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Foreigner's guide to buying real estate in the philippines
Buying Real Estate In
Presented by: Robert L. Wolff, Esq.
P.O. Box 381
Dumaguete City, Negros Oriental
NY (518) 325-6015
I am not an attorney admitted to practice law in the Philippines.
I am an attorney admitted to practice law in New York.
Forunately I have a friend who is a Philippine lawyer that
can give advice.
The following is not legal advice, but rather comments and
For answers to legal issues raised by this presentation, you
need to consult an attorney admitted to practice law in the
Where Are Retirees Retiring
The Philippines is one of the top retirement destinations in the
world for retirees.
Many of the retirees that move to the Philippines would prefer
to own their homes, rather than rent.
For a non-citizen, the Philippines restrict their ability to own
Unfortunately, these restrictions can create problems for a
non-citizen attempting to acquire real property in the
Before they buy property, non-citizens should
take the time to understand the real property
rules of the Philippines.
Right to Own Philippine Property
The right to own real property in the Philippines is not the
same as in the United States (U.S.). As a general rule, in the
U.S., anyone can purchase real property – citizen and non-
citizen. This is not the case in the Philippines. There are
limitations placed on a non-citizen’s ability to buy real estate.
The following is a summary of the more important rules
applicable to the purchase of real estate in the Philippines.
What is the Constitutional provision on
foreign ownership of land in the Philippines
Section 7, Article XII of the 1987 Constitution states - Save in case 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.
General Rule- only a Filipino citizen, or a Corporation or Partnership at
least 60% of the capita of which is owned by Filipinos, or a Trust with a
Philippine Trustee are entitled to acquire land in the Philippines.
What is the purpose for this Constitutional
The primary purpose of the Constitutional provision is to
preserve real property in the Philippines for Filipino Citizens.
Note - the Supreme Court in the case of “United Church
Board for World Ministries v. Sebastian” reiterated the
consistent ruling that if land is invalidly transferred to an alien
who subsequently becomes a Filipino citizen or transfers it to
a person or entity qualified under the Philippine constitution
to own real property, the flaw in the original transaction is
considered cured and the title of the transferee is rendered
This is a very important legal point.
What are the exceptions to the restriction on foreigners’
acquisition of land in the Philippines?
1. Purchase by a former natural-born Filipino citizen subject to
the limitations prescribed by Batas Pambansa 185 and R.A
2. Acquisition before the 1935 Constitution
3. Purchase of not more than 40% interest in a condominium
4. Acquisition through hereditary succession if the foreigner is
a legal or natural heir
5. Special Visas(SRRV) for foreigners allowing 100% condo and
The Torrens system of land registration is used in the
Philippines. The Torrens system was adapted to assure a
buyer that if he buys a land covered by an Original
Certificate of Title (OCT) or the Transfer Certificate of
Title (TCT) issued by the Registry of Deeds, the same will
be absolute, indefeasible and imprescriptibly.
Note - the registration of the land under Torrens
system in the name of one person does not bar evidence to
show that the land is owned by another person. For
example, the land is held in trust for another.
Land ownership by former Filipino citizens?
At one time, Filipinos who were naturalized as U.S. citizens
were deemed to have lost their Filipino citizenship.
Now, former Filipinos who became naturalized citizens of
foreign countries are deemed not to have lost their Philippine
citizenship. Thus they can enjoy all the rights and privileges of a
Filipino regarding land ownership in the Philippines.
Dual Citizenship Laws on Property Ownership
Dual citizenship is available for individuals having two
citizenship and passports from two different countries.
Under the Philippine real estate law, dual citizens are former
Philippine citizens born in the Philippines that have immigrated
to another country, such as the U.S., and obtained citizenship
of that country.
Having a dual citizenship allows the dual Philippine citizenship
holder full rights of possession of Philippine real estate
If a former Filipino who is now a naturalized citizen of a
foreign country does not want however to avail of the Dual
Citizen Law in the Philippines, he or she can still acquire land
based on BP (Batas Pambansa) 185 and RA (Republic Act)
8179 but subject to the following limitations:
1. For residential use (BP 185 enacted in March 1982): Up to 1,000
square meters of residential land, and pp to one (1) hectare of
agricultural of farm land.
