PHILIPPINE REAL ESTATE LAWS, FUNDAMENTALS OF PROPERTY OWNERSHIP, REAL ESTATE PRACTICE &

TAXES

PHILIPPINE REAL ESTATE LAWS, FUNDAMENTALS OF PROPERTY OWNERSHIP, REAL ESTATE PRACTICE &
TAXES,Cebu PHILIPPINE REAL ESTATE LAWS,PHILIPPINE REAL ESTATE LAWS Guide,Information on
PHILIPPINE REAL ESTATE LAWS,PHILIPPINE REAL ESTATE Ownership

PHILIPPINE REAL ESTATE LAWS

FUNDAMENTALS OF PROPERTY OWNERSHIP, REAL ESTATE PRACTICE & TAXES

RIGHT TO OWN

1. General Rule – Only Filipino citizens and corporations at least 60% capital of which is owned by
Filipinos are entitled to acquire and own land in the Philippines.

2. Exceptions to the General Rule – Alien acquisition of real estate in the Philippines is allowed in the
following cases:

a) Acquisition before the 1935 Constitution.

b) Acquisition thru hereditary succession if the acquiree is a legal heir.

c) Purchase of not more than 40% interest in a condominium project

d) Purchase by former natural born Filipino citizens subject to limitations prescribed by B.P. 185 and R.A.
8179

3. A Filipina who marries an alien retains here Philippine citizenship (unless the law of her husband’s
country makes her assume the citizenship of her husband because of such marriage) and can therefore
acquire real estate in the Philippines.

Real Estate Ownership

CONCEPT OF OWNERSHIP

Ownership is the independent right of a person to the exclusive enjoyment and control of a property
including its disposition and recovery subject only to the restrictions established by law and rights of
others.

RIGHTS INCLUDED IN OWNERSHIP

Fee simple consists of the so called “bundle of rights” which are inherent in or appurtenant to
ownership, without any limitations or restrictions other than those imposed by law or contract. The
bundle of rights include the following: 1) Right to possess 2)Right to use and enjoy 3) Right to the fruits
4) Right to dispose 5) Right to vindicate or recover

LIMITATIONS ON RIGHT OF OWNERSHIP

1) Those imposed in general by the State in the exercise of the power of taxation, police power, and
power of eminent domain.

2) Those imposed by law such as legal easement, requirement of legitimate succession, zoning, building
code, rent control, urban and agrarian reform, subdivision regulations, escheat.

3) Those imposed by the grantor of the property on the grantee by contract, such as donation, last will,
or usufruct.

4) Those imposed by the owner himself, such as voluntary easement, lease, mortgage.

SURFACE, SUBSURFACE AND AIR RIGHT

Land, in its legal signification, extends from the surface downwards to the center of the earth and
extends upwards indefinitely to the skies. The surface and subsurface of rights of an owner entitle him
to construct thereon any works or make any plantations and excavations without detriment to
servitudes and special laws. Air right is the right of an owner to use and control the air space over his
land subject to the requirements of aerial navigation, laws, or contract.

RIGHT TO HIDDEN TREASURE

Hidden treasure belongs to the owner of the land, building, other property on which it is found. When
the discovery is made on the property of another, or of the State or any of its subdivisions, and by
chance, one-half of the treasure shall be allowed to the finder. If the finder is a trespasser, he shall not
be entitled to any share of the treasure. If the things found be of interest to science or arts, the State
may acquire them at their just price, which shall be divided in conformity with the rule above stated.
Hidden treasure, for legal purpose, is understood to be any hidden unknown deposit of money, jewelry,
or other precious objects, the lawful ownership of which does not appear.

RIGHTS OF ACCESSION

1) In General – The ownership of property gives the right by accession to everything which is produced
thereby, or which is incorporated or attached thereto, whether naturally or artificially.

