THE PHILIPPINES: LANDED VS CONDO FOR FOREIGNERS

The hot Philippines property market is enticing increasing numbers of foreigners to park their money there.

This is a topic which has been discussed over a San Miguel beer by many foreigners who have bought property in the Philippines and those who have a Filipina wife. This article covers the legal position with regards to owning landed property for both foreigners who married a local and foreigners who just want to invest into landed property in the Philippines.

p58I will also cover the current state of the Condominium market and the advantages and disadvantages of buying a Condominium as opposed to landed property. Currently, the Philippines economy is chugging along nicely and the outlook remains positive for the future. The Philippines like other Asian countries will also benefit from the progress of ASEAN (Association of Southeast Asian Nations).

As ASEAN gets stronger, its goals are to encourage free trade between the 10 member states and also easier movement of people and goods. This will undoubtedly benefit the Philippines by making it easier for inward investment. It is hoped that this investment will push the Philippines to improve its dreadful infrastructure which is currently perhaps the main issue holding back the country.

Landed property and the foreigner

Currently as the law stands, it is illegal for a non-Filipino to own landed property although foreigners can buy condominiums legally. If a foreigner is married to a Filipina and his wife passes away, he can then legally inherit the property and become the owner. Care needs to be taken when the property is purchased to make sure the foreign spouse is correctly mentioned in the title.

As with many emerging economies which restrict inward investment and especially restrictions in purchase of landed property by foreigners, there are legal ways around this law. The most straightforward one is to set up a company and buy the landed property through the company. This can be complex as the law only allows a foreigner to hold a maximum of 40% of the shares in that company. The balance 60% needs to be owned by Filipinos.

Clearly, the above is not ideal but the 60% can be divided into four resulting in four Filipino shareholders holding 60% of the shares with the balance 40% held by the foreigner. There is no doubt that significant numbers of foreign investors have bought landed property using this method. Provided it is properly set up, it works well. It will incur additional costs with regards to the set-up and running of the company but these costs are not expensive if you are buying a decent property.

An alternative to the above is to rent land and then build a house or building on the land. A foreigner can rent land for an initial period of 50 years which can be renewed for a further 25 years.

Advantages for condo investment

Since the Global Financial Crisis (GFC), the Philippine property market has emerged as a great investment and has shown strong growth. This is particularly true of the central business districts of Makati as well as Bonifacio Global City (BGC). A condominium investment in either of these areas over the past decade has shown strong growth and the outlook remains positive. This market has been fuelled by many factors which remain in place and are likely to mean either stable or steadily rising prices. As mentioned above, a foreigner can legally own a condominium so for the investor, this would be the simplest way to buy and hold property in the Philippines.

The key factors which continue to fuel the market are the significant number of Filipino ‘overseas foreign workers’ (OFW) who are looking buy in the Philippines. Most of these investors are buying condominiums in Manila and other cities, and are also investing money into ‘house and lots’. This trend will almost certainly continue and there is also a trend for Filipinos who have emigrated abroad to the USA or other countries to also buy. Wealthy Filipinos who have emigrated now see investment opportunities in their birth country and are buying in large numbers.

Other factors driving the market are the abundance of other Asian nationalities setting up business or investing in the Philippines. Many nationalities like the Chinese, Singaporeans, Japanese and Koreans who have become wealthy due to the success of their economies are now investing into countries like the Philippines. They are investing as property prices and the cost of living are far cheaper compared to their country and many are settling down in the Philippines and taking advantage of the attractive retirement visa options provided by the government for foreigners.

The Philippines also has a well-educated population where English is the language of law making it relatively easy to do business. This can be witnessed by the massive expansion of ‘call centre’ and ‘outsourcing business’s’ which have substantially reduced unemployment. These new ‘white collar workers’ are able to rent condominiums or buy with the use of new and innovative mortgage products in the market.

Summary

In a nutshell, it is clear that a foreigner has the choice of buying either landed property or a condominium but the condominium option is far simpler. Buying landed property will involve probably setting up a company or leasing the land.

Ultimately like with everything else in life, the decision on what you decide to do will be based on personal circumstances. If you just want to invest easily and have the opportunity to earn rental income and reap the potential growth from rising prices, condominiums will likely be the most attractive option. If you are looking for a home in a quieter and more peaceful location, then a landed property located in a central location in the city especially one that’s surrounded by greenery or on a golf course would make more sense

james

James Hartland has been involved in property investment in the UK, Europe, Middle East and the Philippines. He can be contacted at j.hartland@astraasia.com www.astraasia.net

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