The Supreme Guide to Real Estate Investment in the Philippines

Real estate investment in the Philippines is an excellent venture, particularly given the industry is thriving and are yielding terrific returns. In addition, the country’s steady uphill economy and constant growth make land investments a remarkable route to gaining wealth. The booming real estate market is evidence of the country’s reputation as the “Pearl of the Orient Seas”. It is home to some of the world’s most magnificent creations and the most hospitable English-speaking people. Its solid macroeconomic fundamentals, supported by sustained production and consumption growth, a favorable investment climate, strong tourism performance, and thriving construction industry, among other factors, make it one of Southeast Asia’s most promising investment opportunities. Before entering this industry, however, understanding the fundamentals is vital for first-time property buyers and developers. These include a comprehensive understanding of the real estate industry, home-buying rules, changing ordinances, strong cultural beliefs, and infrastructure improvements in the Philippines.

What Is Real Estate Investment All About?

“Real estate” refers to any tangible and real property. More specifically, this pertains to land, buildings, and other physical improvements – along with air and subsurface rights, natural resources, and the rights of use, enjoyment, and alterations.

The typologies of the four real estate property classifications are residential, commercial, industrial, and land. The description of each typology is as follows: 

• Residential refers to all types of dwellings from various houses such as apartments, condominiums, townhouses, etc. 
• Commercial includes business and institutional establishments like educational and health buildings, offices, malls, shopping centers, etc. 
• Industrial pertains to buildings, warehouses, and parcels of land where products go through research, manufacturing, storage, and distribution activities.
• Land generally refers to underdeveloped properties such as farms, ranches, and vacant lots.

How Real Estate Investing Works 

In simple terms, the real estate industry works by buying or owning a piece of property for profit generation. For instance, selling or renting a new condominium unit or a family-owned warehouse is already a real estate investment. Another example would be “flipping,” a “buy-renovate-sell for-profit” real estate strategy that works by remodeling dilapidated properties into something that can generate income either via rentals or straight markup from the original purchase price.

Apart from flipping, renting, and selling properties, here are three more ways how investors can generate revenue via real estate: 

Property Rises In Value 

Known as a classic buy-and-sell move, an investor can generate income either through a buy-and-hold strategy or buy low-develop/renovate-sell high, following the same principle used in collectible items. Depending on the property, the heightened demand for real estate in, for example, a decade allows its value to be increased five-fold, making it an excellent catalyst for passive income generation. 

Real Estate Cash Flow via Rentals 

The advent of mid-income families migrating to the country’s urban centers in search of a more convenient and high-end lifestyle led to the increased demand for condominium and apartment rentals over the past few years. As a result, more and more investors are purchasing multiple residential units to put them up for rent, AirBnBs included. Once payments to amortization are complete, the property’s rental value becomes much more appetizing, and the owner can either keep it or reinvest in purchasing other units. 

Ancillary Profits 

Sometimes, direct sales and rental incomes cannot generate enough income from an owned property. This scenario is where nearby micro-business can come in handy. Forms of additional proceeds can manifest through the addition of vending machines or operating a franchise, for instance, in an otherwise standalone commercial space.

Is Real Estate A Good Investment In The Philippines? 

According to an Oxford Business Group (OBG) report, “Years of investment and strong economic development in the Philippines have fostered a robust real estate sector that extends outside the greater Metro Manila region and into secondary markets around the country. Economic development and a growing middle class continue to fuel demand for new, high-grade residential units, while commercial investment drives an ever-increasing amount of retail and office space.” 

In addition to OBG’s statement, the country’s 6.7% increase in Gross Domestic Product (GDP) in the same year allowed its robust macroeconomic condition to pave the way for different sectors to thrive, the real estate industry included. According to Leechiu Property Consultants, such growth can occur from three factors, namely: a rising urban population growth; Business Process Outsourcing (BPO) employees seeking housing units closer to their workplace, and; remittances from Overseas Filipino Workers (OFWs), more than half of which related to the real estate industry. 

Colliers International, a real estate consulting firm, hypothesizes that the decline in BPO companies’ office space demand will lead to fewer office launches in favor of more flexible office spaces. They announced this forecast even though a steady stream of new residential and mixed-use projects will emerge in Metro Manila and its outskirts. Such inference was due to considering the Philippines’ 1.3 million freelancers, as mobility, connectivity, and flexibility are becoming a workplace norm. 

With freelancing on the rise, the recent popularity of e-commerce expects to drive the country’s logistics and warehousing demand. According to Colliers, this opportunity will propel the economy of both Northern and Central Luzon, primarily due to the planned construction and expansion of the Clark Airport and the Subic-Clark cargo railway.

Increasing tourist arrivals in the country opens expansion in real estate investments centered on the hotel industry. Throughout the subsequent years, three- and four-star resort hotels will be visible in the country’s tourism hotspots, including Bacolod, Bohol, Cebu, Davao, Iloilo, and Palawan.