2) With Respect to Produce of Property – To the Owner belongs the:

a) Natural fruits – the spontaneous product of the soil

b) Industrial fruits – those produced by land cultivation or labor

c) Civil fruits – the rental income of buildings and /or lands

3) With Respect to Immovable Property:

a) The owner of the land on which anything has been built, sown or planted in good faith shall have the
right:

aa) To appropriate as his own the works, sowing or planting after payment of indemnity provided by
law, or

bb) To oblige the builder or planter to pay the price of the land. However, the builder of planter cannot
be obliged to pay for the land if its value is considerably more than that of the building or planting. In
such case, he shall pay reasonable rent if the owner does not choose to appropriate the building after
proper indemnity. The parties shall agree on the terms of the lease and in case of disagreement, the
court shall fix the terms thereof.

b) The owner of the land on which anything has been built, planted or sown

In bad faith may:

aa) Demand the demolition of the work or removal of the planting or sowing at the expense of the
builder or planter, or

bb) compel the builder or planter to pay the price of the land and the sower, the proper rent. The
landowner is also entitled to damages from the builder planter or sower.

cc) To the owners of land adjoining the banks of rivers belong the accretion which they gradually receive
from the effects of the current of the water.

dd) Whenever a river, changing its course by natural causes, opens a new bed through a private estate,
the new bed shall become a public dominion.

Modes of acquiring title

Private Grant –voluntary transfer or conveyance of private property by a private owner, such as sale or
donation.

Public Grant – acquisition of alienable lands of the public domain by homestead patent, free patent,
sales patent, or other government awards.

Involuntary Grant – acquisition of private party against the consent of the former owners, such as
foreclosure sale, execution sale, or tax sale
Inheritance – acquisition of private property through hereditary succession

Reclamation - filling of submerged land, subject to existing laws and government regulations.

Accretion – acquisition of more lands adjoining the banks of rivers due to the gradual deposit of soil as a
result of the river current

Prescription – acquisition of title by actual, open, continuous, and uninterrupted possession in the
concept of owner for the period required by law

ACQUISITION BY FORMER NATURAL BORN FILIPINO CITIZENS

1. Mode of acquisition is not limited to voluntary deeds (such as sale or donation) but includes
involuntary deeds (such as foreclosure, execution or tax delinquency sale)

2. Maximum area that may be acquired:

a) For residential purpose – 1,000 square meters of urban or one hectare of rural land.

b) For business purpose – 5,000 square meters of urban land or 3 hectares of rural land.

Business purpose refers to the use of land primarily, directly, and actually in the conduct of business or
commercial activities in the broad areas of agriculture, industry, and services, including the lease of the
land but excluding the buying or selling thereof.

In case of married couple where both spouses are former natural born Filipino citizens, both of them
may avail of the right provided that the total acquisition shall not exceed the maximum area allowed.

A transferee who acquired urban or rural land for residential purpose while still a Filipino citizen may
acquire additional urban or rural land for residential purpose which, when added to that already owned
by him, shall not exceed the maximum area allowed by law.

Rule in case of double sale: The priority of rights in case of double sale of titled property shall be
governed by the following rules:

1. The buyer who acquired in good faith and was the first to register the sale shall have a better right.
2.If none of the buyers registered the sale, the buyer who acquired to good faith and was the first one in
possession shall have a better right.

3. If none of the buyers registered the sale or took possession, then the buyer who acquired in good
faith and has the oldest title shall have a better right

Contract of Sale and Contract to Sell

1. Distinction: In a contract of sale, there is already a transfer or ownership. In a contract to sell, there is
no transfer of ownership yet but merely a mutual promise to buy and sell

. Criterion: The test to determine whether a contract is a contract of sale or a contract to sell is not the
manner of payment – whether cash or installment, but whether or not there is conveyance of ownership
in the dispositive or grant clause of the deed. There is transfer of ownership when the dispositive clause
states that the vendor “hereby sells, transfers and conveys unto the vendee in a manner absolute and
irrevocable x x x”

Rights of buyer who has paid two years or more of installments:

1. To pay, without additional interest, any installment due within the grace period which is equivalent
to one month for every year of installment payment, provided that such right can only be availed of
once every five years.

2.To receive a thirty-day notarial notice of cancellation before his contract can be cancelled for
delinquency

Rights of buyer who has paid less than 2 years of installment

1. The grace period to pay without additional interest due is fixed as 60 days

2. For cancellation of contract due to delinquency, the buyer is only entitled to receive a 30-day notarial
notice of cancellation without right to receive the cash surrender value pf his payments
Right to refund under P.D. 957 & Maceda Law

Presidential Decree 957: Right to refund applies when the developer fails to complete the development
within the required period. Refund is 100% of total payments

Maceda Law: Right to refund applies as a requisite for cancellation of contract due to delinquency when
the buyer has paid at least 2 years. Refund is 50% of total payments; additional 5% per year after the 5th
year.

