Real Estate Investing in the Philippines
The Philippines real estate market was one of the fastest growing in Asia. Owners benefited from a house price boom between 2010 and 2018.
In 2019, the Philippines property market growth almost came to a halt, with a slowing domestic economy, coupled with the US-China trade war.
The global pandemic made matters worse for the country's real estate industry, with a sharp decline in the gross domestic product (GDP) leading to more foreclosed properties. The nation was ranked as the worst-performing housing market in the 2020 Global Property Guide’s House Price Survey.
Is now a good time to expand your real estate investment portfolio with a property purchase in the Philippines?
The Philippines real estate markets' is considered emerging because it has not yet reached its full potential. There are still many opportunities for investors who want to capitalize on this growth. Property developers have resumed their programs, with condominium units or other residential properties at an attractive purchase price.
Let's find out if you can generate rental income by investing in the Philippines.
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The Philippines real estate market
Purchasing real estate property abroad is never straightforward. Foreigners are prohibited from owning land (developed or vacant land) in the Philippines, but can legally own a residential property.
The Philippines has been steadily growing in popularity as an international destination for travelers and investors alike. With over 7,000 islands in its chain, it's no wonder why so many people are attracted by the country's natural resources!
If you're thinking about real estate investments there, find the area which might be right for your specific situation. Quezon City for example has become the hub of information technology and its entertainment industry. Others choose Metro Manila for their investment property, as it is the center of all activity in the Philippines, including trade and economic activities, government administration, education, culture, and the arts.
Central business districts are also attractive locations for those wishing to enter the property's market through commercial property or industrial real estate. Converting undeveloped properties into office spaces can generate a steady cash flow.
Alternatively, commercial real estate investments can be found in low-rise commercial buildings; with income generated from the commercial units rented. Local agents can facilitate these transactions, as local knowledge is invaluable to finding the right investment property, at a fair market value.
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The Philippines housing market is expected to remain strong, according to analysts who believe that the recovery prospects will be boosted by strong macroeconomic fundamentals.
Can a foreigner buy property in the Philippines?
Buying properties in a foreign country isn’t without hurdles. You’ll need to find a credible real estate agent - Facebook ex-pat groups are a starting point.
Foreign nationals are permitted to buy real estate properties, but they are prohibited from owning the land on which they sit. As a workaround, you can buy a freestanding house but lease the property. The Investor's Lease Act of the Philippines allows foreign investors to enter into long-term leases of up to 50 years with an option to renew for 25 years.
Whilst you’ll need to verify the market value, you could find a profitable investment when considering an extended lease agreement with a Filipino property developer.
Real estate investment ideas in the Philippines
If you are considering a real estate investment in the Philippines but are not sure where to start, here are some simple ways to grow your portfolio and generate rental income:
If you're interested in getting started with a rental property, it is important to carefully consider location, rent, and buying price, as well as renovation costs. A good local property agent is key to successful real estate properties projects. Most people start investing by buying an apartment, house, or condominium.
Building and selling properties:
When selling real estate, it is important to work with reliable professionals. You'll need a good contractor, architect, engineer, interior designer and suppliers, real estate developers as well as real estate brokers.
Some prefer to invest in real estate through a foreclosed property; you'd need to pay particular attention to the estimated value, not just the selling price. It may be easier for a beginner investor to look at a well-maintained property. To save trips back and forth between countries, aspects can be achieved through business process outsourcing.
Real estate investment trusts, or REITs, own and operate income-producing properties such as shopping malls, office buildings, hotels, or hospitals. US-based real estate investment trusts are quite popular with real estate investors, but their Philippines counterparts exist as an alternative to direct-invest in real estate. Those with an existing mortgage may prefer this option.
What is real property tax?
Real property tax, or amilyar, is a real estate tax that property owners pay to their local government unit (LGU) based on where their property is located.
In cities or municipalities in Metro Manila, it is at a rate not exceeding two percent (2%) of the assessed value of the property. In provinces, it is no more than one percent (1%) of the real estate property value.
This is different from land tax declaration, which is the property record that shows the property's assessed value as the basis for property tax computation.
When you buy property in the Philippines, there are other applicable real estate taxes such as:
Documentary Stamps Tax: levied on documents (ie real estate documents contract), instruments, loan agreements, and papers that signify the official transactions between one party to another.
Capital Gains Tax: paid on profits resulting from the sale of assets such as residential properties.
Transfer Tax: paid when the property title is transferred from the seller to the buyer’s name. This signifies new ownership of the property through its sale.
Title Registration Fee: The final step in purchasing property is registering the title under the new owner, paid to the Register of Deeds where the property is located. Before this, a buyer must secure necessary tax clearances from the Bureau of Internal Revenue.
Can a US citizen live permanently in the Philippines?
Depending on your country of origin, you may not need a visa for visits of up to 30 days. Tourist visas allow longer visits of less than 60 days and also permit employment in some circumstances. Non-immigrant (business/work) visas are required if you plan to enter the country for employment.
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Final words on invest real estate Philippines
Real estate investing in the Philippines is fairly accessible, by purchasing a rental property or through a real estate investment trust for instance. The country is bouncing back from the coronavirus’ economic consequences. The Philippines is again one of the fastest-growing economies in Asia.
A buoyant market presents many opportunities for real estate investors. However, as with any investment, you should do your research and be aware of the risks involved with real estate investments in the Philippines.
Whilst it is possible to make a property investment remotely, why not combine a holiday there with meeting real estate agents?!
Are you, or looking to be, a real estate investor? Do you own a residential property abroad? Share your real estate investment experience and tips in the comments below.
No investment Advice. This article does not provide financial advice and has been prepared without taking into account any person’s investment objectives, financial situation, risk tolerance, or particular needs.