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Things to Know When Buying Property in the Philippines
July 25, 2022 by Martin Luigi Lagustan
Buying a house and lot for sale or any property is probably one of the best accomplishments anyone could ever have. However, before you fantasize about your dream, you have to think about realistic factors you should consider before signing that deal or selling your property.
All about a Filipino house
In a traditional Filipino household, it’s not rare to see up to three generations of the family in one house. More often than not, grandparents have a significant role in raising their grandchildren. For this reason, Filipino houses often have more rooms or at least one big room where everyone sleeps together.
Some of the most popular styles for Philippine houses include:
Bungalow - the most common house style in the Philippines. Its simplicity and quaint charm attract the majority of Filipinos, as the average household size (one family unit) are 4 to 5.
Modern - what most Filipinos call an “up-and-down” house, the modern style became popular because of its straightforward, box-type design.
Mediterranean - this style has distinctive structural designs from Italy and Greece and is characterized by its earthy tone, stucco walls, and duratile (sometimes concrete or clay) roofing. Often, the Mediterranean house style is linked to the upper middle and rich social classes.
Townhouse - townhouses are common in large cities like Metro Manila, and are popular because it’s a good alternative to condos and apartments.
Despite their differences, these Philippine houses have some common features. The biggest, most noticeable is a relatively large living room because guests or hosting gatherings is a big deal for Filipinos. Sometimes, even small families will have large dining tables just in case they have people over.
However, whichever house style you choose, you will often go through the same process when you decide to buy a house in the Philippines.
How to buy a house and lot for sale or a condo
Buying a house and lot or a condo can be complicated to think about if it’s your first time. In this section, we’ll show you everything you need to know about buying a house and lot for sale or a condo.
1. Research the house or condo that you want
Before deciding on the place where you’ll probably spend the rest of your life in, you should really learn everything you can about the property. This includes the following:
Location is probably one of — if not the most — important things to consider before buying any property. It will determine a lot of things, like weather, cellular network signal, internet, purchasing power of the locals (if you’re thinking about starting a business), and (probably the least considered) neighbors.
Think about what kind of life you see yourself having in the next 10 years. Do you see yourself still enjoying the bustling city? Or do you want a quieter, more provincial environment? Know that both areas have their pros and cons.
Living in a city may be busy, polluted, and noisy, but you also have access to a lot of utilities, like innumerable malls, hospitals, leisure places, restaurants, 24/7 services, and more. Meanwhile, the province life can definitely be relaxing because almost everything feels slow and there are lots of natural resources to enjoy. However, it can also easily get boring if you’re someone who likes being constantly on the move.
If you’re buying a preowned house and lot or condo, you should think about ownership history — especially if it’s a house. Don’t hesitate to ask questions about the previous owner, how they built the house, the materials they used, did they do any renovation, was the house properly maintained, what kind of damage and repairs have been done to the property, and other things that will save yourself from any issue that may come up when you move in.
Knowing ownership history will help you save a lot of money even if you have a lot to spend. It will also help you determine if you’re offered a good purchase price if you’re thinking about buying a foreclosed house or condominium units.
One of the main things to consider about accessibility is public transportation — even if you own a car. Having multiple options to go around the province or city is a great way to ensure safety and convenience just in case your car breaks down and you don’t know who to call.
Another thing to consider about accessibility is the property’s access to basic needs. Are there nearby schools, hospitals, or groceries? These are the same things to consider when buying a condo, but you might also want to consider the amenities of the building, like pools, indoor gyms, grocery stores, laundromats, and clinics.
2. Why are you buying the property?
Your purpose of buying a property has different processes and fees. If you’re buying a house and lot for sale to set it up as a rental business, for example, your property will fall under the Philippine Rent Control Act or the Republic Act of 9653. This has all the guidelines on what property owners can and can’t do when they want to rent out their property. Additionally, you also have to think about whether the property is good for long-term rent or a transient place for tourists or vacationers.
Meanwhile, if you’re just buying a piece of land, your purpose will also affect your taxes and the laws that govern it. If you’re buying land for agriculture, it will fall under land taxes in agriculture.
3. Payment options
As soon as you’ve found the perfect property and you’re sure you want to buy it after all considerations, the next thing you need to settle is the payment for the property and all the fees you need to cover. We’ll give you a more detailed list of property taxes and fees in the next sections of the article.
Think about all the available payment options that can be more convenient for you to pay for the property. Is it better to take out a loan through a bank or the Home Development Mutual Fund (HDMF) or PAGIBIG? Should you pay in full? Does the real estate developer offer financing options?
If you decide to pay in cash, this will eliminate any need to pay for interest rates on loans and closing costs. Hence, you don’t have to think about mortgage fees, appraisal fees, and other extra charges that come with borrowing money.
Moreover, sellers love full cash payments, so they’re more likely to take your offer. If you’re the seller, you don’t have to worry about a buyer backing out because of financial issues. On top of that, cash buyers will more often receive grants or discounts, and will have more opportunities to save money. However, one downside of paying in full is real estate properties can be really expensive. So even if you can afford to buy it in cash, you have to make sure you have enough liquidity left in your bank accounts.
