Property Purchase Costs in the Philippines

Buying land

The process of buying land in the Philippines is cumbersome and tedious. Aside from the fact that foreigners are not allowed to buy land, the system of land registration and classification should make any investor think twice. The farther you are from the capital the more caution one must take.

However, serious land problems also exist in the NCR. There are 11 laws directly related to land registration and nine others indirectly related to land disposition and administration. Aside from the Department of Environment and Natural Resources and the Bureau of Lands, there are several agencies that have direct and indirect control over land. The courts also have the authority to award land ownership.

Legal Procedures in transfer of title (land and apartments)

1. Owner and Buyer agree on sale of a piece of land. Through a lawyer, a Deed of Absolute Sale (DOAS) is created and notarized.
2. A Land Tax Declaration is secured from the Bureau of Internal Revenue (BIR) and submitted to the city or municipal Assessor´s office.
3. Buyer pays real estate tax to the City Treasurer´s Office.
4. The Assessor´s office assesses the market value of the property.
5. Transfer taxes are paid by the buyer to the Assessor´s Office.
6. Capital Gains Tax and Documentary Stamp tax are paid to BIR.
7. The Registry of Deeds (RD) cancels old title and issues a new one in the name of the buyer.
8. The buyer, now the new owner, obtains a photocopy of the new title and requests tax declaration from the Assessor´s office.

Ownership is evidenced by the Transfer Certificate of Title (TCT) in the case of single houses and raw land, and The Land Registration Act requires the owners of property to register titles with the Registry of Deeds. The titles must be registered in the same province as the property. However, the records are inaccurate in such that overlapping might exist. There is a proliferation of fake and double titles. The completion of survey of all the lands in the country, mandated by the 1903 Public Land Law, is nowhere in sight.

The whole process of registering property may take around 39 days to complete eight procedures.

Value Added Tax

According to RA 9337, the following sales of property are VAT-Exempt

1. Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business;
2. Sale of real properties utilized for low-cost housing as defined by R.A. No. 7279, otherwise known as the “Urban Development Housing Act of 1992” and other related laws, such as R.A. No. 7835 and R.A. No. 8763 wherein the price ceiling per unit is PHP450,000 (US$9,000) or as may from time to time be determined by the Housing and Urban Development Coordinating Council (HUDCC) and the National Economic Development Authority (NEDA);
3. Sale of real properties utilized for socialized housing as defined under R.A. No. 8763, wherein the price ceiling per unit is PHP450,000 (US$9,000) or as may from time to time be determined by the HUDCC and the NEDA and other related laws;
4. Residential lot valued at PHP1,919,500 (US$38,390) and below, house and lot, and other residential dwellings valued at PHP3,199,200 (US$63,984) and below: provided, that not later than January 31, 2009 and every three (3) years thereafter, the amounts herein stated shall be adjusted to their present values using the Consumer Price Index, as published by the National Statistics Office (NSO).

It takes around 32 days to go through the nine procedures needed to register a property in the Philippines.

Footnotes to Transaction Costs Table

The round trip transaction costs include all costs of buying and then re-selling a property - lawyers´ fees, notaries´ fees, registration fees, taxes, agents´ fees, etc.

Notary Fee
Notary fees are generally around 1% to 2% of the property value. Notary fees are negotiable.

Local Transfer Tax:
Local transfer tax is 0.50% for properties located in provinces, and 0.75% for properties located in cities and municipalities in Manila.

Documentary Stamp Tax
Documentary stamp tax is around 1.5% and it is levied on the selling price or fair market value of the property, whichever higher.

Capital Gains Tax:
Capital gains tax is really a transaction tax on selling or transferring real estate properties classified as capital assets. The capital gains tax is levied at 6% of the gross selling price or fair market value of the property, whichever is higher.

For taxation purposes, properties are treated as capital assets if it is not used in trade or business, and properties are treated as ordinary assets if it is used in trade or business, such as rental property. Ordinary assets are not subject to the 6% Capital Gains Tax.

Real Estate Agent´s Fee:
The real estate agent´s fee is generally around 3% to 5% of the property value. Real estate agents will usually do the registration process without any additional payments aside from the commission.

How to Process Purchasing a Land in the Philippines | Guide in Buying Property

source: https://www.globalpropertyguide.com/Asia/Philippines/Buying-Guide