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The Philippine real estate sector operates within a complex legal framework that balances national interests with investment opportunities. The legal framework is shaped by constitutional restrictions on land ownership that protect national sovereignty but is driven by a policy of attracting productive foreign investment.

Recent years have seen an influx of foreign capital into Philippine property development. The influx is due to an increasing demand for residential, commercial and industrial spaces. With the country’s GDP expected to grow between 5.8% and 7.0% in 2024, foreign interest in the Philippine real estate market is expected to continue. The country is also witnessing continual growth in the information technology and business process management sectors, and in government transaction activities. This contributes to a continual demand for office and commercial space.

The residential market is expanding geographically, with a buildup of townships and mixed-use development projects outside Metro Manila. The government has enacted laws to provide fiscal incentives that promote commercial activity at priority locations, helping to push real estate development away from the metropolis.

The foundations

The 1987 Philippine Constitution provides an overarching framework for property rights; the Philippine Bill of Rights emphasises protection of private property. The constitution also cements a paramount consideration of national interest and national sovereignty as a state policy. Consistent with this, the constitution regulates ownership of land. Land ownership is restricted to Filipino citizens only, or Philippine juridical entities with at least 60% Philippine capital.

The Civil Code of the Philippines is the country’s cornerstone for property laws. It elaborates on property rights and transactions applicable to both individual and corporate property dealings. It provides requirements for valid and enforceable transfer of ownership.

Sale of real property or its lease for longer than one year should be made in writing. Contracts creating, transmitting, modifying or extinguishing real rights over real property must be in a public document.

Foreign investment

Foreign investors may invest and participate in Philippine real estate, despite the restriction on land ownership.

The Investor’s Lease Act (Republic Act [RA] No. 7652) allows foreign investors to lease private land for 50 years, renewable for not more than a further 25 years. It requires that the leased area be used solely for the purpose of the investment. Any interruption of operation to the foreign investment must not exceed three consecutive years.

Foreigners may also invest in condominium projects. The total foreign ownership in a condominium project must not exceed 40%.

Foreigners may invest in real estate investment trust (REIT) funds up to 40% of its outstanding capital stock. REITs allow investors to gain exposure to a diverse portfolio of income generating properties. This mitigates risk compared to investment in individual properties. REITs are also traded in the Philippine stock market, which facilitates liquidity and transparency in the investment.

Land registration

In the Philippines, real estate management is governed by statutes and decrees such as the Property Registration Decree (Presidential Decree [PD] No. 1529) and the Land Registration Act (Act No. 496). These laws regulate land registration processes.

The Philippines employs the Torrens system of land registration which guarantees the integrity of land titles and protects their indefeasibility once a claim of ownership is established. A person who is dealing with a registered parcel of land need not go beyond the face of the title and will only be charged with notice of the burdens and claims that are annotated on the title.

Unregistered lands may be brought into the Torrens system through an application to a court of competent jurisdiction. If the court finds the applicant has sufficient title proper for registration, judgment must confirm the title of the applicant. The Philippine Land Registration Authority will issue a decree of registration and corresponding original certificate of title.

An owner of registered land may convey, mortgage, lease or otherwise deal with that land in accordance with existing laws. In such cases, an instrument evidencing a transaction is registered with the registry of deeds of the locality where the property is situated.

Registration is the operative act to convey or affect the land insofar as third parties are concerned, and constitutes constructive notice to everyone from the time of registration. In case of transfer of ownership, the original certificate of title will be cancelled and a transfer certificate of title will be issued to the new registered owner. In case of a lease, mortgage or any other type of encumbrance, the transaction will be annotated on the title certificate.

The Torrens system is adopted for registration of ownership or interest over condominium units as well.

Environmental protections

Environmental laws also shape the Philippine real estate sector. These laws are designed to address the environmental impacts of real estate development and promote responsible land use to safeguard natural resources and public health.

The primary legislation on environmental protection is the National Environmental Policy (PD No. 1151). It provides a framework for environmental management and regulation, and integrates environmental consid-erations into national development
plans and projects.

The Philippine Environmental Impact System, established under PD No. 1586, requires an environmental impact assessment for every proposed environmentally critical project or those that significantly affect the quality of the environment. No person, partnership or corporation can undertake or operate any declared environmentally critical project or area without first securing an environmental compliance certificate from the Department of Environment and Natural Resources.

Other notable environmental laws that real estate developers must consider are the Clean Air Act (RA No. 8749), Clean Water Act (RA No. 9275) and Solid Waste Management Act (RA No. 9003).

In addition to national laws, local government units enforce their own environmental regulations and ordinances. These may include additional requirements for environmental clearances, zoning regulations and specific measures to address local environmental concerns. Developers must navigate these local regulations to ensure compliance with both national and municipal environmental standards.

Empowering local growth

The local government implements and enforces zoning and land use regulations in the Philippines.

Local government units include barangays, municipalities, cities and provinces. They formulate and execute ordinances on land use plans, zoning, and development within their jurisdiction.

These ordinances classify land into different zones such as residential, commercial, industrial, agricultural and institutional, each with specific regulations on allowable activities and building standards. This decentralised approach was adopted in the Local Government Code of 1991 (RA No. 7160). The act empowers local governments to tailor regulations to the specific needs and conditions of their own communities, balancing urban growth with environmental protection and social objectives.

Real estate tax

The local government is also responsible for assessing and collecting real estate tax. The tax rate depends on the rate imposed by each unit within its jurisdiction, in an ordinance. The real estate tax is imposed on the assessed value of property, which is determined by the local assessor of each unit.

The recent Real Property Valuation and Assessment Reform Act (RA No. 12001) standardised property valuation across the Philippines. All real properties must be appraised based on prevailing market values in conformity with the standards adopted by the Bureau of Local Government Finance. Notably, the act granted real property tax amnesty for two years from the time it took effect.

Real property transfers are taxed by both national and local governments. Income on gains from real property sales (donor’s or estate for other transfers) and documentary stamp tax are paid to the national government through the Bureau of Internal Revenue (BIR). The rate of income tax depends on whether the property is held as an ordinary or capital asset, and the seller’s status. If the property is held for sale or used in business, the transfer may also be subject to value-added tax.

Local government units, particularly provinces and cities, impose tax on real property transfers based on fair market value or the total consideration, whichever is higher.

The local registry of deeds requires proof of payment of taxes before registering any deed. The buyer will have to submit a BIR-issued certificate authorising registration and evidence of payment of the transfer tax to the local government unit.

The legal framework for Philippine real estate is complex as it balances national interests with the need to attract foreign investment. It harmonises national economic goals with local development priorities to foster an environment that is both investor-friendly and responsive to community needs. The government continuously refines and streamlines real estate management and taxation to create a more attractive real estate market.