Know what type of real estate investing that you preferred
Are you planning to invest in Real Estate? Here’s what you need to know. Before you decide on which real estate property to invest in, it is highly encouraged to be informed on what your available options are, so as to make an informed decision before you fully commit to your intended transaction.
Ownership of Vacant Land in the Philippines
To give a brief background on your available real estate property options, there are different kinds of properties that you can own in the Philippines. The most common form of real property that one may purchase, is land. As proof of ownership, you should have a land title under your name covering the particular land or lot owned. Buying land in the Philippines, however, comes with safeguards to its ownership, as provided for by the 1987 Constitution of the Philippines. Article XII, Section 7 of The 1987 Constitution states that,
“Save in cases of hereditary succession, no private lands shall be transferred or conveyed except to individuals, corporations, or associations qualified to acquire or hold lands of the public domain.”
Section 8 of the same Article of the Constitution also provides that,
“Notwithstanding the provisions of Section 7 of this Article, a natural-born citizen of the Philippines who has lost his Philippine citizenship may be a transferee of private lands, subject to limitations provided by law.”
By providing limitations on land ownership, the Constitution ensures that its citizens’ interests will be protected.
In the case of domestic corporations, they are allowed to own land, provided that the percentage of Filipino citizens in the domestic corporation reaches at least 60% of the shares of capital stock. This is to ensure that the majority of the shares of stock of the corporation belongs to Filipino citizens. With at least 60% ownership of Filipino citizens to domestic corporations, the remaining 40% are allowed for ownership to foreign nationals. Through this, foreigners can indirectly own land through a domestic corporation, provided that the restrictions of land ownership are followed.
While land ownership is not allowed to foreign nationals, they are however, allowed building ownership, provided that they cannot own the land on which it is built.
Residential Real Estate Properties
This type of real estate refers to any property used for housing. This includes single-family homes, condominiums, townhouses, and duplexes where real estate investors live in. Property such as condos are in high demand because of the convenience and access to nearby essential services such as markets, malls, hospitals, spas, etc.
Ownership of Condominium Units in the Philippines
Another kind of real estate that can be owned in the Philippines is condominium units. This kind of real estate has seen an upward boost in popularity as condominium building developments are a common scene as you make your way around the metro. When it comes to foreigners owning a condominium unit, such ownership is allowed, for as long as there is a condominium corporation in place, where at least 60% of Filipino citizens are the majority of its membership. As proof of ownership, a condominium title is issued to the condominium unit owner.
Commercial Real Estate Properties
Commercial properties refers to any property which has the main purpose of operating business services. This includes businesses such as malls, restaurants, hotels, gas stations, hospitals, etc. Investors here are typically business owners who are their main goal is to generate a profit.
Industrial Real Estate Properties
These are properties in the form of either land or buildings that can accommodate industrial activities such as production, manufacturing, warehousing, research, storage, distribution, etc. However, there are specific areas designated for industrial properties shown on zonal maps. These zoning ordinances regulate developers to avoid disruptions and inconvenience to residential or any other nearby places during their operations.
Leasing or Rental Properties in the Philippines
Leasing, however, is not an issue with foreign citizens, as they are allowed to lease buildings, condominium units, as well as land. Foreign citizens can lease land for a 25-year period, which can be renewed for another 25 years. If you are a foreign investor, you are allowed a lease on land provided that it is in connection with Rule II, Section 1 of RA 7652 or the Investor’s Lease Act, which states that,
“Long-term lease of private lands by foreign investors shall be authorized only for purposes of and in connection with the establishment of industrial estates, factory, assembly or processing plant, agro-industrial enterprises, land development for tourism, industrial or commercial use and/or other similar priority productive endeavors.”
In which case, the period of lease shall be 50-years, which you can renew for another 25 years, and must be registered in the Department of Trade and Industry (DTI).
In leasing land, due diligence on the land title is necessary to ensure that there are no restrictions thereon and/or there are no other tenants. Similarly, in leasing condominiums, the condominium title should be reviewed to check that the the purpose for which is it being leased is allowed (e.g. residential vs. commercial) and the house rules should also be reviewed to check crucial rules on noise, construction, and the like.
Proof of Ownership of Real Estate in the Philippines
How do you readily prove that you are indeed the owner of the property that you have? For land ownership, you should have a land title or Transfer Certificate of Title (TCT) or Original Certificate of title (OCT) is the proof that certifies that you are indeed the owner of the land. The Philippine Land Registration Authority is the repository of such documents, where the original copy is kept.
For condominium property transactions, the best way to show that you own the property is through the issuance of the Condominium Title or more particularly Condominium Certificate of Title or CCT. The CCT is being issued through the Land Registration Authority.
A Different Way of Real Estate Ownership in the Philippines: Real Estate Investment Trusts
Besides local citizens and foreign citizens, there are also other entities that can establish ownership over properties. These are known as Real Estate Investment Trusts or REIT. A REIT as defined by the Securities and Exchange Commission (SEC) in their briefer entitled Launching of the REIT: Real Estate Investment Trust Regulations, based on The Revised Implementing Rules and Regulations of Republic Act HNo. 9856, or the Real Estate Investment Trust Act, as provided in SEC Memorandum Circular No. 1, Series of 2020 is:
“… a stock corporation established principally for the purpose of owning income-generating real estate assets such as apartment buildings, office buildings, medical facilities, hospitals, hotels, resorts, highways, warehouses, shopping centers, railroads, among others. It is a type of investment instrument that provides a return to investors derived from rental income of the underlying real estate asset.”
To be able to qualify as a REIT, the SEC provides a list of requirements that need to be satisfied. First, it must be a stock corporation registered with the SEC, having a paid-up capital worth 300 million pesos; second, a Fund Manager and Property Manager, who is independent in nature, must be appointed; third, under the fit and proper rule, REIT members such as directors, distributors, fund managers, officers, property managers, and the like, must qualify; fourth; the board directors, which comprise at least one-third or two, whichever is higher, are to be independent directors; lastly, for a REIT to qualify as such, it must have at least 1,000 Public shareholders, who each own 50 shares at minimum. However, aggregately, at least one-third of the outstanding capital stock of the REIT must be owned by them. It is also of importance that the REIT is listed with an Exchange.
Investing in REITs is highly encouraged, as there are a number of benefits that can be offered to potential investors such as: for a lesser cost, diverse properties in various different areas may be subject to investments; lessening of risks due to the increase in transparency on transactions; easy liquidation of REIT shares; and 90% distributable income in the form of dividends can be expected to be received annually by investors.
FILEDOCSPHIL: Your Guide to Real Estate Ownership and Lease in the Philippines
With all the various processes that both local and foreign citizens must deal with in order for them to be able to purchase or lease real estate property in the country, it is highly advisable that you enlist the help of a reliable legal and real estate advisor that could assist you in all the hurdles that you may have to face in any of your land title or condominium title transactions. For all your real estate transactions, let a seasoned service provider like FILEDOCSPHIL guide you through each of the steps of the lease or purchase process.
Need further information and assistance in Real Estate Transactions? Talk to our team at FILEDOCSPHIL to know more about the requirements and process. Call us today at (+63) 917 149 2337 or send an email to info@filedocsphil.com or simply message us through the live chat for more information.