MACEDA LAW (R.A. 6552) When the buyer is delinquent in his payment

Objective: To protect installment buyers of real estate against onerous and oppressive conditions.

Applicability – Applies to sale or financing of residential estate on installment payment covered by

contract to sell and not sale with mortgage, but excluding industrial lots, commercial building, and sales
to tenants under R.A. 3844.

Rights of buyer who has paid two years or more of installments: a) To pay, without additional interest,
any installment due within the grace period which is equivalent to one month for every year of
installment, provided that such right can only be availed of once every five years. b) To receive a thirty-
day notarial notice of cancellation before his contract can be cancelled for delinquency. c) To receive the
cash surrender value of his total payments before his contract can be cancelled due to delinquency. The
refund is equivalent to fifty percent of total payments and, after the fifth year, an additional five percent
per year of installment payment, but not to exceed ninety percent of total payments. d) To transfer or
assign his right to the contract e) To register or annotate his contract on the title f) To pay, without
additional interest, the full principal balance of the price before the term of the contract.

Rights of buyer who has paid less than two years of installment – The buyer has practically the same
rights as a buyer who has paid two years or more of instalmments, except for the following differences:

a) The grace period to pay without additional interest on any installment due is fixed at sixty days

b) For cancellation of contract due to delinquency, the buyer is only entitled to receive a thirty-day
notarial notice of cancellation but without right to receive the cash surrender value of his payments.

FOREIGN OWNERSHIP OF CONDOMINIUM UNIT

In the condominium concept of ownership, absolute ownership by a foreigner is allowed not to exceed
forty percent interest in the project. The unit owner is the absolute owner of the space within the
interior surface of his unit, but is only a co-owner of the exterior façade of the unit.
RIGHTS OF A CONDOMINIUM UNIT OWNER

Absolute ownership of his unit

Co-ownership of land and common areas

Exclusive easement of the space of his unit

Non-exclusive easement to common areas for ingress or egress

Right to sell, lease, or mortgage his unit

Right to repair, paint, decorate the interior surface of his unit

Right to participate and vote in condominium corporation meetings

OBLIGATIONS OF A CONDOMINIUM UNIT OWNER

Pay the realty tax on his unit

Pay the insurance on his unit

Pay the shared monthly dues for maintenance of common areas/amenities/garbage disposal

Comply with use restrictions

P.D. 957 When the developer fails to complete the development within the required period

The refund is 100% of total payments less penalty interest plus legal interest of money

REAL ESTATE PRACTICE & REAL ESTATE TAXES

Capital Gains Tax - Income tax payable to the BIR for the sale, transfer, or other disposition of real estate
classified as capital asset. .

Transfer Tax - A tax payable to the local government unit for sale, transfer or other disposition of real
estate, whether capital or ordinary asset
Withholding Tax - A tax payable to the BIR on the sale, transfer or other disposition of real estate
classified as ordinary asset.

Cost approach - a method of estimating the fair market value of an improvement by estimating present
reproduction cost and deducting depreciation.

Economic life - The period during which a property can be profitably used or expected to generate more
income than expenses.

Principle of diminishing returns - States that the application of more factors of production will tend to
increase net income up to a certain point, beyond which the introduction of more factors of production
will tend to decrease net income.

Principle of Progression - An appraisal principle which holds that the value of a property tends to be
enhanced by association with superior properties

Principle of Regression - An appraisal principle which holds that the value of a property tends to be
adversely affected by association with inferior properties.

Principle of Substitution - an appraisal principle which holds that the value of a replaceable property is
inferred from the value of an equally desirable substitute property.

