for continuous service.

Associated Costs and Ongoing Obligations

Purchasing property in the Philippines involves various one-time costs beyond the purchase price, primarily borne by the buyer. The Transfer Tax, paid to the local government, typically ranges from 0.5% to 0.75% of the selling price or fair market value, depending on location. Registration fees, paid to the Register of Deeds for recording the new title, are usually around 0.25% of the selling price, zonal value, or fair market value, whichever is higher.

Notarial fees for the Deed of Absolute Sale and other necessary documents generally range from 1% to 1.5% of the property’s selling price. Legal fees for the buyer’s lawyer vary based on the transaction’s complexity and the lawyer’s rates. While the seller usually pays the broker’s commission (typically 5% of the selling price), this can be negotiated and sometimes shared.

Although primarily the seller’s responsibility, the Capital Gains Tax (CGT) at 6% and the Documentary Stamp Tax (DST) at 1.5% can sometimes be negotiated to be shared or advanced by the buyer. These taxes are calculated based on the gross selling price or the fair market value, whichever is higher.

Ongoing costs are also part of property ownership. Real Property Tax (RPT), an annual tax paid to the local government, is calculated based on the property’s assessed value. The rate is typically 1% of the assessed value for provincial properties and 2% for those within Metro Manila. For condominium units, association dues or condominium fees are recurring expenses that cover the maintenance and management of common areas and shared facilities. Property insurance is an optional but advisable expense to protect against unforeseen damages.