PhilFAQS

One of the “big things” that many prospective Philippine expats continually complain about regarding living in the Philippines are the property laws.  In brief, a foreigner can not own land here … period.  (actually there are a couple ways foreigners can take title to land but they involve special investment plans that are well beyond the means of most of my readers and are basically for commercial building purposes, not a residence or individual farm situation.

Now an ‘out’ for many people who read this is, if your spouse is a Filipino citizen or former Filipino citizen, then she or he can own land.  Why do I differentiate between citizens and former citizens?  Can’t a Filipino who lost citizenship by taking up another country’s nationality regain his or her Philippine citizenship under RA 9225, the so-called “Dual Citizen law?

Yes indeed they can, but there are many reasons some may not want to.  But there is no need to reacquire, a former Filipino is still entitled to buy a residential property or a modest size farmstead, so the issue of dual citizenship really need not come up.

Now, of course the big issue here to many foreigners here is, “But I don’t hold a legal interest in the property and thus is we get divorced I will lose out”.  There is no denial that this is a real issue and one without easy answers.  Personally, my advice to anyone who worries a lot about this needs to be acted upon before marriage.  I prenuptial agreement and a Philippine marriage contract may provide some relief from this situation, but I’m not a lawyer and you for sure need a lawyer’s advice if this is a big thing.

In practicality, and I speak here as a divorced man and a man who did a lot of research and administrative work for a US divorce attorney in the past, it really means nothing to me.  In the pessimistic viewpoint you are going to lose anyway, in the positive view, which is the one I hold, I learned from my mistakes and there is never going to be any divorce situation i8n my future, so I don’t really care.  To me, having my wife own the property with me on the deed as her spouse is plenty good enough.  If she were to die before me, I can legally take title, and anything else, I’m not worried about.  As with everything, YMMV.

One alternative to this admittedly not ideal situation I feel that many expats just reject out of hand is a land lease.  Even though leasehold property is very common in many countries … even in the US in certain areas … Americans in general just can’t seem to get their heads around the idea.  If you look this idea over carefully and still feel. “not for me”, hey, great, but don’t reject the idea just because it’s unfamiliar.

A foreigner in the Philippines (single or married) can hold properly via a lease virtually without restriction (again, don’t sign papers without a lawyer).  twenty-five years is commonly allowed as a term length and the lease can normally be renewed automatically for another 25.  Fifty years total. (there may also be some conditions which allow the lease to extend longer, but I’m not conversant with them).

Obviously I don’t know the age of everyone reading this but I’ll go out on a limb and state that many of us will have absolutely no interest in property, deeds and leases fifty years from now.  I’d be 113 myself and I doubt I’ll be able to hold a pen by then .

“But I won’t own the land” I hear you saying.  That’s right, you won’t.  You also won’t own any improvements you make to the property, such as a house you might build on it.  Improvements become the property of the land owner.  Again see a lawyer on this because if the lease is properly written at the beginning you may be able to be compensated for improvements … anything is negotiable if done smartly, with competent help, in advance).

A the flip side of that is, you can’t lose the land to things like government schemes that take land away for projects, previous claimants who show up and sue and with title, etc. And you don’t have to pay taxes either, that’s the owner’s responsibility.

Yu make a small payment each month or each year and you enjoy the complete freedom of use of the property for the terms of the lease.  In day to day activities there really is nothing to distinguish between being the leasee and being the owner.  Travel forward with your life secure in having a place to live for as long as you are going to need a place to live;-)

Is this solution going to make everyone happy?  Nope, absolutely not, and I certainly welcome comments … but really and truly there are many advantages to holding property under a long-term lease as opposed to being ‘on the outside’ just wishing you had a place to call your own.

One thing I have found since I started living here in the Philippines? The key to getting along and living happily is to be open to new ideas … everything you may have learned in the past is not wrong, but it may not be the best way to handle your current situation.

Popularity: 5% [?]