2. For business / commercial use (RA 8179 which amended the Foreign
Investment Act of 1991): Up to 5,00 square meters of urban land,
and p to three (3) hectares of rural land
What are the property rights of a
foreigner married to a Filipino citizen?
1. A foreigner can legally own a house or building in the
Philippines as long as he or she does not own the land on
which the structure is built.
2. Title to the house or building can be a document like Deed
of Sale, can contain the name of the foreigner-spouse, except
for the title to the underlining land.
What is meant by ownership on the basis of
When foreigner is married to a Filipino citizen, and the Filipino spouse dies,
the non-Filipino as the natural heir will become the legal owner of the
property subject to the Compulsory Heir Rule. Under the compulsary heir
rule, other heirs may share in the ownership of the property. Children, as
legal heirs, may also own real property. Even if he or she does not hold
Hereditary Succession refers to intestate succession where the person
dies without leaving a Last Will and Testament.
The Hereditary Succession rules do not apply to the transfer of land by a
Last Will and Testament.
For Leasing of Philippine Real Estate Property
A foreign person, corporation and or trust may enter into a
lease agreement with Filipino landowners for an initial period
of up to 25 years, and renewable for another 25 years.
Main drawback to a lease you do not acquire ownership of the
Using a Philippine Corporation
To Buy Real Estate
To take ownership to a private land, residential house and lot, commercial
building and lot, foreign persons or corporations can form a Philippine
corporation or a trust.
The corporation is to be 40% foreign-owned (maximum) and 60%
Filipino-owned (minimum), and not less than 5 incorporators and 5
directors who are Filipino.
There must be a stated amount of paid in capital, in the bank account
of the corporation when applying for approval of the incorporation of
A foreign national may be sole person on the bank account, allowing
him or her control ( in my opinion limited control) over the funds
derived from the corporation and the income or sale of the assets or
There are other requirements not discussed herein.
Using a Trust
Most attorneys in the Philippines do not use a Trust to allow a
foreign-citizen to acquire real property in the Philippines, but if the
trustee of a trust is a Filipino or Filipino entity, the law allows the trust
to hold real estate.
The law only requires that the controlling trustee be a Philippine
citizen, which can be an individual or an entity.
Often the trust is done in conjunction with tax, estate and asset
Don’t forget, there are forms you may need to file the IRS if you
are a U.S. citizen creating a trust in the Philippines.
A trust is a fiduciary relationship in which a trustee holds
legal title to specific property under a fiduciary duty to
manage, invest and safeguard the trust assets for the benefit
of designated beneficiaries, who hold equitable title.
Three parties to a trust:
Grantor, creates the trust;
Trustee, legal owner of the trust property;
Beneficiary, the person for whose benefit the trust property
The Three Reasons to Create a Trusts
avoidance of probate,
asset management and,
1. Trusts are classified according to the method of their creation.
Express Trust arises from the expressed intention of the owner of the
property to create the relationship with respect to the property – a
Resulting Trust arises from the presumed intention of the owner of the
Constructive Trust does not depend on intention but rather constitute
a useful equitable remedy in cases involving fraud and unjust enrichment.
It is a name given to a flexible equitable remedy designed
to prevent unjust enrichment in cases involving fraud or
wrongful conduct, where a gift is alleged to have been
made to a party who stood in a confidential or fiduciary
relationship with the donor
The donee has the burden of proof to show by clear and
convincing evidence that the gift was voluntary and not
influenced by fraud, duress or coercion.
This is a very important legal principle when putting title
to property in the name of someone else.
The Deed of Absolute Sale is the document showing legal
transfer of real estate proper ownership. The Deed of Absolute
Sale is then taken to the Registry of Deeds to be officially
recorded after paying the documentary stamp, transfer tax and
registration fees. The Registry of Deeds will then issue a
Certificate of Title.
Always verify from the Registry of Deeds the authenticity of a
Transfer Certificate of Title before buying a property.
If the seller only has tax declaration, be extra cautious and
check with neighbors, the Barangay captain or anyone in the
know in the community to verify the seller/owner/s true identity
and property history.
