Guide when Buying real Estate in the Philippines

Check-List Before Buying Real Estate in the Philippines

Here are the tips a buyer must remember before buying any property in the Philippines, specially if you are buying a single property from an individual:

1. Make sure the "Transfer Certificate of Title" is authentic. The easiest way to check if the title to the property you are buying is authentic is by getting "Certified True Copy" of the title from the Register of Deeds. This office is usually located at the city or municipal hall where the property is located. Ask the seller of the property for a photocopy of the title -you will need the title number and the name of the owner to get a certified true copy of the title from the Register of Deeds.

2. Verify that title is clean - meaning the property is not mortgaged (no liens & encumbrances on the property). You can see that at the back of the title with the heading "Encumbrances". This page must be empty if you are told that the title is "clean". But sometimes the space for the technical description of the property on the front page of the title is not enough and the description of the property is continued on the "Encumbrances" page, this is of course all right.

3. Make sure that the land described on the title is really the land that you are buying. You can validate this at the Register of Deeds or by hiring a private land surveyor or a geodetic engineer. Land titles don't have any street name and number to pin point a property, it is a must to confirm that the actual property you are buying matches the technical description on the Transfer Certificate of Title.

4. Make sure that the sellers are the real owners. If you are buying from an individual property owner, ask for identification papers like passport or driver's license, it is also a good idea to talk to the neighbors to confirm the identity of the sellers (you might as well ask some history of the property).

5. Confirm that the yearly real estate taxes are paid. Ask for a copy of the Tax Declaration and Tax Receipts to confirm that real estate tax payments are up to date.

If the above check list is in order, it is safe to proceed with the purchase.

Taxes, Commission & Registration

This is the normal sharing of expenses between the buyer and the seller when transferring the real estate property title (TCT or Transfer Certificate of Title) to a new owner:

The Seller shoulders the:

Capital Gains Tax (6% of the contract price)

And all other unpaid taxes due.

Pays the Agent / Broker's commission (usually 3 to 5% of the selling price).

The Buyer Pays for the:

Documentary Stamp Tax - 1.5% of the contract price, or zonal value or fair market value, which ever is higher.

Transfer Tax - 0.5% of the contract price, or zonal value or fair market value, which ever is higher.

Registration Fee - 0.25% of the contract price, or zonal value or fair market value, which ever is higher.

The above sharing of expenses is the standard practice in the Philippines. However, buyers and sellers can mutually agree on other terms as long as it is done during the negotiation period (before the signing of the "Deed of Sale").

The "Deed of Sale" is the document showing legal transfer of real estate property ownership. The deed of sale is then taken to the Registry of Deeds to be officially recorded. Always purchase property with a proper Title & a deed of sale if possible, and if there is not one, a tax declaration is your last choice.

Your Agent / Broker will usually do the registration process without any additional payments (aside from the commission).

Documents needed for the Transfer of Certificate of Title (TCT):

Copies of the Deed of Absolute Sale

Latest tax declaration of the property

Certificate from the Bureau of Internal Revenue that the capital gains tax and documentary stamps have been paid

Transfer tax

Receipt of payment of the transfer and registration fees

An adapted form of the "Torrens" system of land registration is used in the Philippines. The system was adapted to assure a buyer that if he buys a land covered by an Original Certificate of Title (OCT) or the Transfer Certificate of Title (TCT) issued by the Registry of Deeds, the same will be absolute, indefeasible and imprescriptible.

7 Tips for Worry-Free Real Estate Transactions

Real Estate transactions in the Philippines are sometimes a cause for worry due to the many inherent problems in the system. What follows are some tips and rules to follow for a worry-free (or "less problematic") Real Estate transaction:

Tip #1. Deal only with Titled property.

There are many properties in the Philippines that are not titled, or registered under the Torrens system. If you buy an untitled property (usually evidenced by only a Tax Declaration), you would not enjoy the benefits of the Torrens system, and you will be forced to investigate for yourself the "chain of ownership" from the present owner up to the first, which usually dates back to the 1920's. With titled property, you can rely on the fact that the owner of the property is that which is stated in the title.

Tip #2. Stick to those properties registered in the names of actual sellers themselves.

Most properties in the Philippines are titled in the names of the grand parents or even great grandparents of the owners. thus, there is still the need to execute an extra-judicial settlement, which has a "grace period" of two years within which an excluded heir can question the settlement and the sale. This type of litigation is fairly common and is the usual source of problems. Thus, avoid properties not titled in the names of the actual seller.

Tip #3. Avoid SPAs (Special Power of Attorney) - deal with the actual sellers themselves.

Another of the common sources of property litigation in the Philippines are those involving special power of attorneys. This is an instrument that empowers a party to deal with the property of another, usually for the purpose of selling the property. Oftentimes, unscruplous individuals procure a special power of attorney surreptitiously from the unwitting owner who is led to believe that the document being signed is something else. Believe it or not, most of the property owners in the philippines have finished only primary schooling and cannot read english documents. If you must deal with property being sold through an SPA, verify the SPA by questioning the notary public who executed the same, and even meeting the property owner himself.

Tip #4. Always check the copy of the title on file with the register of deeds.

In the copy on file with the register of deeds are annotated the "involuntary liens" (i.e. claims of third parties and the government, road right of way, etc.). Although the title may still be registered in the name of a person, ownership might have been transferred, questioned, or otherwise affected, and this can be seen at the back of the title on file with the register of deeds. Secure a certified true copy of the title from the register of deeds. Do this yourself or through a trusted party, never from the seller or his middleman.

Tip #5. Always have the property identified by a licensed surveyor to be what is being stated in the title.

Once you have decided to buy the property, ask the seller to allow you to conduct a relocation survey. although you might be required to shell out additional expense for the survey, then you can actually be assured of the metes and bounds of the property and that the property you are buying is actually that stated on the title. Furthermore, by asking for a relocation survey, the adjacent owners are summoned, and thus if there be any unforseen questions some of them would be voiced out during the relocation survey.

Tip #6. Always see to it that you have a road right of way

Just merely looking at the property and seeing a road is not enough. Check the title and see whether or not it is actually bounded by a road lot, road, or street. The surveyor can point this out to you. Most foreigners like the countryside and coasts, where agricultural lands are located. Thus, most agricultural lands when subdivided into smaller parts do not provide for a road in the subdivision plan. Be sure therefore that you have access to the land otherwise, you might be required to purchase a right of way, oftentimes at exhorbitant prices such that you are forced to enter into litigation to have the court fix a reasonable price.

Tip #7. Never forget to have your deed of sale, contract of sale or other document over the land annotated on the copy on file with the register of deeds.

This should be clear enough to be sure that your records are correctly stored and your property properly transferred to you in official government documents.

We hope this small article would be of help to you and your real estate transactions. Nothing is still better than having the services of a trusted Real Estate broker or realtor helping you along the way.

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This article has been generously contributed with the express permission of Mr. Martin "Jerry" Cornelio. It has been slightly modified by InvestPH for better online reading. Our many thanks for sharing your expertise on this subject.