A while back I did an article about how a local entrepreneur took a couple lots with run-down old houses on them and made a very nice apartment complex that will earn him money for life.  Not quite passive income in the Philippines but well within the reach of many folks who write in saying, How can I support myself/start a business in the Philippines.”

But there was an investment required that might be too steep for some, so I have been keeping my eyes open for opportunities that require a smaller outlay.

Also, many, many people want to know where they can rent homes for longer than they would want to live in a hotel room, but shorter than average six or twelve month leases.  Oh, and fully furnished with all utilities ready to go and amenities readily at hand, if you don’t mind, too, ok?

Recently I was in Subic again on some family business and we stayed at a hotel I have used before, the Bay Front.  It’s moderately priced, PhP 3100 per night … about $73 USD at today’s rate … more or less Motel 6 rates back there in the States, these days.

But while driving about I saw a very impressive looking condominium place and decided to stop in and check out.  I figured it was way outside my price range, and when I saw the amenities already there on the property I though that was the case even more so.

But I am so glad that Charles, one of the assistant managers, took the time to walk me through their programs.  This place is a good deal, well worth checking into, literally or figuratively.

The basics are the developer is putting up a number of three-story buildings holding condominium units of various sizes, from one-room “studio” units to quite spacious three bedroom suites.  All come absolutely complete down to the furniture, ready for the new owner to move into.  Prices start at PhP 1.8 million und run up to about PhP 8 million … very reasonable for the amenities, the clean air, the e\security, views etc.  A unit of comparable size, could you find one, would go for 20% to 40% more in Metro Manila and would come complete with traffic congestion and smog at no extra charge.

Here’s the part that intrigued me.  Not only can you just buy a condo unit here and live in it, you also have the opportunity to be a real estate entrepreneur in miniature.  You buy a unit and if you only want to sue it part-time, the management will rent it out for you while you are not there.  Let’s run some numbers:

PhP 2.5 million (for a decent size 1 bedroom unit.  30% down (spit over 4 months interest free) , that’s between 416 and $17,000 USD to move in, with 4 months to come up with the investment.  The remainder the company will in-house finance for 10 or 12 years … under $700 USD per month is a safe bet at today’s rate.  Many who are reading this have house payments that big or more … but if you don’t choose to live there full time, the corporation will rent it out … I have their rental prices but not their exact percentage for commission … but your’s be safe in figuring to clear more than PhP 3,500 for every rental day.  That means 10 or 12 rental days per month will pay your total costs and be showing a small profit.  Can the management keep it rented?  They have been selling out frequently on Friday and Saturday nights, so there’s 8 or 10 nights per week almost for sure.

Worth checking out, I’d say, the folks who say “it can’t be done” are just making excuses, the opportunities surely exists here today, in concrete rather than just pager idea form.

Popularity: 1% [?]

Many of us envisioned life here in the Philippines a little more rural than it has turned out to be for us.   My wife, the Unofficial Cook  and I are probably not going to be taking advantage of this place, La Hacienda, Batangas (just south of Manila for those folks not familiar with Luzon).

Usually the way a piece of rural property gets developed is chopping it up into the smallest possible lots and building the most expensive homes the market will bear on it.  This results in the equivalent of a city suburb, without the city conveniences, coupled with the hardships of a long, economically and environmentally disastrous commute.

La Hacienda not only sells agriculturally viable plots of land, but promotes sustainable planting and growing by using viable but often ignored techniques, such as planting dwarf trees so improve yield per hectare.  These sorts of invocations are well know by agricultural experts here, buy typically ignored by farmers insisting they do things the ‘old way’, and then complaining about how hard it is to make money providing the all important human need of food.

Well worth a visit, I believe, expect more on this venture.

