Philippines: Overview

RENTAL YIELDS

Last Updated: Oct 01, 2008

Medium sized units are the way to go in Manila

Luxury condominiums in prime areas have high yields at an average of 9.43%. Medium sized units of 70 and 120 square metres (sq. m) have the highest yields of 10.45% and 10.99% respectively.

Condominium prices range anywhere between US$64,000 to US$480,000 for properties as small as 30 square metres and as large as 280 square metres. None of which, go beyond US$2,250 per square metre, averaging around US$1,998.

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TAXES AND COSTS

Last Updated: Jan 05, 2009

Moderate taxes for foreigners
engaged in trade or business

Effective Tax Rate on Rental Income
Monthly Income	US$1,500	US$6,000	US$12,000
Tax Rate	5.1%	7.2%	8.0%
Click here to see a worked example
Source: Disclaimer

Rental Income: Non-resident foreigners who are engaged in trade or business are taxed at progressive rates (5% to 32%) on their net income. Rents above PHP10,000 (US$223) per month are also liable to VAT at 12% of gross rent.

Capital Gains: Capital gains realized by non-resident foreigners considered to be engaged in trade or business for tax purposes are taxed at the standard progressive income tax rates (5% to 32%). Taxable gains are the difference between selling price and acquisition cost of the property.

Inheritance: Non-resident foreigners pay estate tax only on property located in the Philippines at rates from 5% to 20%.

Residents: Resident foreigners and non-resident citizens are taxed on Philippine-sourced income. Resident citizens are taxed on their worldwide income.

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BUYING GUIDE

Last Updated: Sep 28, 2007

Transaction costs are very high in the Philippines

The total roundtrip cost of property purchase is around 16.23% to 23.75% of the property value, inclusive of Capital Gains Tax (6%) and Real Estate Agent's Fee (3% to 5%). It takes about 33 days to go through the eight procedures needed to register a property in the Philippines. Pre-selling, or the selling of units during construction, is the fashion nowadays. The buyer should be careful when buying unfinished buildings or condominiums.

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LANDLORD AND TENANT

Last Updated: Nov 08, 2007

Rents are paid one year in advance in Manila

The luxury rental market is generally pro-landlord. However, for the rest of the market the balance of power between landlord and tenant in the Philippines is neutral.

Rents: The parties can freely determine the amount or rent and rent increases. At the upper end of the market, the landlord receives one year’s rent in advance in post-dated cheques.

Legal System: The legal system is cumbersome. Tenant eviction can go through a long and expensive trial. In practice, the landlord’s success in evicting a tenant may depend on his influence in influencing the police (or local gang members) to apply pressure.

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ECONOMIC GROWTH

Last Updated: Oct 03, 2008

Economic slowdown looms

The Philippines is an archipelago of 7,107 islands sitting off the coast of Southeast Asia. Most of the 83 million people live on the 11 biggest islands. Spanish, American, and Chinese influences are prominent. White, sandy beaches, century-old churches, and other natural and man-made wonders await tourists.

After the long kleptocracy of President Marcos (1965-87), the Philippines recovered slowly under Presidents Aquino and Ramos. In the late 1990s it began to attract substantial foreign direct investment (FDI) and portfolio investment.

The country emerged relatively unscathed from the Asian crisis, helped by good Central Bank supervision of the banking system, and by its late start in the 1990’s boom, so that the real estate market was less overbuilt than regional peers. But the Estrada (1998-2001) administration’s florid corruption precipitated a crisis of confidence.

Despite political scandals, coup d’etat rumours, and protests about government corruption, the Philippines has posted an average of 5.2% GDP growth rate from 2002 to 2005. The economy expanded by 5.45% in 2006 and 7.2% in 2007, the highest in more than two decades. Reforms such as the passage of the Expanded Value-added Tax Law and Dual Citizenship Law have helped stabilize the economy.

However, the economy is threatened by the sudden spike of food and fuel prices in the global market. In August 2008, inflation reached 12.48%, the highest in 17 years. Overall inflation in 2008 is expected to be around 9.7%, in sharp contrast to the 2.7% inflation in 2007.

The Bangko Sentral ng Pilipinas, the central bank, raised key policy rates in 2008 to rein in inflation. The overnight borrowing rate was raised by a total of 100 basis points in just three months to 6.1% in August 2008.

The combination of higher interest rates and inflation, slower remittance growth and falling business and consumer confidence is expected to bring down GDP growth to just 4.2% - 4.5% in 2008.