Investing in a condo in the Philippines

If you're considering investing in a condo in the Philippines at this time, there are a number of dangerous traps you'll want to avoid.

At the time of this writing, the economy is on the road to recovery, and the municipalities and provinces have finally rolled back many of the labyrinthine regulations that were severely hindering domestic travel. While it's doubtful you'll continue to find foreign landlords who are desperate to unload their rental properties, individual bargains may still be found. Before you jump into any property purchase, it's important to dot all your i's and cross all your t's. Here are a few of the traps unwary investors often step into:

No title to the house or condo

Outside of Manila and Cebu, the majority of condo properties are sold with a tax certificate in lieu of a condo title. The problem with this is that it gives you ZERO protection if the government decides to seize the property or your local community passes a restrictive, new zoning ordinance. You might assume, based on your knowledge of how things work in developed economies, that this is only a remote possibility. Think again! Since 1992, the Department of Environment and Natural Resources (DENR) has protected 244 different areas in the Philippines covering a total of 19,200,000 acres – that's 15.4% of the total land mass in the Philippines. In addition, local municipalities often pass new easements or zoning ordinances on a whim. We saw the effects of this first hand when looking for a condo in Boracay. The first property we visited was impacted by a recently passed 30-meter beach easement, which led to the demolition of one of the units. The municipality passed the law in spite of the fact that existing developers had approved permits on hand when they originally built the properties. The city simply ignored the legal protests filed by several of the property owners and ransacked everything within 30 meters of the beachfront. Another property we visited had multiple units on the market at very favorable prices. We noticed that most of them had been on the market for over a year and weren't selling in spite of the prolonged fire sale. It turns out there was a reason for this: DENR decided that the property was located in protected "forestland" and was in the process of attempting to seize it. Needless to say, when the developers originally obtained the permits to build there, nobody considered the land to be off-limits. If this doesn't deter you, then consider the fact that former president Duterte nearly implemented a massive land reform mandate that would have returned the entire island to its rightful tribal owners! If you think you can fight these kinds of impulsive eminent domain or easement mandates, you might want to talk to the ten foreigners who were recently imprisoned for violating forestland and beach easement laws. A valid home or condo title will give you peace of mind as it makes it far more difficult for the authorities to seize your home.

 

Squatters

As Republic Act No. 8368 has decriminalized squatting, in spite of the landowner protections afforded by Republic Act 7279 (the Lina Law), evictions can be prolonged and burdensome. Unless the occupants are judged to be professional squatters, you'll need to provide the offending party with at least 30 days' notice, and before you can serve an eviction notice, the LGU (Local Government Unit) must be able to relocate them to new temporary or permanent housing. It can easily take several months for this process to unfold.

How can you avoid this situation? Before you make any offer on a property, you should always walk the grounds and see whether any makeshift homes (barong barongs) are on the lot. Even if these appear to be unoccupied, they can't be demolished without going through the formal legal eviction process. Once you buy the home, it's imperative to occupy it immediately or, better yet, erect a menacing security fence to discourage any squatters (we've even seen people use a balustrade lined with jagged, broken glass bottles for this purpose).

Disputed ownership

If you've spent any amount of time in the Philippines, you've probably seen the signs on various properties advising you not to deal with the seller as they don't own the legal rights to the property. Land disputes have unfortunately become increasingly common, and if you're not careful, you can easily end up wasting precious time and money asserting your ownership in the courts.

How can you avoid this issue? First off, you should always request a certified true copy of the title and check the following: legal ownership, mortgage annotations, adverse claims, lis pendens (outstanding land title litigation), lease contracts, National Housing Authority (NHA) restrictions, donations and inheritance, and liens. You can do this online with the Land Registration Authority (LRA)) or in person at the Register of Deeds in the community where the property is located (typically located inside a city hall or courthouse).

Secondly, you should have a licensed real estate attorney review the title and associated documents for potential issues that might arise in relation to rights of way, tax declarations, special Powers of Attorney (SPA), etc. I'm not quite sure how the law works when it comes to property taxes and other assessments, but when it comes to motorized vehicles, unpaid taxes are strangely enough transferred to the new owner! In other words, if the previous owner failed to pay the registration tax on a vehicle, you assume his or her liability!

A clean title with a blank Memorandum of Encumbrance and no annotations is invaluable if you want to avoid such hidden traps!