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How to own a slice of paradise: foreign ownership rules in the Philippines
October 11, 2018Article by Paul Avery
When assessing any exciting emerging market for its investment potential, the first question we ask is whether foreign non-residents are allowed to own property under a reliable legal framework. If the answer is ‘no’ there is little point in proceeding any further (though if it is ‘yes’ there are hundreds of further points to address). This question should also be front of mind for any investor.
However, the answer is usually a lot more complex than ‘yes’ or ‘no’, with infinite possible variations regarding who is allowed to purchase property, what they are permitted to own, how the process works, and when entry and exit may take place.
Part of the reason we have sought and identified investment opportunities in the Philippines, in addition to its astonishing economic growth and thriving tourism industry, is the stability of the legal framework around property ownership. The country has a history of encouraging foreign investment through the gradual relaxation of rules governing foreign ownership, dating back over fifty years.
A 1993 Investor’s Lease Act states that it is ‘the policy of the State to encourage foreign investments . . . Towards this end, the state hereby adopts a flexible and dynamic policy of the granting of long-term lease on private lands to foreign investors.’
Below, we set out the rudiments of foreign ownership in the Philippines.
Foreigners are entitled lease all kinds of property including private land for up to 50 years, with an initial 25-year period renewable once for a further 25 years. This means that foreigners can lease any kind of real estate, including houses, condominiums (which are owned though a specific form of title), and hotel units. This is provided for in Presidential Decree No. 471, written into law in 1974.
Foreign investors or multinational corporations are permitted to own condominium units outright under the Condominium Act (Republic Act No. 4726), which became law in 1966. This states that non-Filipinos can take full ownership of sub-divided units within larger buildings – almost always residential buildings, though condominium title can also apply to industrial or commercial properties. The primary condition is that more than 60% of the units in any building must be owned by Filipinos. As long as no more than 40% of units are owned by foreigners, any units that come up for sale can be sold to foreigners. If not, they may only be sold on to Filipinos.
Restrictions on Land Ownership
Although foreigners can lease land itself, the outright ownership of land is heavily regulated in the Philippines, and foreigners are not permitted to take ownership except in cases of hereditary succession. So while non-Filipinos can own or lease property, they may only ever lease the land on which property is built.
So, in short: foreign investors are allowed to own certain kinds of property and to lease nearly all kinds of property, but are not permitted to own the land on which their property is built. Condominium units can be fully owned, and any other buildings can be leased for 50 years.
There is no indication that the government plans any changes to the current suite of laws in the near future, but, as with many other Asian economies, the direction of travel is clearly to widen the scope of foreign ownership and increase the flexibility entitled to investors.
If you have any further questions about this, or any other aspect of investing overseas, don’t hesitate to get in touch.