Presentation: concept – It is an orderly written or oral explanation of facts and figures that make a
given property attractive to a prospect. Scope of coverage: 1. Property Identification – location, block
number, lot number, lot area and dimensions, floor area, type of property, terrain, view, description of
improvements, zoning classifications, facilities and amenities, titled or to be titled, price, terms,
discounts, financing. 2. Advantages and benefits – quality of neighborhood, availability of public
transportation, proximity to public marker / schools / hospitals, reasonableness of price. 3. For income
properties – present potential income, return of investment. 4. Lot and vicinity plan, subdivision map,
and pictures of the property

Demonstration: concept – It is the process of showing the property and pointing out its physical qualities
and other advantages and benefits to arouse the desire to own it. Preparing for demonstration:
Preparation of checklist of physical attributes and other data which may be the object of prospect’s
inquiry. Update availability with the developer.

Organization of selling points to be emphasized

Anticipation of possible objections

Appointment with prospect and notice to owner

üSelection of ideal route to create a favorable impression of the neighborhood

Negotiation: concept – It is the process of reconciling the opposing views of the parties to a transaction
as to price and terms. Items which should be covered in negotiation:

Price and terms and discounts

Expenses for execution and registration of sale

Date for delivery of property

Items included or excluded in a sale

Manner of payment & financing

•Update Payment of Eletricity, Water, Telephone

•Update Payment of Realty Tax

•Penalties or Forfeiture in case non-compliance

•Who is going to process the documents and deadline

•Appointments for Earnest money, or sales contract or deed f sale

Common difficulties

*Silent objection – hesitancy of the prospect to express his objection thereby depriving the broker of the
opportunity to answer or overcome it
*Presence of supposed advisers of the prospect who give negative remarks which tend to undermine
the transaction

*Failure or inability to analyze prospects real need and affordability

*Promise of a prospect to call the broker which is almost always broken

*Waiting advice from spouse or relative who were not present during the tripping

*Broker’s failure to identify time wasters such as window shoppers or speculators

Closing

*Persuading the prospect to visit the developer’s office to be able to hold the property with a
reservation fee

*Securing papers/documents from developers such as copy of title, lot plan, deed of restrictions, copies
of reservation agreement, deed of restrictions, contract to sell, deed of sale

*Securing papers/documents from prospects such as copy of income tax returns, bank statements,
certificate of employment, copy of passport, TIN, residence certificate etc

*Arrangement of appointment between parties for contract signing and payment

Non-forfeiture of Payments. No installment payment of the buyerMay be forfeited by the developer

when the buyer who is not delinquent, and after due notice, desists from further payment due to failure
of the developer to complete within the required period. The buyer may at his own option, be
reimbursed with total amount paid including amortization interest, with interest thereon at legal rate.

Mortgage of Project – No mortgage of any lot by the project owner/developer without permit to
mortgage from HLURB. Permit to mortgage may be granted upon submission of proof that the loan
proceeds will be used for development and verified undertaking by the mortgagee to release from the
mortgage any lot/unit whose loan value has been paid. In case a mortgage was executed by
owner/developer pursuant to HLURB permit to mortgage, the buyer may at his own option, pay his
installmentdirectly to the mortgagee.

Alteration of Plans – any alteration in the approved plans relating to open spaces, facilities and other
forms of development require prior approval from HLURB (now LGU) and written consent of
Homeowners Asscociation

Advantages of condominium Concept

Enhance affordability by fractionalizing cost of land & building

Facilities utilities, amenities and services will cost less to build and maintain

Economy in land space. Families holding title contiguous lands of say 40 or 50 square meters by
obtaining adequate housing by consolidating their lots and constructing a condominium project

Enhances marketability because foreigners can buy

Multiples saleable or rentable floor areas by as many storeys put upEliminates the routinary chores of
daily maintenance, security, and garbage collection associated with single-detached dwellings

Rights of unit owner

1.Absolute ownership of his unit.

2.Co-ownership of land and common areas.

3.Exclusive easement of the space of his unit.

4.Non-exclusive easement to common areas for ingress or egress.

5.Right to sell, lease, or mortgage his unit.

6.Right to repair, paint, decorate the interior surface of his unit.

7.Right to participate and vote in condominium corporation meetings.

Obligations of condominium unit owner

1.Pay the realty tax on his unit.

2.Share the realty tax on the land and common areas.

3.Pay the insurance on his unit.

4.Share the insurance on the common areas.

5.Comply with use restrictions.

6.Pay dues and assessments.