The provision of lifestyle amenities that create a sense of destination will be encouraged, even though malls will remain an integral part of the Filipino way of life and thus continue to attract consumer traffic.

The increased demand for new residential and mixed-use spaces within and outside Metro Manila gives investors numerous opportunities to invest and grow their capital in the real estate market.

Why Invest In Philippine Real Estate? 

The increased demand for new residential and mixed-use spaces both within and outside Metro Manila makes the real estate investment in the Philippines a profitable industry by itself. However, below are three more reasons to invest for prospective investors still in doubt:  

Relatively Low Risks 

Compared to other forms of investments, real estate is one of the safest investments one can make. Since the industry is not easily affected by fluctuating markets, any property asset’s value will only go up over time, providing the investor with the desired financial security. 

Endless Returns 

With its relatively low risks, the country’s real estate market is surprisingly stable. Those properties are bound to be more profitable as time progresses, making real estate a reliable source of capital for further investments. 

Fixed Assets 

Unlike stocks, real estate investment in the Philippines eliminates the risks of one’s money randomly dropping to zero overnight. Instead, the values of properties invested only get more valuable over time, ensuring only a growing trend in one’s real estate investments.

Best Locations And Real Estate Investment Ideas To Make 

Residential Property 

As more millennials seek dwellings near their workplaces with Filipino families getting smaller, there has been an increasing demand for people settling in condominium units due to their innate convenience. 

Metro Manila had 52,000 pre-sold residential units in 2017, 24% higher than the previous year. Furthermore, cities like Davao, Iloilo, Cebu, Bacolod, and Baguio, among others, also witnessed the increased demand for residential properties. 

Vacation Homes In Tourist Destination Areas

From 2016 to 2017, the Department of Tourism (DoT) reported an impressive 30.68% earnings growth rate in the Philippines’ travel and tourism sector. The positive outlook is due to the country’s naturally charming biodiversity and tourist spots featured in places like Palawan, Camiguin, Batanes, Cebu, Aklan, and Bohol. 

Warehouses As Real Estate Investment in the Philippines

With the expansion of the nation’s e-commerce industry comes an increased need for storage spaces and warehouses to accommodate its various online shopping platforms. In addition, the retail sector envisions adding 630,000 square meters of land over the next three years.

In response to the nation’s thriving logistics industry, major players from various sectors began purchasing critical assets to construct mega-warehouses to meet the logistics market’s demands. Some leading examples are the Ayala Land, the Villar Group, Double Dragon, and the Anchor Land.

Condominium For Rent 

As a result of their growing spending power, Filipinos are beginning to favor the convenience and distinctive lifestyle that condominium communities offer. Most residential towers in the Philippines are within a city’s core business district, so condominium complexes are the best option for urban tenants looking for a home. Condominium units for rent near desirable business districts like Makati, Ortigas, and BGC are perfect investments for students and young families. 

Empty Lot Adjacent To Main Roads 

These vacant parcels of land are essentially ubiquitous, often interspersed between residential and business areas. While the current market has no purpose for these properties, identifying suitable investments for these vacant lots may be valuable.

When selecting vacant properties for investment purposes, examining price, security, and the legality of their documentation is essential.

Dormitories

As the academic communities always look for safe and accessible places to live temporarily, investing in strategic locations nearby schools, workplaces, and hospitals makes dormitories perfect income generators for real estate investors. 

Low-rise Commercial Buildings

Given that rental contracts can last anywhere from 5 to 10 years, investing in a string of commercial units rented out by laundry shops, food stalls, coffee shops, remittance centers, and mini-marts can be a consistent source of income for a decent amount of time. 

Apart from commercial leases, office spaces are also ideal for low-rise commercial buildings. A report by the Philippine property sector states a 4.3% year-on-year growth in Metro Manila alone. 

Online Platforms To Find Real Estate Investment In The Philippines 

Fortunately, the introduction of internet real estate search engines enabled agents to simultaneously promote various properties, which a prospecting buyer may find locally via the websites listed below:

• Lamudi 
• Property24 
• Dot Property 
• Hoppler 
• MyProperty 
• ZipMatch 
• Trovit 
• Philippines Properties 
• Cebu Realty and Brokerage 
• Davao Real Estate 
• Foreclosure Philippines 
• BDO 
• PSBank 
• Security Bank 
• Buy & Sell PH11 

How To Invest In Real Estate In The Philippines 

After locating the desired property, the next phase would be fulfilling all requirements and securing a notarized Deed of Sale. The processes involved may appear simple in theory. Still, they might take up to months to complete, depending on the property’s condition, the documents’ readiness, the local agencies’ dynamics, and the developer’s ability.  

