What you need to know before buying a property in Philippines

#buyingpropertyinphilippines #realestatephilippines #thingstoknowbeforebuying

There are risks and issues that may arise when buying a property in the Philippines, that is why it is important you seek legal representation at the start of the transaction to minimise your risks and protect your rights. Here are some guidelines to consider before proceeding with the transaction.

1. Make sure you are dealing with the registered owners of the property and ask for proof of ownership.

The sellers of the property should be able to present their “owner’s duplicate copy” of their Transfer Certificate of Title (TCT) or Condominium Certificate of Title (CTC) in their names. The government retains the original copy of the title with the Philippine Land Registration Authority (LRA).

In some instances, especially in the provinces, the land is not covered by a TCT but the owners have a Tax Declaration issued by the local government where the land is located. Usually, registered owners of buildings and other structures are evidenced by a tax declaration. When the owner of the building is also the owner of the land that is usually indicated in the same tax declaration.

I suggest you or your trusted representative/lawyer go to the Register of Deeds or the local assessor’s office to confirm the authenticity of the TCT or CTC or Tax Declaration at the outset.

2. Check the TCT or CTC or Tax Declaration for any encumbrances or liens.

There are instances where the owner’s copy of TCT, CTC or tax declaration shown to you by the sellers do not contain annotation of liens and encumbrances and presented as “clean title”. Despite such presentment, it is still advisable to check and confirm with the Register of Deeds or the local assessor’s office because they have the original copy of the title which contain all the registered liens and encumbrances. Sometimes, there are instances where the owners copy of TCT, CTC or tax declaration do not have such annotations. If you buy a property without checking with the Register of Deeds and later on you found out there is a registered lien and encumbrance on the title, your ownership would be subject to such lien and encumbrance.

3. Formalities of a sale

Philippine law requires transactions involving real properties should be made thru public documents like Contract of Sale or Deed of Sale with specific form of notarial acknowledgment. When the title of the property is in the name of spouses, both parties must sign the contract.

The Bureau of Internal Revenue (BIR) must issue a certificate authorising registration before the Land Registration Authority can issue a new title in your name.

4. Taxes and other fees.

The purchase of a property involves taxes and fees and it is important that both parties discuss and agree who will pay the expenses before executing the contract of sale.

For the account of the Seller

1. Capital gains tax – 6% of the selling price or zonal value or fair market value, whichever is higher.

2. Business tax as applicable. The rate depends on the local government where the property is located.

For the account of the buyer

1. Documentary stamp tax – 1.5% of selling price or zonal valuation whichever is higher

2. Transfer tax – ranges from 0.25% to 0.75% of selling price or zonal valuation, whichever is higher)

3. Registration fee for the issuance of new title – graduated rate based on selling price

4. Real estate tax – calculated from date of full payment for the remaining parts of the year

There will be no zonal valuation adjustment of properties unless published or posted. The assessment of the fair market value of the property require mandatory consultation from public and private appraisers and with prior notice to affected parties.

Value Added tax (VAT)

The parties must agree who will carry the cost of the Value added tax (VAT) which is 12% of the purchase price. This amount can be added to the purchase price of the property.

The threshold of VAT exempt sale of residential lot is Php 1.5 million.

The threshold of VAT exempt sale of house and lot and other residential dwellings is Php 2.5 million.

Beginning 2021, threshold of VAT-exempt sale of house and lot and other residential dwellings will be Php 2 million and the sale of low cost housing and sale of residential lot will also be subject to VAT.