7. Give other unit owners the priority right to buy his unit (right of first refusal). If so required by the
master deed.

Dues and Assessments

1.The Deed of Restriction usually provides for two kinds of assessments:

a.) Regular assessment – a monthly obligation to fund ordinary project expenses, such as security,
garbage collection, repair and maintenance of the common areas, electricity and water bills on the
common areas and realty tax and insurance on the common areas.

b.) Special assessment – this is imposed as the need arises, such as the need for replacement of the
generator.

Extent of interest in common areas

In the absence of any provision in the master deed, all unit owners shall have equal share in the
common areas. If the intent is to pro-rate the unit owners’ interest on the common areas, such fact
must be expressly provided in the master deed. The interest based on floor area of ownership is arrived
at by dividing the unit area by the total floor area of all condominium units.

Condominium Corporation

Optional and Mandatory Requirement. The condominium corporation is optional if no unit will be sold in
foreigners. However, the corporation is mandatory if some units, not exceeding forty percent interest in
the project, will be sold to foreigners, in which case title to the land will be transferred in the name of
the condominium corporation and thus comply with the constitutional mandate that corporations may
acquire real estate provided that at least sixty percent of its capital or membership is Filipino

1.Principal Purposes: a) To hold title to the land and b) To set as the management body of the
condominium project.

2.Conflict with Master Deed. In case of conflict between the articles of incorporation of the
condominium corporation and the master deed of the condominium project, the latter should always
prevail because:

a) It is the matter deed which gives birth in the condominium project. The project cannot exist
without a master deed, but it can exist without a condominium corporation.

The condominium law specifically provides that the articles of incorporation and by-laws of the
condominium corporation shall not conflict with the master deed.

REAL ESTATE TAXATION

Assessment Level for Land:

Classification Not more than

Residential 20% of FMV

Commercial/ Industrial/ Mineral 50% of FMV Agricultural 40% of FMV

Timber 20% of FMV Scientific/ Cultural/ Hospital 15% of FMV

Assessment Level of Improvement:

FMV over Not over Resd’l Comm’l/ Ind’l Agr’l Timber

175,000 0% 0% 0% 0%

175,000 300,000 10% 30% 25% 45%

300,000 500,000 20% 35% 30% 50%

500,000 750,000 25% 40% 35% 55%

750,000 1,000,000 30% 50% 40% 60%

1,000,000 2,000,000 35% 60% 45% 65%

2,000,000 5,000,000 40% 70% 50% 70%

5,000,000 10,000,000 50% 75% 50% 70%

10,000,000 60% 80% 50% 70%

Rate of Real Estate Tax

a) In Provinces – not exceeding one percent of assessed value.

b In Cities and Metro Manila Municipalities – not exceeding two percent of assessed value.

Special Education Fund Tax – an annual levy on real estate equivalent to one percent of assessed value
which shall be in addition to the basic real estate tax

Date of Payment of basic realty tax and SEF tax:

a)May be paid in four equal quarterly installments on or before March 31, June 30, September 30, and
December 31.

Payment in advance of the schedule is entitled to not more than twenty percent discount.

Delinquent payment shall be subject to interest of two percent per month but in no case to exceed
thirty six months

CAPITAL GAINS TAX

Rate and Basis Tax – the rate of capital gains tax is six percent computed on the following basis:

a) Sale of Lot: - Basis is price per deed of sale or lot zonal value, whichever is higher.

b) Sale is Lot with improvement: - Basis is price per deed of sale, or lot zonal value plus improvement
value, whichever is higher.
Conditions for exemption from Capital Gains Tax:

a) The seller is a natural person and the capital asset sold is his principal residence (family home).

b) The proceeds of the sale will be used to acquire / purchase construct a new family home.

c) The BIR is duly notified by the taxpayer within thirty days from the date of sale through a
prescribed return, of his intention to avail of the tax exemption.

d) The tax exemption can only be availed of once every ten years.

If there is no full utilization for the proceeds of the sale, the portion of the gain presumed to have been
realized from the sales shall be subject to capital gains tax

Installment Sale – A sale is considered on installment basis when the initial payment in the year of sale is
twenty-five percent or less, in which case the transferor may opt to pay initially a portion of the tax in
accordance with the following formula:

Initial Tax = Initial Payment x Total Tax

Total Price

WITHHOLDING TAX

Transactions Subject to Withholding Tax – Sale, exchange, or transfer of ordinary asset by natural
persons, corporations, estate or trust.