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OK I imagine some of my readers may be getting tired of this subject … but I did need to get this info out.  This will be the last post on Philippine property for a while, I promise.  (and while I am at it, a big vote of thanks to the many people who have subscribed recently … I know your time and screen real estate is valuable and really appreciate your vote of confidence)

So anyone whose visited here more than once can pretty much figure I am kind of down on investing in Philippine property.  Actually, they’d be wrong, under the right circumstances it can be a good thing to do.  Here’s a few ways I can recommend buying property and a few alternatives to out and out buying that many prospective new foreign residents ought to think about.

Again, kindly remember I am not an attorney and not a qualified financial advisor.  YMMV (Google is your friend if you are unsure of that acronym)

Buy a Family Home:

If you are in a successful, stable marriage to a Filipino citizen, especially if you have children to consider, … and, pay attention, this is important … you have lived in an area a year or more and know about the weather, neighbors, traffic patterns, transportation, etc., then go ahead and buy a house in partnership with your Filipino spouse.  You can even have your name on the deed or tax certificate … although that still won’t mean you own the property.  With the advice of a good attorney you can assure yourself of a lifetime equity in the home should your spouse pre-decease you.  Many will say you can also inherit the home from your spouse, but you better take a close look at that rumor … the word hereditary, which is the word the Constitution uses doesn’t seem to mean you spouse to me … unless you married you mother or some other weird arrangement.

The reason I am often taken to task about recommending extreme caution in buying a home for the family is, for eight years now I have watched countless foreigners who ‘knew’ where they wanted to live and ‘knew’ how the markets worked buy houses … in some cases sight unseen … and then be stuck with them.

One fellow I met a few months ago at the local hospital had been working in Iraq where he met and married a lovely OFW (Overseas Filipino Worker).  To ‘beat inflation’ they bought a house about two years ago in an area not far from where I live.  It’s a notorious flood area … any tricycle driver can tell you that … but most people do not understand the law … a real estate broker is required, by law, to act only in the interest of the seller.  So my friend forgot to ask around … how could he, he was thousands of miles away?  he never got any guarantees or engineer’s evaluations in writing and the broker had no duty to mention anything …in fact, she had a duty under the law not to mention any potential property flaws.  First big rain storm our street here filled up to the top of the curbs … we’re on a slight rise and the rain runs off quickly.  My Iraqi-retiree friend?  Up to the eaves of the roof, along with all the neighbors on his end of the street … all their new furniture and appliances ruined, all the mid-East art items they had bought and shipped home for their dream house … gone into a stinking mess of mud.

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Popularity: 6% [?]

Can corporations own Philippine property, even if the corporate investors are foreigners?  That’s a question I have been asked here on PhilFAQS frequently.  And I have a definitive answer … ready?

Yes, No or Maybe.

A corporation, under the law is treated in some ways as a natural person and under the laws of the Philippines, corporations enjoy the rights of land ownership … subject, of course to the provisions of Philippine law.

It’s very common … I’ve been approached on this myself .. for a real estate agent or other party interested in the sale of a property to bring up the idea to a foreign investor that a corporation be formed to buy the property, and the fort=reign investor would thus enjoy the ownership of the property, somehow bypassing the strict Philippine laws against foreign ownership.

I’m not a lawyer, and I am not giving legal advice … if you are thinking about buying property, by any means, you need a lawyer.  ide3ally I would pick one admitted to practice in both the US and the Philippines … they exist.

But I do have a lot of experience in this area and I have seen a number of foreigners lose their investments and even a few wind up in Philippine prisons … not a place you want to be, trust me.

The laws state a corporation that is 60% or more owned by Filipino stockholders may take title to land exactly as a natural Filipino born person may.  And it is done, all the time.

The part you need to ask yourself, in advance, is are you sure this method is for you?  Do you really feel you actually own something in which your interest is only 40%?  It takes 51% to assuredly control a corporation.  You may feel confident in having Filipinos on the board whom you feel you can trust … but these deals frequently go sour … very sour.