Deed of Assignment/Deed in Trust
A Deed of Assignment / Deed in Trust is an agreement
between the trustor and the trustee where the trustor
assigns to the trustee legal title to property that the trust
holds for the benefit of the beneficiary of the trust.
Typically, this arrangement is used by a lender or
purchaser of real property to protect their interest in
real property being purchased pending the actual transfer
to the buyer.
Documents Needed To File Deed
Documents needed when transferring the title to the new
Certified true copy of the certificate of title
Notarized copies of the Deed of Sale
Latest tax declaration for the property
Certificate from the Bureau of Internal Revenue that the
capital gains tax and documentary stamps have been paid
Receipt of the payment of the transfer tax and registration
Birth certificate of Buyer
Closing Cost for Purchase of Real Estate
This is the standard sharing of expenses between the buyer and the seller
when transferring the real estate property title (TCT-Transfer Certificate of
Title or CCT- Condominium Certificate of Title) to a new owner. As a
general rule, the SELLER pays for the:
Capital Gains Tax equivalent to 6% of the selling price of the Deed of Sale
or the zonal value, whichever is higher. (Withholding Tax if seller is a
Unpaid real state taxes due (if any).
Electric, water, interest, etc. bills.
The BUYER pays for the cost of registration:
The Documentary Stamp Tax-1.5% of the selling price or zonal value or fair
market value, which ever is higher.
Transfer Tax-0.5% of the selling price, or zonal value or fair market value, which
ever is higher.
Incidental and miscellaneous expenses incurred during the registration process.
The above sharing of expenses is the standard practice in the
Philippines. However, buyers and sellers can mutually agree on
other terms as long as it is done during the negotiation period
(before the signing of the Deed of Sale). It is often advisable for
the buyer to have some of the purchase price held in escrow to
cover the seller’s expenses not paid at closing.
For example, to pay the capital gains tax if being paid by the
If you are not doing it yourself, besure to get someone
who knows what they are doing help you with the
registration process (sometimes for a fee).
Sale of Philippine Real Property
The sale of Philippine real property will trigger a capital
Both the U.S. and the Philippines tax their citizen and residents
on their world wide income. A duel US/Philippine citizen
could be taxed on the gain from the sale of their property in
both the US and the Philippines.
Fortunately, there is a US/Philippine income tax treaty that
limits the gains only to Philippine taxes.
For individual taxpayers, general rule, the tax rate is 6% for
sale of real estate classed as a capital asset. A different rule
may apply if the sale is to the government.
Calculation of Tax
Tax is based on the gross selling price or zonal value
(current fair market value) whichever is higher.
The capital gain from the sale of a principal residence can be
deferred if the sale proceeds are fully used for the acquisition or
construction of a new principal residence within 18 months of
the date of sale.
This exemption can be used only once every ten years.
This exemption does not apply to the purchase of a principal residence
prior to sale.
The adjusted basis or cost of the property is its cost plus, expenses of
General Rules Controlling the
Ownership of Real Property When
Things Go Bad with;
A Third Party Holding the Title of the Real Property
Absolute Community of Property in Philippine Family Law
The system Absolute Community of property is a system of
property relation that treats properties acquired by the spouses
during their marriage as jointly-owned. It consists of all the
properties owned by the spouses at the time of the celebration
of the marriage( before marriage) or acquired thereafter unless
the property involved is expressly excluded by an existing
marriage settlement or by the provisions of the Philippine Family
Law. The following shall be excluded from the community
Absolute Community continuation
1. Property acquired during the marriage by gratuitous title by either
spouse, and the fruits as well as income thereof, if any, unless it is
expressly provided by the donor, testator or grantor that they shall form
part of the community property;
2. Property for personal and exclusive use of either spouse. However,
jewelry shall form part of the community property;
3. Property acquired before the marriage by either spouse who has
legitimate descendants by a former marriage, and the fruits as well as the
income, if any, of such property.
Property Regime of Unions Without Marriage
When a man and a woman who are capacitated to marry each other, live
exclusively with each other as husband and wife without the benefit or
marriage or under a void marriage, their wages and salaries shall be owned
by them in equal shares and property acquired by both of them through
their work or industry shall be governed by the rules on co-ownership.