Meanwhile, taking out a loan or other form of financing also has its fair share of benefits. It might make sense for you to buy a property in installments so you don’t limit your options if you have other needs that may come down the road. Just because properties have a huge chance of increasing in value doesn’t mean you’ll always get your money back when you decide to sell. Real estate is a volatile investment because property values fluctuate based on events that you will never have control over, like market prices, economic conditions, and more.
4. Look for a good real estate agent
Great real estate agents have one valuable resource aside from their skills in finding at home: connections. Real estate agents or realtors have all the contacts to buyers, sellers, developers, contractors, and other professionals you might need in your property hunt. Hence, having a reliable realtor can make your experience in buying a home shorter and more convenient.
Ask your family or friends for recommendations, but more often, real estate developers would have in-house agents that could help you. So, you can look for a developer that specializes in the types of homes or environments that you like. For premium properties, you might want to look at Crown Asia because they specialize in luxury houses and properties.
5. Fees and taxes in buying property in the Philippines
Real estate transactions have its separate government-mandated fees and taxes that you must pay. For buying a property, you need to pay for documentary stamp tax, transfer tax, title registration fee, and other incidental fees like notarial fees.
The documentary stamp tax is 1.5% of the selling price, zonal value, or the fair market value of your property, whichever is higher. Meanwhile, the transfer tax is 0.5% to 0.75% of the selling price, zonal value, or the fair market value of your property, whichever is higher. On the other hand, the title registration fee is a table of fees based on 0.25% of the selling price, zonal value, or the fair market value of your property, whichever is higher.
If you want to sell a property, you need to pay the capital gains tax, broker’s commission, and developer’s commission.
The capital gains tax is 6% of the zonal value, fair market value, or the gross selling price, whichever is higher. The broker’s commission is worth 5% to 10% of the gross selling price. Meanwhile, the developer’s commission is 3% of the net price. Reduce all of that and other incidental expenses to your selling price and that will be your total earnings.
What you need to know about Transfer tax in the Philippines
Whatever type of property you buy, you will encounter the transfer tax. This is a tax implemented on the passing of the title of a property from one person (or corporation) to another. The transfer tax is often shouldered by the buyer as part of their obligation for the property since they’re the receiving end.
The maximum transfer tax rate is 50% of 1% of the property’s selling price. For cities within Metro Manila, the maximum rate is 75% of 1%.
For tax returns, according to the Bureau of Internal Revenue (BIR), transfer tax returns by donors “shall be filed in triplicate by any person who transfers or causes to transfer property by gift.” Whether the gift is direct or indirect, or whether the property is tangible or intangible, you can file a transfer tax return.
Meanwhile, transfer tax under real estate tax return “shall be filed in triplicate by the executor or any legal heir, whether resident or non-resident of the Philippines.” You can file this tax return in all cases of transfers subject to estate tax, regardless of the gross value of the property.
What is the land property rights law in the Philippines
According to the 1987 Constitution of the Philippines, only Filipino citizens or corporations with at least 60% shares owned by Filipino are allowed to own real property in the Philippines. Non-Filipinos are allowed to purchase or lease buildings, however, the land where it stands can’t be under foreign ownership or under a foreigner.
Having rights to a piece of land means you have the right of ownership. However, it also means you are entitled to the access, use, occupation, and possession of the land, as well as the security of however the land is used.
Land ownership in the Philippines
There are different types of land ownership in Philippines, including public, agricultural, residential, and commercial. You already know about residential land ownership, so let’s talk about the rest. Keep in mind that before owning land, you must need to go through the land registration authority.
The Public Land Act (Republic Act No. 2874), specifies that the lands of the public domain can be used for agricultural, commercial, industrial, educational, and other similar purposes. The government is also allowed to reserve land for town sites and other public uses. On top of this Act, the government also has the Power of Eminent Domain, which means they can acquire private land for public use, even without the consent of the owner, provided that they are paid just compensation.
As for agricultural land ownership, the Department of Agrarian Reform DAR OPINION NO. 64-97 states that Filipino corporations are only allowed to own up to five hectares of agricultural land. This is also subject to Section 6 of R.A. 6657, which says that no person is allowed to own (directly or indirectly) any public or private agricultural land or more than five hectares.
For commercial or industrial land ownership, as long as the corporation is predominantly Filipino, it is allowed to own land in the Philippines. This means at least 60% of the Board of Directors of a company must be Filipino. There are, however, some exceptions to this restriction, including:
Any land acquired before the 1935 Philippine Constitution.
If the land is acquired by the foreigner through hereditary succession or if they are the legal heir to the land.
Natural-born Filipinos who acquired foreign citizenship. They are still entitled to own up to one hectare of agricultural land and up to 5,000 square meters of residential land.
Filipinos who married foreign nationals provided that they have not renounced their Filipino citizenship.
Read more: 7 Benefits of Owning a House and Lot in Crown Asia