Checklist Before Buying Real Estate in the Philippines

Here are tips for buyers before purchasing a property in the Philippines.

7 Tips for Worry-Free Real Estate Transactions

Real Estate transactions in the Philippines are sometimes a cause for worry due to the many inherent problems in the system. What follows are some tips and rules to follow for a worry-free (or “less problematic”) Real Estate transaction:

Tip #1. Deal only with Titled property.

There are many properties in the Philippines that are not titled, or registered under the Torrens system. If you buy an untitled property (usually evidenced by only a Tax Declaration), you would not enjoy the benefits of the Torrens system, and you will be forced to investigate for yourself the “chain of ownership” from the present owner up to the first, which usually dates back to the 1920?s. With titled property, you can rely on the fact that the owner of the property is that which is stated in the title.

Tip #2. Stick to those properties registered in the names of actual sellers themselves.

Most properties in the Philippines are titled in the names of the grand parents or even great grandparents of the owners. thus, there is still the need to execute an extra-judicial settlement, which has a “grace period” of two years within which an excluded heir can question the settlement and the sale. This type of litigation is fairly common and is the usual source of problems. Thus, avoid properties not titled in the names of the actual seller.

Tip #3. Avoid SPAs (Special Power of Attorney) – deal with the actual sellers themselves.

Another of the common sources of property litigation in the Philippines are those involving special power of attorneys. This is an instrument that empowers a party to deal with the property of another, usually for the purpose of selling the property. Oftentimes, unscrupulous individuals procure a special power of attorney surreptitiously from the unwitting owner who is led to believe that the document being signed is something else. Believe it or not, most of the property owners in the Philippines have finished only primary schooling and cannot read English documents. If you must deal with property being sold through an SPA, verify the SPA by questioning the notary public who executed the same, and even meeting the property owner himself.

Tip #4. Always check the copy of the title on file with the register of deeds.

In the copy on file with the register of deeds are annotated the “involuntary liens” (i.e. claims of third parties and the government, road right of way, etc.). Although the title may still be registered in the name of a person, ownership might have been transferred, questioned, or otherwise affected, and this can be seen at the back of the title on file with the register of deeds. Secure a certified true copy of the title from the register of deeds. Do this yourself or through a trusted party, never from the seller or his middleman.

Tip #5. Always have the property identified by a licensed surveyor to be what is being stated in the title.

Once you have decided to buy the property, ask the seller to allow you to conduct a relocation survey. Although you might be required to shell out additional expense for the survey, then you can actually be assured of the metes and bounds of the property and that the property you are buying is actually that stated on the title. Furthermore, by asking for a relocation survey, the adjacent owners are summoned, and thus if there be any unforseen questions some of them would be voiced out during the relocation survey.

Tip #6. Always see to it that you have a road right of way

Just merely looking at the property and seeing a road is not enough. Check the title and see whether or not it is actually bounded by a road lot, road, or street. The surveyor can point this out to you. Most foreigners like the countryside and coasts, where agricultural lands are located. Thus, most agricultural lands when subdivided into smaller parts do not provide for a road in the subdivision plan. Be sure therefore that you have access to the land otherwise, you might be required to purchase a right of way, oftentimes at exhorbitant prices such that you are forced to enter into litigation to have the court fix a reasonable price.

Tip #7. Never forget to have your deed of sale, contract of sale or other document over the land annotated on the copy on file with the register of deeds.

This should be clear enough to be sure that your records are correctly stored and your property properly transferred to you in official government documents.

Questions On Land Title

Title is a generic term that refers to the legal evidence of ownership one has over a property. It includes such documents as Tax Declarations, Real Property Tax Receipts, Deeds of Sale, and the Torrens Title. What we normally think of as title is actually a Certificate of Title also known as the Torrens Title, which results from the Torrens System of Land Registration. The Certificate of Title is the best form of evidence of land ownership.

The following are some of the most commonly encountered questions on Land Title and/or Land ownership in the Philippines.

1. How can one acquire Land Title?

The easiest is through sale and by executing a document called Deed Of Sale, which shows the legal transfer of title from the name of the seller to the buyer. The Deed Of Sale is then taken to the Registry of Deed to be officially recorded. This type of title is also called Transfer Certificate of Title.

When no title has yet been issued over a parcel of land, Title it can be acquired either through:

• Judicial proceedings – by filing a petition for registration in Court
• Administrative proceedings – by a filing an appropriate application for patent (e.g. homestead) in the Administrative body (DENR) and registration of this patent becomes the basis for issuance of the Original Certificate of Title by the Register of Deeds.

2. Are there lands with no Land Certificate of Title yet?

Yes and they are called public lands and include the following:

• Alienable or disposable (A & D Lands) – those that can be acquired or issued title. The Philippines Constitution provides that only agricultural lands can be disposed of to private citizens.
• Non-alienable lands – includes timber or forest lands, mineral lands, national parks. No title can be issued over any portion within this area.