In the absence of proof to the contrary, properties acquired while they
lived together shall be presumed to have been obtained by their joint
efforts, works or industry shall be owned by them in equal shares.
A party who did not participate in the acquisition by the other party of any
property shall be deemed to have contributed jointly in the acquisition
thereof if the former’s effort consisted in the care and maintenance of the
family and of the household.
Property regime continuation…
Neither party can encumber or dispose by acts inter vivos of his or her
share in the property acquired during cohabitation and owned in common,
without the consent of other, until after the termination of their
When only one of the parties to a void marriage is in good faith, the share
of the party in the bad faith in the co-ownership shall be forfeited in favor
of their common children. In case of default of or waiver by any or all of
the common children or their descendants, each vacant share shall belong
to the respective surviving descendants. In the absence of descendants,
such share shall belong to the innocent party. In all cases, the forfeiture
shall take place upon termination of the cohabitation.
Property regime continuation…
In cases of cohabitation not falling under the preceding, i.e. no
capacity to marry, only the properties acquired by both of the
parties through their actual joint contribution of money,
property, or industry shall be owned by them in common in
proportion to their respective contributions.
In the absence of proof to the contrary, their contributions
and corresponding shares are presumed to be equal.
The same rule and presumption shall apply to joint deposits of
money and evidence of credit.
Two Important Cases
There are two important cases that foreigners buying real
property in the Philippines in the name of their spouse, girlfriend
or third party should be aware of - the Muller and Borromeo
Muller is unfavorable to the foreigner
Borromeo is favorable to the foreigner
The Muller Case
Summary of Important Facts
Helmut (a non-Philippine citizen) and Elena Muller(a Philippine citizen) were
married in Germany in 1989. Later they moved to the Philippines in 1992.
Helmut inherited a house in Germany. He sold the house and used the
proceeds to buy a land in Antipolo, Rizal in Elena’s name.
The marriage failed. Helmut moved in the Regional Trial court (RTC) to
have the proceeds for the sale of his parent’s house removed from the sale
proceeds of the Rizal property and returned to him.
The RTC acknowledge the proceeds from the sale was his separate
property, but because it was used to buy property in Elena’s name, refused to
allow the return of the proceeds to him.
Helmut appealed RTC decision to the Court of Appeals (CA). The CA held
in Helmut’s favor. Elena appealed the CA decision to the Supreme Court
(SC). The SC held in Elena’s favor.
Muller Case continuation
CA- noted that Helmut was asking merely for reimbursement of his
separate property used to acquire the Rizal property, not a transfer of
ownership of the real property to him. The CA also noted that Elena’s
ownership of Helmut’s interest in the property was held in trust for
her husband Helmut.
And, with regard to the house(not the land), there is nothing in the
Philippine Constitution which prohibits Helmut from acquiring it.
The SC disagreed. It held no trust relationship was created between Helmut
and Elena, no ownership held in trust was allowed and Helmut’s attempt to
recover the proceeds from the sale of his parent’s property used to buy the
Rizal property violated the Philippine Constitution.
The SC holding in Muller seems to be incorrect.
The Borromeo Case
“What are the rights of a foreigner (and his successor-in-
interest) who acquired real properties in the Philippines as
against his former Filipina girlfriend in whose sole name the
properties were registered under the Torrens system?” This is
the question answered by the Supreme Court in its decision in
Borromeo vs. Descallar, G.R. No. 159310, February 24, 2009
The Borromeo Case
Summary of the Important Facts
Wihelm Jambrich, an Austrian and non-citizen, in 1984 met Antoinetta
Opalla-Descaller(Philippine Citizen), a separated mother of two boys.
Jambrich tries to buy a house in his name – deed was rejected. He then buys
the house in Descallar’s name.
What is different in this case is that Jambrich owes money to Camilo F.
Borromeo. To pay his debt Jambrich transfers his interest in the property to
Borromeo by a Deed of Absolute Sale/Assignment.
Borromeo filed his deed and then discovered title was in the name of
Descallar, plus it had been mortgaged. As expected, Descallar was not
willing to give up the property to Borromeo.