Ah, but Dave, you say, I have a way around that … I’ll put up the money for the whole corporation and I’ll really be the only owner and controller … only my vote will count … I’ll just pay the others a fee to act like owners.

Does that sound a little dumb to you?  It does to me.  In fact it does to the law as well.  Sham corporations like this are known in the business as ‘Dummy Corporations" and they fall under many laws, especially Commonwealth Act 108 and Republic Act 1130, part of a potent package of Anti-Dummy laws.  You can Google all this and read for yourself, I’m not making this up.

What typically happens is our well-meaning but devious American friend brings say $100,000 USD to the Philippines, collects 9 other people, at least 6 of whom are Filipino citizens and gives each of them some papers to sign certifying that they are each contributing $10,000 USD to the corporation.  The board meets, resolves to buy the property and the new owner moves in.  Or doesn’t.

In addition to putting himself in  a very precarious financial position, the foreigner has just committed a criminal act … circumventing the law.  There are many government agencies who do nothing but investigate these issues and they have gone so far as to deport and/or jail violators.

So what if the government doesn’t find out?  Well here’s what happened to a friend of mine.  he came to a small island in the south, formed a corporation like the one I described with trusted local friends, politicians and even an attorney or two, sad to say.  The corporation invested a large portion of the corporate money in b=uying building materials to refurbish the property.

One night all the building materials disappeared and the property itself was stripped of existing wiring and pipes as well.

A special meeting of the board was called to discuss the now serious situation.  Board meetings are matters of record and documented minutes must be kept.

A board member proposed that, since there seemed no possibility of proceeding with the project that the corporation sell the now much devalued property to  a local investor … a a huge loss, and then divide up the money remaining equally among the 10 board members.

Motion carried and adopted.  I think when all was done my friend came away with about $7,000USD of his $100,000 USD investment … and he had absolutely no legal leg to stand on … to protest his fellow board member’s actions would have brought the matter into court and the flawed, illegal basis of the corporation would have been exposed … nothing to do but bite the bullet … like piling all the chips on red and the wheel comes up Black.

If you are really into roulette or craps, go ahead and invest in this way … I even know a few lawyers who might be interested in sitting on your board.

Popularity: 3% [?]

From time to time the question of buying property, with or without a home on it comes up in most of the Philippines-related blogs and discussion groups.  It often becomes contentious.  Many get quite emphatic about how much safer they feel ‘owning’ their own land, even when, in point of fact, they don’t own anything at all.  those of us who attempt to illustrate the fallacy of their ‘position of security’ often take some flak, but if I prevent just one person from losing their life savings due to fraud or misunderstanding, I’ll happily take the flak.

I originally expected to cover a lot of ground regarding alternatives to land ownership in this particular post, but when I started digging into one of my main objections … or at least cautions … regarding land purchases in the Philippines, I came across this recent work by a distinguished Filipino lawyer, legislator and defender of property rights which basically outlines the state of land titles and the rights of property buyers in the Philippines a lot better than I ever could.

Remember that these words were written by the senate minority leader, Senator Aquilino Q. Pimentel Jr. just last year and they represent true findings of official government investigations.  We aren’t talking ancient history here, and these are the words of a lawyer of more than 20 years experience who is well aware of the legal dangers of putting words in print which aren’t true.

In the Philippines, the vast majority of land is owned under so-called ‘tax certificates’.  This form of ownership is also used in the US, but typically only by speculators who buy land at sales for delinquent taxes with the hope that in the future the investor will actually be able to ‘perfect’ the title, that is obtain a real and valid title to the property.  The vast majority of tax certificates never get to that stage … the original owner or his/her heirs make up the deficiency, pay the holder of the certificate a state-controlled fee for his time and trouble and go back to being in legal possession of the property.

The Philippines has in place an excellent ‘real’ title system the "Torrens" title, named after it’s Australian inventor and deemed one of the best title systems ever invented.  Them why does a majority of the land lack current Torrens titles?

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