Most material things’ value depreciate over time. For example, a car bought for more than a million pesos immediately loses a chunk of its value the moment it leaves the showroom. Real property, on the other hand, appreciates as years go by.
Start with small lots and choose agricultural ones as they’re more affordable than residential. It can be turned into a vegetable farm for extra income while waiting for a buyer. You can buy bargain properties at municipal tax delinquent and bank-acquired property auctions. If redeemed by the owner after 1 year, you earn 2%/month interest. Just make sure that it has a title, as untitled ones may give you a big headache later on.
In general, don’t buy properties as long-term investments, except for ones that have a high potential for future development. Instead, engage in buying and selling, the earlier you can dispose of it at a profit, the better. If the lot is large, subdivide it and sell the parcels at huge margins.
A high-value property is located near cities, towns, business or residential districts, tourist spots, and major roads. Don’t ignore sleazy areas that are planned for a big development in the future, either by the government or corporation. If it’s a good location, you can rent the space or the entire lot.
Also, buy irregular-shaped lots next to irregular but high-potential lots.
Be forewarned that selling properties takes time and will tie up your capital, so invest only your surplus savings.
Here are some online tools I use for my realty side hustle. The Lot Plotter app from the government’s GeoPortal website, generates a sketch plan using the technical details of the title. To get the lot size based on the Google Map, use DaftLogic’s Area Calculator and MapDevelopers Area Calculator.
Look for foreclosed properties from PNB, Veteran’s Bank, MayBank, Lamudi and ForeclosurePhilippines. You might be surprised of what you will find. To know more about “for assume” property, read more at Lamudi article.
Avoid buying properties in hazardous areas that are prone to flooding, landslides, storm surges, etc using UP’s NOAH. To know if the area’s elevation is above sea level, use Topographic-Map.
Here’s a 3 bedroom house with an extra room at the ground floor which they call a “den”. The Willow House cost around 2.5 million pesos. Ideal for families with seniors, who could no longer climb the stairs.
PHirst Homes Pre-selling Amani Townhouse at San Miguel, Iloilo:
Mid: 2-Bedroom, Floor area: 40 sqm, Lot area: 44 sqm, PHP 1.549 M
End: 2-Bedroom, Floor area: 40 sqm, Lot area: 60.5 sqm, PHP 1.95 M
Gated & fenced, unlike other developers, they turnover completely finished unit.
Google Maps location of the project in San Miguel, Iloilo: 10.769101, 122.484248.
Amaia Scapes Duplex/Twin House For Sale in San Miguel, Iloilo:
3-Bedroom, Floor area: 56 sqm, Lot area: 92 sqm, PHP 1,923,200.
Amaia Scapes Single Detached House in San Miguel, Iloilo:
3-Bedroom, Floor area: 60 sqm, Lot area: 100 sqm, PHP 2,900,000.
When buying house and lot, avoid any Manny Villar-affiliated properties like Savannah, Camella, Lessandra or Lumina. The units are of low quality and they use sub-standard materials. I’ve experienced renting a unit where the second floor has cracks; it is deformed and literally shakes. The roof is also leaking. In another unit, the drainage pipe leads nowhere, haha. Houses are poorly designed and, with no ventilation, it is very hot inside. The staff and services are also very unprofessional. They don’t act on any complaints. The water they supply is dark green, dirty, and smells like it came from a septic tank. Sometimes it has worms. Ewww, so disgusting.
To sell or rent properties, use Philippine Properties. To sell or rent condos, house or apartment use Berenta. Just to lease use MoveInTheCity.
The Philippines uses an adapted form of the “Torrens” system of land registration. This system assures the buyer that that purchase of land with an Original Certificate of Title(OCT) or Transfer Certificate of Title (TCT) or Condominium Certificate of Title(CCT) issued by the Registry of Deeds, is absolute, indefeasible and imprescriptible.
When buying property always verify the authenticity of the title in the Registry of Deeds. If the seller only has a Tax Declaration, be extra cautious. Rule of thumb always require a clean title.
Real property can be either an ordinary asset or capital asset. Capital assets are subject to Capital Gains Tax. It is considered an ordinary asset if it is:
- For sale in the ordinary course of business.
- Used in business that the taxpayer claims for depreciation.
- Used in trade or business.
In general, a property that does not belong to the above is capital assets.
Properties can also be classified as capital or ordinary based on who owns it. If the owner is engaged in the real estate business and can present evidence as such, then the property is considered as an ordinary asset.
People engaged in real estate business can be classified as a real-estate dealer, developer, and lessor. A real-estate dealer is a person engaged in the business of buying and selling properties.
The real estate developer refers to a person or company involved in the business of developing, selling or renting properties. Property can be subdivisions, houses, condominiums, townhouses, commercial buildings and memorial lots.
While a real estate lessor is limited to renting residential or commercial properties. Individuals or businesses that do not belong to any of the above are understood as “habitually engaged real estate sellers”, if “they consummated during the preceding year at least six taxable real estate transactions, regardless of the amount”.