Borromeo Case continuation…
Borromeo brought an action in the RTC to recover the property from
The RTC held Borromeo was the owner of the property.
Declared title in Descallar was null and void.
Ordered the Register of Deeds to cancel Descallar title and issue a new one in
Descallar appealed to the CA, which held in favor of Descallar.
Borromeo appealed to the SC, which held in favor of Borromeo.
The SC held
Jambrich was the source of funds to purchase the property. Therefore he had a
right to his interest in the property.
A certificate of title does not make one the true owner of property. It is only a
means of confirming the facts of its existence with notice to the world at large.
Borromeo Case continuation…
Borromeo, being a Philippine citizen satisfied the requirements of the
Constitution for owning real state in the Philippines.
He is deemed the owner of the property,
It is important to note
The SC looked at who provided the consideration for the purchase of the
The relationship of the parties and if they were -married, or not married. If not
married, did they have the capacity to marry or did they lack the capacity to
The evidence presented showed that Jambrich had all the authority to transfer
all his rights, interest and participation in the subject properties by the virtue of
the Deed of Assignment to the buyer, Borromeo, as it was shown that the funds
to purchase the properties came from Jambrich, who was therefore the true
buyer of the property.
Foreigner Married To Or Living With A
When a foreigner buys real property in the Philippines,
caution should be taken when considering taking title to
Philippine real estate in the name of the Philippine spouse or
girlfriend. In the event of marital problems with the
Philippine spouse or girlfriend ,the foreign national may have
limited rights to the assets or none at all. The law is not
This is why foreigners often use leases, corporations, trusts
and other legal documents to protect their financial interest
in real estate purchased in the Philippines.
Trusts and Asset Protection
There are many good reasons to create a trust to hold
assets in the Philippines, such as;
If the Trust is funded prior to marriage to a Filipino or
Filipina, assets are not subject to the Philippine Absolute
Community Property Rules that treat one half of the assets
owned prior to marriage, as owned by the new spouse
when they say I DO.
A Trust avoids having to put title to real property in the
name of a third party or corporation.
A Trust provides Asset Protection and avoids probate.
What if in the Muller case, Helmut had transferred his interest
to a Filipino, a qualified Trust or Corporation, would the
result be the same? Note - the Supreme Court in the case of
“United Church Board for World Ministries v. Sebastian” held
that when land is invalidly transferred to an alien is then
transferred it to a Filipino, the flaw in the original transaction
is considered cured and the title of the transferee is rendered
Did the CA get the Muller facts right and SC get it wrong?
What about the constructive trust argument?
Note: The SC is not a trier of facts. The findings of fact in the
trial Court are accorded great and respect, if not finality to
subject into a number of exceptions.
Options to Acquire Real Property
Lease the property. Problem with a lease is that there is no
benefit from future appreciation of the property. If you own
the property, you benefit from the future appreciation.
Create a corporation. Need to meet the limitations of non-
citizen ownership of corporations in Philippines, such as the
40/60 equity ownership rule, five Filipino directors, etc.
Create a trust to purchase the property. Need a Philippine
Trustee-individual or corporation. An advantage of a trust is
that it can also be used for asset protection planning and as a
means of avoiding probate.
Something to Think About –
An Investment Trust
An Investment Trust is designed to pool the money of
several individuals for the purpose of making an
For example, five individuals pool their money to buy a
piece of real property, the trust then improves and sub-
divides the property, which is then sold as individual lots.
The trust provides a way to spread the riches among
several investors and a way to share profits.
IRS Circular 230
Pursuant to Internal Revenue Service Circular 230, we
hereby inform you that the advice set forth herein with
respect to U.S. federal tax issues, or other legal issues were
not intended or written by Robert L. Wolff to be used as legal
advice, and cannot be used by you or anybody else for the
purpose of (i) avoiding any penalties that may be imposed on
you or any other person under the Internal Revenue Code (ii)
promoting, marketing or recommending to another party any
transaction or matter addressed herein or (iii) as legal advice.
You are advise to seek advice based on your particular
circumstances from an independent tax advisor or attorney.