In this article, we step through the procedures of buying a new condominium in Manila as a foreigner. In addition, we also cover renting and selling the condominium as part of the investing process. As a foreigner, you are not allowed to own land in the Philippines. There are ways to get around it but we have to save this topic for another time. Foreigners typically buy a condominium in a strata property. The good news is that the ownership is freehold. However, foreigner ownership cannot exceed more than 40% in a project. Also, buyers should take note that parking space is normally sold separately.
1. Market research
Before purchasing a property especially an overseas property , it is prudent to consider a few points. Firstly, where is this property located? The location must be attractive for potential tenants and also be able to appreciate in value over time. See our recommendations for Top 5 hotspots in Manila for property investing. Secondly, is this property from a reputable and financially stable developer? Get to know some of the developers here, Investors’ Guide to Property Developers In Manila. Thirdly, what is the your budget versus the selling price? Do you need financing?
2. Contact the property agent
You scanned every website and pored through hundreds of marketing material and finally found the project you want to buy. You contact the marketing agent and start to choose which unit you like. Be sure to check that both the developer and the agent is registered with HLURB (Housing and Land Use Regulatory Board). Change the agent if you feel that you the agent is not responsive to your needs or you are not getting good service. Do not be shy to ask for any discounts. Typically developers offers various forms of discount especially when you pay in full cash.
3. Making the reservation and deposit
You will always have to put down some small amount for reserving the unit. Typically its around PHP 5000-25000. Once you paid the reservation fee, the developer will present the contract to sell (CTS) to you. In most cases, the deposit will be between 10-30% of the agreed purchased price. In recent years, property developers have come up with various creative payment schedules so do check with your property agent.
4. Secure financing
This is perhaps the most difficult activity for a foreigner in this whole process. Often the banks in the Philippines are reluctant to offer financing for foreigners. In normal cases, you have to provide a document called Alien Certificate of Residence to open a bank account in the Philippines. One way to get around this is to see if there are any local branches of a Filipino bank in your home country. Philippines National Bank for example, has a branch in Singapore and they also offer financing for the purchase of properties. An easier way to secure financing is to go through your property agent. Most property developers offer in-house financing or design interest components into longer term payment schedule. Do note that interest rates will likely be much higher when financing is provided by the developer.
5. Taxes and fees
Listed below are the taxes and fees you might expect when buying a property in the Philippines.
|Value Added Tax VAT||12% of the actual sale price|
|Documentary Stamp||1.50% of the actual sale price, zonal value, or assessed value of the property, whichever is higher|
|Transfer Tax||0.75% (in Manila) of the actual sale price, zonal value, or assessed value of the property, whichever is higher|
|Registration Fees||0.50% is a good estimate for properties above 3 million pesos.|
The actual calculation is as follows:
P8,796 for the first P1,700,000, plus P90 for every P20,000 or fraction thereof in excess of P1,700,000
Example: if the sale price is P2,000,000
Registration Fee = ((P2,000,000 – P1,700,000)/P20,000)xP90 + P8,796 =P10,146
|Broker’s commission or fee||3.00% to 5.00% of the actual sale price. Typically you will not have to bear this cost for a new project.|
|Notary Fees||As discussed with your lawyer|
6. Unit turnover
Turnover is the local industry term that developers use when the they hands the condominium key to the buyer. The developer will issue a notice of inspection to the buyer. The turnover specialist will assist you to check on the state of the condominium unit. Typically, they will issue a checklist with items such as ceilings, floor, windows, walls, painting, electrical system, plumbing, bathroom fixtures and any electrical appliance provided. Once you are satisfied with your unit, the developer will process the turnover documentation and you can start to furnish your unit. Be aware also of the following taxes and on-going fees.
|Real property tax||Fair market value of the land X Assessment level of buildings X rate (1% in Metro Manila, or 2% outside Manila)|
|Association dues||varies depending on the cost of repair, maintenance, and upkeep of common areas (elevators, security cameras, etc.)|
|Utility charges||varies (cleaning and collection of trash, power, and water on common areas)|
7. Renting out your property
You can choose to rent your property furnished or unfurnished. Furnished units will of course be much easier to rent out as tenants can move in easily. Furnished units will also fetch a higher rental compared to unfurnished condominium. As a foreigner, you may not be in Manila or Philippines all year round. This is where we can potentially help you in looking for tenants or managing the property. When you engage a real estate agent to help you rent out your unit, you can expect the commission to be one month for a full year rental or half a month for 6 months rental.
Leasing a property is treated as a service, and can subjected to value added tax (VAT). Properties with rental payments exceeding P12,800 per month received by landlords whose gross rental income per year exceed P1,919,500 are subject to 12 percent VAT. Properties with rental payments exceeding P12,800 per month received by landlords whose gross annual rental income does not exceed P1,919,500 will instead be tax at a flat rate of 3% levied on the gross rent.
8. Sale of property
When you sell your property, you can expect the following taxes and fees
|Capital Gains Tax||6.00% of the actual sale price, which typically can be passed onto the buyer|
|Documentary Stamp||1.50% of the actual sale price, which typically can be passed onto the buyer|
|Broker’s commission or fee||3.00-5.00% of the actual sale price, negotiable with your broker|