Buying or selling property involves a Deed of Sale or Deed of Absolute Sale. It is an authentic deed drafted and signed by a public officer, usually a notary, showing the legal transfer of real estate property ownership. The buyer will need this important document during the registration.
To avoid tax problems, later on, be aware of the taxes and fees involved. Taxes and fees are based on selling price indicated in the Deed of Sale or Zonal Value or Fair Market Value.
Zonal Value is an approved value of real property and used by the Bureau of Internal Revenue(BIR) as the basis for the computation of internal revenue taxes. You can get the Zonal Values here.
Fair Market Value(FMV) or Market Value is described by the Philippine Valuation Standards as “the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arms-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion”. In short, FMV is subjective.
Below are the taxes and fees the seller is responsible for paying:
- Income Tax, if the property is an ordinary asset.
- Value Added Tax/Percentage Tax, if the property is an ordinary asset.
- Creditable Withholding Tax, if sold by habitually engaged real estate seller or corporation.
- Capital Gains Tax, if the property is a capital asset. Equivalent to 6% of the selling price on the Deed of Sale or the Zonal Value, whichever is higher.
- Unpaid Estate Tax, if any.
- Unpaid Real Property Tax, if any.
- Agent or broker’s commission.
Meanwhile, the buyer pays for the cost of registration:
- Transfer Tax. 0.5% of the selling price, or Zonal Value or FMV, whichever is higher.
- Registration Fee. 0.25% of the selling price, or Zonal Value or FMV, whichever is higher.
- Miscellaneous expenses incurred during the registration process, like notarial fees and loan fees.
- Documentary Stamp Tax. 1.5% of the selling price or Zonal Value or FMV, whichever is higher.
The above sharing of expenses is standard practice. However, the buyer and seller can mutually agree on some modifications as long as it is done during the negotiation period, before the signing of the Deed of Sale.
The Deed of Sale is then taken to the Registry of Deeds to be officially recorded. These are the documents needed when transferring the title ownership:
- Certified True Copy(CTC) of the title, or any applicable.
- Notarized copies of the Deed of Sale.
- The latest Tax Declaration of the property.
- Certificate from the Bureau of Internal Revenue that the Capital Gains Tax and Documentary Stamps have been paid.
- Receipt of payment of the Transfer Tax and Registration Fee.
Aside from those already mentioned, there are other taxes for special cases. Donor’s Tax is levied on a donation or gift, in this case, a real property. It is imposed on the free transfer of property between two or more persons who are living at the time of the transfer.
While Estate Tax or Inheritance Tax is imposed only when a property is transferred upon the death of its owner to his or her lawful heirs or beneficiaries. The property can’t be passed on unless the Estate Tax is paid.
The tax is based on the Net Estate, which is the difference between the Gross Estate(based on the FMV at the time of death) and the allowable deductions(expenses, losses, debts, and taxes) of the deceased. Tax rates are graduated and depend on the Net Estate amount. Read more details here.
Whew, that’s it. Let’s pray fervently that the government doesn’t levy more tax on real estate properties, haha. Learn more at Hoppler and Grit articles.
When buying a property with Emancipation Patent(EP) title, be aware of the general restriction on the transfer of ownership of agricultural lands whether or not the landholding is covered by PD No. 27 or CARP as stated in DAR Administrative Order No. 06.
PD No. 27 grants an Emancipation Patent(EP) title which represents absolute ownership over the land transferred to the tenant-farmer who fully complied with the requirements for the grant of title. While the Comprehensive Agrarian Reform Program(CARP) grants a Certificate of Land Ownership Award(CLOA) title.
The transfer of ownership of all agricultural lands to a private person whose total ownership of agricultural lands after the transaction shall exceed 5 hectares is prohibited.
However there are exceptions:
-Transfer via intestate succession.
-Transfer of legitimes to compulsory heirs.
-The consolidation of ownership to a mortgagee bank after the redemption period expires after its foreclosure, provided, that the property agricultural land acquired is intended to be under the status of “Real and Other Properties Acquired”(ROPA) Asset of the bank.
Take note also of the holding period which refers to the period of time commencing from the date of registration of the EP, CLOA, or other title issued pursuant to an agrarian reform program of the State until the lapse of 10 calendar years AND the payment of the amortization thereof, whichever comes later.
Transfer of awarded lands under PD No. 27, as amended by Executive Order No. 228 may be allowed, provided the following shall be observed:
-The productivity of the land shall be maintained.
-The buyer will not exceed the landowner ceiling provided by law.
-The ownership ceiling of 5 hectares shall be imposed.
Administrative Order No. 20 provides that the following shall not be subject to and are non-negotiable for conversion:
-All irrigated lands where water is available to support rice and other crop production, and all irrigated lands where water is not available for rice and other crop production but are within areas programmed for irrigation facility rehabilitation by the Department of Agriculture and National Irrigation Administration
-All irrigable lands already covered by irrigation projects with firm funding commitments at the time of the application for land use conversion.
If you need more information on general legal matters head to Chel Diokno and Chan Robles.
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