Owing Real Estate in the Philippines

 


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Who doesn't want to retire in paradise? Whiling the days away in a land of sun-drenched beaches, palm trees, and a relaxed culture is a dream many aspire to. And the dream can be a made a reality by moving to an island in the Philippines. There is, however, the not-so-minor matter of owning the property you will live on.

Like many countries that emerged from colonial rule in the 20th century, the Philippines is sensitive about foreign acquisition of domestic assets, and has passed laws restricting land ownership to Filipino citizens. While this has prevented foreign mega-corporations from snapping up prime real estate, it has also made things a little complicated for individuals seeking to purchase property for their own personal use.

Nonetheless, expatriates - who are welcomed by the government - can become de facto owners of land in the Philippines. So how does it work?

First, consider the limitations. The law stipulates that foreign interests (be it individuals or corporations) may not own more than 40 percent of Philippine land.

But for most individuals, owning 40 percent of a plot of land is not good enough; you want to control all of your land. So how do you get your hands on the remaining 60 percent?

The most common way around this problem is to put the property in the name of your spouse, partner, or friend. In particular, many male expats put their real assets into the names of their Filipina wives and girlfriends. While doubtlessly easy and quick, this is not a wise option to pursue. Quite often, couples or friends end up on bad terms, due to cultural differences, communication problems, or simply mutual incompatibility that wasn't apparent at first (especially since many couples nowadays tend to meet via the Internet).

When problems arise, the foreign party is left at the mercy of the Filipino party, which legally controls the property. You might end up losing your wife, your house, and a place to stay all in one go. Hence I do not recommend putting the property in your partners name unless you have been married for at least ten years.

A safer option is to form a paper company. A corporation can own land, and you can up to 40 percent of the corporation. If the corporation is set up carefully, you can effectively control the entire corporation, thereby effectively owning the land. One person alone cannot incorporate a company, and you will need Filipino incorporators who will technically own sixty percent of your company. Although you will be providing all of the capital for the corporation, on paper it will look as if your friends invested 60 percent to form the company.

The foreign national must ensure that the incorporators who own sixty percent of the company are not only friendly to him/her, but - and this is very important - that they do not know each other. If you get your friend and his or her relatives to sign up for the entire sixty percent, you might end up with nothing, just as is the case when you put 100 percent of the property in someone else's name. To prevent those who own 60 percent from ganging up on you and putting their clout together and sidelining you in your own company, it is critical that you ask only friends with no mutual contact to become incorporators of your company. In addition, you can ask your acquaintance to pre-sign a blank deed of sale for his/her shares in your company. That way, if you have an eventual falling out, or your acquaintance moves abroad, you can easily transfer his/her shares to another friend.

The incorporation of a company can be handled by any competent attorney and costs about US $500, not including the show money required for the capitalization (which will have to sit in a bank account for about a week). Perhaps the greatest difficulty will be the task of finding six people who know you well enough to be willing to sign up as partial owners of your company. Since incorporators are liable for the activities of the corporation they own, it is natural for people to be reluctant to sign up for ownership of a company controlled by an acquaintance whom one they do not know well.

A third loophole often exploited is to lease the property rather than to buy it. A perpetual lease can be arranged and, provided the legal documentation has been handled by an experienced and able attorney, is a good way of controlling property. The are only two potential problems. First, the seller may not be comfortable about selling the land in the form of a lease. Second, some buyers may feel somewhat insecure about living on land one they don't technically own. It should be noted, however, that buildings can be owned irrespective of who owns the land the building is on.

In addition to these methods, it is also possible to own real estate in the Philippines legally.

Foreigners may own 100 percent of a condominium unit - provided the total foreign ownership of the condominium building does not exceed 40 percent. It's a little tricky since you will be relying on the developer to maintain the legality of your ownership by restricting the foreign ownership of the development to 40 percent. And there is the question of what happens when individual owners of condo units start selling their condos on the aftermarket.

A more solid option, perhaps, is making use of an offer by the Philippine government. Foreign nationals may come to the Philippines as an officially sanctioned immigrant, either a retiree, or an investor. The main drawback is that, in either case, a substantial amount of cash has to be placed in a dollar time deposit in the Philippines.

Details are available at the Philippine Retirement Authority website (www.plra. gov. ph); essentially you are allowed to own some land if you avail of a SRRVisa (Special Resident Retiree's Visa). Under this program the foreign immigrant is allowed to own up to 1,000 square meters of urban (residential) land or one hectare of rural (agricultural) land, but must be able to place USD 50,000 in a dollar time deposit in a bank in the Philippines. The SSRVisa is a good program, but unfortunately there is a lot of paperwork to process and one must be able to put a big chunk of money on ice without missing it.

In conclusion, while there are bureaucratic restrictions in place, a serious buyer can easily avail of any number of methods to effectively own land in the Philippines, and a future in paradise.

This article was written by consultant Nick Tan, an associate with Zion Cebu Real Estate , a real estate brokerage based in Cebu City, Philippines. Feedback and comments are welcome; please go to the Zion Cebu website for contact details.

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