Philippines: Overview
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Real estate revives in the Philippines; Rents up
Residential prices in upscale districts of Manila rose by an average of 15.15% in 2007, following a rise of 9.63% in 2006.
Boosted by the growth of the call center industry and demand from foreign-based Filipinos, condominium projects are rising all over Manila. Condominium prices and rents are going up. Vacancy rates falling.
Foreigners can buy condominiums as long as the foreign component of the building does not exceed 40%. Dual Citizens can buy up to 1,000 square metres (sq. m.) of urban residential land and 5,000 sq. m of urban commercial land. Foreigners can also lease land up to 75 years.
RENTAL YIELDS
Prime units have high yields at 10%
Luxury condominiums in prime areas have high yields of 10.65%. Medium-sized units with 90 square metres (sq. m) have the highest yields at 11.57%, and are most expensive per sq. m at US$2,019. Yields decline as size increases beyond 90 sq. m.
Condominium prices do not go beyond US$2,000 per sq. m, except for 90-sq. m units, and are at an average of US$1,831. Prices per sq. m do not vary much in US dollars ranging from US$1,738 to US$2,019.
TAXES AND COSTS
Double high tax whammy
Effective Tax Rate on Rental Income |
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| Monthly Income | US$1,500 | US$6,000 | US$12,000 |
| Tax Rate | 25% | 25% | 25% |
| Click here to see a worked example | |||
Source:
Disclaimer
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Rental Income: Gross rental income of of foreigners is taxed at a flat rate of 25%. There is also a Value Added Tax (VAT) on rents above PHP10,000 (US$232) per month at 12% of gross rent.
Capital Gains: Nonresident foreigners not engaged in trade or business in the country are subject to income tax on the gains they realize when selling properties, which is 25% without any deductions.
Inheritance: Nonresident aliens pay estate (inheritance) tax only on property located in the Philippines, at rates from 5% to 20%.
Residents: Residents are taxed on Philippine-sourced income based on the country’s progressive tax rates, from 5% to 32%.
BUYING GUIDE
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.
LANDLORD AND TENANT
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.
ECONOMIC GROWTH
Strong growth in the Philippines despite unstable politics
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 can be seen around the country. White, sandy beaches (Boracay is the most popular one), century-old churches, and other natural and man-made wonders await tourists. Most people can speak English.
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.
Amidst political scandals, coup d’ etat rumors and massive protests, the Philippines has posted a strong GDP growth rate of 5% to 6% since 2004. Reforms such as the passage of the Expanded Value-added Tax Law and Dual Citizenship Law helped stabilize the economy. Capital inflows and OFW remittances led to continued appreciation of the peso. The stock market is also back to its pre-Asian crisis level.
As the government aims to achieve GDP growth rate of 7% in 2007, 8% in 2008 and 9% in 2009, the property sector is expected to continue its recovery.
RESIDENTIAL PROPERTY AROUND THE WORLD
Asia & Pacific
Bubble fears prompt foreign ownership limits in China
America & Caribbean
The slowdown of the U.S. housing market
Middle East and Africa
Bahrain is open to foreigners and sizzling hot
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| RESIDENTIAL PROPERTY FACTS | |
| Price (sq.m): $1,969 For a 120 sq. m. property, usually an apartment. | Rental Yield: 11.23% For a 120 sq. m. property, usually an apartment. |
| Rent/month: $2,210 For a 120 sq. m. property. | Income Tax: 25.00% Assumptions: Owners are a non-resident couple drawing US$ / €1,500 per month in rent, with no other local income. |
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Roundtrip Cost:
18.2%
The total cost of buying and then reselling an apartment. Includes: * all transaction taxes and charges: * lawyers' and notaries' fees * agents' fees Assumptions: The buyers are non-resident foreigners. The apartment cost US$250,00 / €250,000. |
Cap Gains Tax: 0.0 Assumptions: The property was bought for US$250,000 / €250,000, and sold 10 years later, after a 100% appreciation. |
| Landlord & Tenant Law: Pro-Landlord Rating is based on a detailed study of each country’s law and practice. | |
APRIL 2008
MARCH 2008
- Manila bucking mortgage trends - Asia Property Report
- Thrift bank's real estate loans up 11% - The Inquirer
- Ceu's real estate industry thrives despite crisis in US - Cebu Daily News
FEBRUARY 2008
- Asia Pacific property digest (pdf - requires free registration) - Jones Lang LaSalle
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