3. Can a foreigner have the Land Title in his/her name?

Unfortunately, the answer is – Land Title can only be put in the name of a Filipino or a Corporation with at least 60% Filipino ownership. As a foreigner, it would be helpful to be aware of this limitation on your right of owning Land in the Philippines. Please refer to the article that discusses land ownership in the Philippines made especially to the foreigners.

Typical Transaction Costs – Purchases from Individuals

1. Capital gains tax – 6% of actual sale price. This is paid by the seller but in some cases it might be expected that the buyer pays. This percentage could differ if the property assessed is being used by a business or is a title- owned by a corporation; in this case the percentage is 7.5%
2. Document stamp tax – 1.5% of the actual sale price. This is paid by the seller but in some cases it might be expected that the buyer pays.
3. Transfer tax – 0.5% of the actual sale price.
4. Registration fee – 0.25% of the actual sale price.

Guide when Buying real estate in the Philippines

a. General Information

As a rule, only Filipino citizens and corporations or partnerships with least 60% of the shares are owned by Filipinos are entitled to acquire land in the Philippines.

Aliens can acquire land in the Philippines only on a few exceptions: 1) Acquisition before the 1935 constitution. 2) Acquisition thru hereditary succession -if the foreigner is a legal heir. 4) Purchase of not more than 40% interest as a whole in a condominium project. 4) Purchase by a former natural born Filipino citizen who acquired foreign citizenship & has not applied and granted dual citizenship can purchase up to 1,000 square meters of residential land and 1 hectare of agricultural or farm land.

b. Modes of Acquiring Land:

• Private Grant – voluntary transfer or conveyance of private property by a private owner, such as sale or donation.
• Public Grant – acquisition of alienable lands of the public domain by homestead patent, free patent, sales patent or other government awards.
• Involuntary Grant – acquisition of private party against the consent of the former owner, such as foreclosure sale, execution sale, or tax sale
• Inheritance – acquisition of private property through hereditary succession.
• Reclamation – filling of submerged land, subject to existing laws and government regulations.
• Accretion – acquisition of more lands adjoining the banks of rivers due to the gradual deposit of soil as a result of the river current.
• Prescription – acquisition of title by actual, open, continuous, and uninterrupted possession in the concept of owner for the period required by law.

Acquisition is the act of procuring or getting a hold of real estate property. Disposition is the manner of alienation, transfer of possession and ownership thereof as prescribed by the Philippine law. The acquisition and disposition of real estate is embodied in written agreements or contracts voluntarily entered into and subscribed by the selling and buying parties thereof, before a public officer designated as the Notary Public of the City or Province where the subject property is located. Thereafter, the instrument embodying the particular real estate transaction is required by law to be recorded in the Registry of Deeds in the City or Province where the real estate property is involved and located. The Philippines uses the “Torrens” system of real estate ownership.

c. The Bundle of Rights Theory

The bundle of rights theory inherent to property ownership are the right to use (Jus-Utendi), the right to enjoy the fruits of (Jus-Fruendi), the right to dispose (Jus-Disponendi), the right to abuse (Jus-Abutendi), the right to recover (Jus-Vindicandi), and the right to possess (Jus-Possidendi). The rights incident to ownership are, the right:

• to enjoy and dispose of a property without other limitations than those established by law;
• to file action against third parties to recover ownership;
• to use force as may be reasonably necessary to repeal or prevent an actual or threatened unlawful invasion or usurpation of his property (Art. 429, NCC, relate to Art. 312, RPC);
• the right to enclose or fence property – walls ditches, live or dead hedges – or by any other means without detriment of servitudes constituted thereon;
• to demand indemnity for damages caused to property;
• the right to compensation in the event of expropriation;
• the right to be restored to possession in case of unlawful dispossession;
• the right to the surface and subsurface of the land, right to construct thereon any works, plantation and excavation without detriment to servitude and subject to special laws and without right to complain of the reasonable requirements of aerial navigation;
• the right to hidden treasure;
• the right to accession and fruits of the property;
• the right to “quiet title” to real property or any interest therein.

d. Limitations on right of property ownership

• CONSTITUTIONAL – such as police power, eminent domain or expropriation of private property for public use, taxation and escheat when revision of private property to state ownership in case of death of property owner without an heir;
  • LEGAL – zoning ordinances, regulations on subdivision projects, building code, and other special laws and regulations; and
    • CONSENSUAL/VOLUNTARY – easements and servitudes, usufructs, lease agreements, restrictions in subdivision and condominium deeds or restriction.

e. The Regalian Doctrine of property ownership

A principle in law which means that all natural wealth – agricultural, forest or timber, and mineral lands of the public domain and all other natural resources belong to the state. Thus, even if the private person owns the property where minerals are discovered, his ownership for such does not give him the right to extract or utilize said minerals without permission from the state to which such minerals belong.

f. The Steward Concept of property ownership

The Steward Concept is a legal doctrine which holds that property ownership presupposes concomitant obligations to the state and the community and that property is supposed to be held by the individual only as trustee for people in general; and that as mere steward, the property owner must exercise his rights to the property not just for his own exclusive and selfish benefit or interest but for the good and general welfare of the nation as a whole.