How to Become a Homeowner: A Guide to Buying Real Property in the Philippines

Owning real property represents a significant milestone for many Filipinos. Whether it involves acquiring a sophisticated condominium in the bustling metropolis of Metro Manila, a serene beachfront residence in Cebu, or a charming rural abode in the picturesque province of Batangas, the journey to homeownership is both exhilarating and laden with critical decisions. To avoid being overwhelmed by the many considerations in purchasing property, check out this quick guide on how to become a homeowner.

ASSESSING A POTENTIAL PURCHASE

At the outset, it is crucial to delve into the detailed evaluation of properties and the verification of titles. This section will guide you through the essential steps and considerations for assessing the true value of a property and ensuring the legitimacy of its title, safeguarding your investment from potential legal and financial pitfalls.

When speaking of property titles, one would usually hear a phrase repeated by many: “Clean Title.” But what is a clean title? It is a property title which is free from any liens or encumbrances. To illustrate, when a property is mortgaged, an annotation will be printed by the Registry of Deeds on the title and it shall remain there until properly cancelled. The annotation serves as a warning to all potential transferees of the property that there is some claim over it i.e., foreclosure upon non-payment of the secured loan.

Prospective buyers are encouraged to perform due diligence before proceeding with the sale. This involves a thorough investigation and evaluation of the property to ensure there are no hidden issues or liabilities before completing the purchase. In one case, the Supreme Court emphasized the need to exercisethe diligence of a reasonably prudent person in ensuring the legality of the title, and the accuracy of the metes and bounds of the lot, by undertaking precautionary measures:

1. Verifying the origin, history, authenticity, and validity of the title with the Office of the Register of Deeds and the Land Registration Authority;
2. Engaging the services of a competent and reliable geodetic engineer to verify the boundary, metes, and bounds of the lot subject of said title based on the technical description in the said title and the approved survey plan in the Land Management Bureau;
3. Conducting an actual ocular inspection of the lot;
4. Inquiring from the owners and possessors of adjoining lots with respect to the true and legal ownership of the lot in question;
5. Putting up of signs that said lot is being purchased; and
6. Undertaking such other measures to make the general public aware that said lot will be subject to transfer by the parties.¹

DEED OF ABSOLUTE SALE: ENSURING A SECURE TRANSACTION

Having thoroughly assessed the property and verified the legitimacy of its title, the next critical step in the property acquisition process is drafting the Deed of Sale which is the document that transfers ownership of the property from the seller to the buyer.

The Deed of Sale should not be confused with a Contract to Sell. Unlike the Deed of Sale where the ownership is transferred from seller to buyer upon delivery of the property to the buyer,  in a Contract to Sell, ownership is reserved by the seller and it does not transfer to the buyer until the fulfillment of the condition agreed upon, that is, the full payment of the purchase price.²

A valid contract is considered to have the force of law between the contracting parties³ therefore it is vital that all agreements as to the transfer of property should be properly stipulated. It is best to consult with a legal professional when negotiating and drafting your Deed of Sale to ensure that all your rights and obligations are clear and valid.

It is also essential that the signed Deed of Sale is notarized. A signed Deed of Sale is valid between the buyer and seller even if it is not sworn before a notary public. However it is important to note that notarization converts the Deed of Sale into a public document, thus binding to third parties as well.⁴ Notarization is also needed to properly register the Deed of Sale at the Register of Deeds to secure the best evidence of ownership, the Transfer Certificate of Title (TCT).⁵

TAXES AND FEES

It is a common misconception that the signing of the Deed of Absolute Sale finalizes the transfer of the property. It is important to note that the prompt payment of the necessary taxes, generally reckoned from the date of notarization of the Deed of Sale, are essential components of the transaction to avoid exposing the property to hefty penalties and other legal actions available to the government such as levy and sale at public auctions.

1. Capital Gains Tax – tax imposed on the gains presumed to have been realized by the seller from the sale. This is paid by the seller of the property within thirty (30) days from the sale of real property.
2. Documentary Stamp Tax – tax imposed on the execution of documents evidencing the sale of property. This is paid within five (5) days after the close of the month when the taxable document was made, signed, issued, accepted or transferred.
3. Local Transfer Tax – tax imposed by local governments for the transfer of property ownership.

Upon payment of all taxes, the Bureau of Internal Revenue (BIR) will issue an Electronic Certificate Authorizing Registration (e-CAR) which is essentially a tax clearance document that forms part of the requirements before a sale can be registered in the Registry of Deeds and a new title can be issued in the name of the new owner.

TRANSFER OF TITLE

Once all documents are signed and taxes paid, you are now a proud real property owner. However, the work doesn’t end there! It is crucial that the title is transferred to your name as the property title is the best evidence of ownership. 

 The basic documents required by the Registry of Deeds for the issuance of a new title under your name includes:

1. Original Copy of Owners Duplicate Copy of Title
2. Original Copy of Deed of Sale/Absolute Sale
3. BIR Certificate Authorizing Registration
4. Realty Tax Clearance
5. Transfer Tax Clearance
6. Valid Identification Card

ISSUANCE OF NEW TAX DECLARATION

The honor of property ownership comes with many responsibilities, one of which are taxes. As the new owner of the property, you must update the tax declaration with your municipal or provincial assessor. The tax declaration serves as an official record detailing the property’s classification, assessed value, and ownership information. It is essential that the tax declaration correctly reflect the new ownership of the property.

UNLOCKING HOMEOWNERSHIP

The path towards homeownership may seem daunting as any missed step may lead to legal and financial problems in the future. As you embark on this journey towards a very important milestone, do not hesitate to contact our team to help you navigate the intricacies of purchasing real property in the Philippines. 

Prepared by Meliza Gielvert Lualhati.

Footnotes

1. Locsin v. Hizon, G.R. No. 204369 (2014) citing Domingo Realty, Inc. v. CA, G.R. No. 126236 (2007).
2. De Guzman v. Spouses Santos, G.R. No. 222957 (2023).
3. Art. 1159, Civil Code.
4. IVQ Landholdings, Inc. vs. Barbosa, G.R. No. 193156 (2017)
5. Halili v. NLRC, G.R. No. L-24864 (1996).