Before committing to any real estate investment in the Philippines, a potential buyer or investor must always subject the asset to due diligence. The investor must be able to complete the required paperwork and pay the transaction costs to finalize the title transfer. 

How To Legally Transfer Titles For Apartments And Lands 

1. The buyer and seller must concur on a property sale using instruments like a Memorandum of Agreement or Understanding. Occasionally, the buyer must first declare their intent to purchase the property by submitting a Letter of Intent. Some developers provide buyers with templates that they may then duplicate and sign.
2. The property is reserved for the buyer when the seller signs a reservation letter. The seller has agreed not to offer the property to anybody else. The reservation letter should also include the reservation period, the validity of the reservation fee, and the property information.
3. The seller issues a contract of sale to the buyer after settling the downpayment. However, the seller maintains the title of the property until the buyer pays the outstanding purchase price balance, which a bank of Pag-IBIG often finances. After both parties have signed the sales agreement, it must be notarized to become legally binding.
4. The Letter of Guarantee (LOG), provided by a bank or financial institution, guarantees that the buyer obtained a loan to fund the property acquisition. It also ensures that the bank would reimburse any fees incurred if the buyer fails on the loan. In the Philippines, an email LOG suffices for the bank loan application.
5. A lawyer will create and notarize a Deed of Absolute Sale (SoAS) as evidence that the seller has transferred all interests and rights in the property to the buyer.
6. A Land Tax Declaration from the BIR must be secured and submitted by both parties to the Office of the Municipal / City Assessor. 
7. The buyer pays for the Real Estate Tax at the Office of the Municipal / City Treasurer. The Municipal / City Assessor will determine the property’s market value, and the buyer fulfills the Transfer Taxes.
8. The buyer and seller must pay for the Documentary Stamp and Capital Gains Taxes at the BIR’s office. 
9. The Registry of Deeds must revoke the previous title before issuing a new one to the buyer, so transferring ownership. The new owner must obtain a tax declaration from the Assessor’s Office and acquire a photocopy of the new title. Consistently conduct due diligence when it comes to property acquisition papers. Ensure that everything is genuine and that all terms correspond to those negotiated with the vendor.

NOTE: Policies may vary slightly based on the type of property or real estate investment in the Philippines. Before pre-approval, it is also strongly recommended to seek the counsel of licensed real estate brokers and bank institutions. This collaboration enables investors to participate in bank financing operations if the targeted property exceeds their price range.

Real Estate Documents To Know 

Contract to Sell (CTS) – states the developer’s agreement to transfer ownership of the property to the buyer upon completion of the terms of sale. 

The Deed of Sale – refers to the property sale agreement between the buyer and the seller. The finalization of this document is upon full payment of the property. 

Condominium Certificate of Title – serves as proof of ownership issued by the Registry of Deeds. 

Declaration of Real Property Tax (Tax Declaration) – indicates the property’s market, assessed value, and land classification. The Municipal / City Assessor will then utilize this reference to calculate the real estate tax.

Transaction Payments For Real Estate Procurements In The Philippines

Notary Fee – 1-2% of the property value; often negotiable and paid by the buyer. 

Title Registration Fee – varies depending on a published registration fee table; estimated to be around 0.25% of its sales price. 

Documentary Stamp Tax – 1.5% of its sales price, fair market value, or zonal value, whichever is the highest. 

Local Transfer Tax – 0.5% to 0.75% of its sales price, fair market value, or zonal market value, whichever is the highest. For properties in provinces, the rate goes to 0.50%, and in Metro Manila, the rate goes to 0.75%.  

Capital Gains Tax – 6% of its sales price, fair market value, or zonal value, whichever is the highest. In most cases, the seller is responsible for this, although there are exceptions, such as when the selling price includes the capital gains tax. However, notice that this tax only applies to capital assets, which are properties not employed for commerce or trade.

Real Estate Broker’s Fee – The average commission fee of a Philippines real estate broker is between 3 and 5 percent of the property’s selling price. For an agent, the estimated amount would be around 0.25% of its sales price, although this might vary depending on a published registration fee table. The real estate broker usually does the registration process without asking for any additional fee than the commission. 

Real Estate Investment in the Philippines And Related Services 

Specifically for those inexperienced with the market, real estate investment in the Philippines can be intimidating. Despite this, real estate can be a lucrative investment. With the Philippines’ real estate market being a stable and prosperous economy in its own right, chances abound in this field for people of all budgets and levels of experience, particularly with the most outstanding properties to purchase.

If you are searching for assistance with enhancing or developing your real estate investment for the market, it is preferable to hire a local architectural consultant that is experienced in maximizing property assets. Fulgar Architects is one of the best professional multidisciplinary design firms in the country, creating innovative building design solutions for a variety of landowners and real estate developers, ranging from residences, hotels, resorts, condominium towers, township developments, industrial, and commercial business districts.