Peeking into property transactions

The recent appearance of property developers on the witness stand of the Corona trial may have piqued the interest of first-time investors on how real estate transactions in the Philippines are handled.

Following are a few common business practices:

No interest installments on down payment

Many developers offer what look like lenient policies on acquiring real estate—an investor can make monthly installments even on the down payment at no extra interest. Usually, a lump sum amount becomes due after the down payment is completed within roughly one to two years. So what’s the catch?

The above arrangement actually favors the developer since upfront payments are made on properties that are typically pre-sold (meaning you are paying for something that hasn’t been built yet). Even if the unit is already available, the title is not transferred to the investor until the whole amount has been paid. Thus, the developer only stands to gain from the deal. In case of a default in payments, earlier paid amounts can be forfeited and the property remains with the seller.

Postdated checks

Upon payment of the reservation fee, the investor is usually asked to give a number of postdated checks to secure the transaction. The logic for this is simple. Bouncing checks are subject to estafa charges and punishable by imprisonment.

Given the harsh consequences of mismanaging the current account, certain banks frown upon this practice of using one’s checking account to issue postdated checks. The sound money practice is that one should never issue checks unless they are funded. Thus, investors are encouraged to find more appropriate ways of settling their bills even if it means having to go to the developer’s office and pay on a monthly basis. It also protects them from unwanted bouncing checks in the future.

Securing titles

Marketing schemes make property investing very attractive that some buyers even pay upfront cash for their unit. For example, one cash buyer has complained that after four years of waiting, he still hasn’t received his title.

In this regard, it is important to choose a trusted developer.

In the Philippines, it often happens that the transfer and turnover of titles could take a long time (like years) so the reputation of the developer and its ability to complete promises made is of paramount importance. It is also a good idea to inspect the actual title before making any purchase.

Market value vs zonal value

A property’s assessed zonal value can be very different from its fair market value. Brokers usually provide a market estimate based on the general average of the geographical area but the final selling price will be determined by the actual transaction that occurs between the buyer and seller.

Since it could take years to sell a certain piece of property, the market value often fluctuates depending on the economic situation or other factors.

For example, a condo unit that sells today for P7 million could sell for only P5 million in two years’ time if, let’s say, the country enters a recession (hypothetical example only). The selling price also depends on the urgency of the transaction. Sellers who are in a hurry to cash in will usually lower the price to attract more buyers. The unit’s ultimate value will be determined when the actual sale is completed.

Conjugal property

In the Philippines and unless otherwise stated by a separate contract, all acquisitions after marriage are considered conjugal property. For example, if Mr. Reyes is initially registered as the buyer, both husband and wife will eventually be recognized as owners of the property.

Executive Order 209 promulgating the Family Code of the Philippines states on Article 75 what constitutes the property relations between husband and wife, as follows: “The future spouses may, in the marriage settlements, agree upon the regime of absolute community, conjugal partnership of gains, complete separation of property, or any other regime. In the absence of a marriage settlement, or when the regime agreed upon is void, the system of absolute community of property as established in this Code shall govern.”

It is also important to remember that there are restrictions on foreigners who are acquiring real property in the country.

Closing real estate deals in the Philippines can sometimes prove complicated. A professional and trained broker can help smoothen the path, although keep in mind that there are many local street brokers without any real competence except to introduce buyers and sellers. In the end, you still need to do your homework in understanding the intricacies of the sale. After all, it’s your multimillion-peso investment that is at stake.