Rates and Basis – Computed on the same basis as capital gains tax, the rates of creditable withholding
tax.
Rate of Withholding Tax

0% - When the property sold is part of an HLURB registered socialized housing project of the seller

1.5% - When the seller is habitually engaged in real estate business and the price does not exceed
P500,000.00

3.0% - When the seller is habitually engaged in real estate business and the price is over P500,000.00

5.0% - When the seller is habitually engaged in real estate business and the price exceeds P 2 million.

6.0% - When the seller is not habitually engaged in real estate business.

TRANSFER TAX

1.Concept – A tax payable to the local government (City or Provincial Treasurer) for the sale or other
disposition of real estate, regardless of classification of the property.

2.The rate is not more than one percent for properties located in cities and municipalities in Metro
Manila, and not more than one-half percent for properties outside of Metro Manila.

3.Basis is the contract price or market value per tax declaration whichever is higher. However, the local
government may enact an ordinance prescribing as basis the contract price or zonal value, whichever is
higher.

DOCUMENTARY STAMPS

1.On Sales – P15.00 per P1,000.00 or a major fraction thereof, computed on the same basis as capital
gains tax, and payable within five days following the month when the document was notarized.

2.On Mortgages – P20.00 for first P5,000.00 and P10.00 per P5,000.00 after the first P5,000.00

On leases – P3.00 for first P2,000.00 or fraction thereof, and additional P1.00 for every P1,000.00 or
fraction thereof in excess of the first P2,000.00 for each year of the term of the lease
SALIENT FEATURES OF E-VAT RELATING TO REAL ESTATE Concept : Expand Value Added
Tax is an indirect tax. It can be passed on to the buyer. However, it is should be inputed or built-in the
price. The sales contract cannot stipulate the “E-VAT shall be for the account of the buyer.”

Transactions subject to E-VAT

1.Sale, barter or exchange or real estate held primarily for sale to customers in the ordinary course of
trade or business where the annual gross sales or invoice exceed P750,000.00, except sale by real estate
dealers and/or lessors of house and lot and other residential dwellings price P1.5 Million and below.

2.Lease of real estate for commercial use when the annual gross receipts exceed P750,000.00

3.Lease of real estate for residential use when the monthly rental per unit exceeds P10,000,000 and the
annual gross receipts exceed P750,000.00

Liability as non-VAT taxpayer

1.In cases where the real estate dealer or lessor is not subject to E-VAT, he shall be liable as a non-VAT
taxpayer subject to three percent tax. However, he has the option to register as VAT taxpayer subject to
10% VAT with the benefit of input tax.

Commissions of real estate brokers are subject to E-VAT if the annual gross receipts exceed P550,000.00,
otherwise they shall be subject to seven percent tax.

Real estate dealers are not allowed to withhold the E-VAT from commissions of real estate brokers

Computations of E-VAT payable

1.E-VAT payable = output tax (sales receipts x 1/11) less input tax (purchase receipts x 1/11)

Credit for input tax can only be availed of if the payee is VAT-registered.

Basis of E-VAT

1.Cash/Deferred payment plan – Basis is the contract price or zonal value whichever is higher. In the
absence of zonal value, basis shall be market value per tax declaration or contract price, whichever is
higher.
Installment Plan – Basis is actual consideration received, including interests and other charges. However,
upon full payment, if the zonal value is higher than the total receipts / collection, the additional E-VAT
shall be paid accordingly

Expenses for execution and registration of sale In the absence of any stipulation to the contrary, the
seller shall pay for the execution and registration of the sale.

PHILIPPINE REAL ESTATE LAWS, FUNDAMENTALS OF PROPERTY OWNERSHIP, REAL ESTATE PRACTICE &
TAXES,Cebu PHILIPPINE REAL ESTATE LAWS,PHILIPPINE REAL ESTATE LAWS Guide,Information on
PHILIPPINE REAL ESTATE LAWS,PHILIPPINE REAL ESTATE Ownership