Philippines is a catch, if you can
Source: Alex Frew McMillan, iht.com
Mark Walters felt he was doing pretty well for himself as an electrician in London. He had nice cars and summer holidays. He enjoyed going out with friends on his days off.
Then one of those friends died from a heart attack at the age of 37. That hit home for Walters, 42, and his wife, Stella. They had discussed making a break for sunnier climes - at some distant point in the future.
"You start to think, 'Goodness me, what am I waiting for?' Wait 'til I'm 65, and who knows if I'm going to get there?" Walters recalled. So a little more than a year ago, they sold their house and left for the Philippines, Stella's homeland.
They now own four upscale condominiums in central Manila, and plan to rent three of them and live off the proceeds. "So far so good - we're certainly enjoying ourselves," Walters said. "The weather is always on your side, and the people here are very warm and very welcoming."
With 7,100 islands and year-round tropical sun, there is a lot of attractive property in the Philippines. It also is cheap, especially in comparison to Western prices. Throw in a low cost of living and a population that for the most part speaks excellent English, and the Philippines starts looking like a pretty attractive vacation home or retirement destination.
The problem is, the country's Constitution says you have to be a citizen to buy.
However, there are various means by which noncitizens can hold property in the Philippines.
The most common way is a corporate structure. Corporations can own land, so long as Filipino citizens own 60 percent of the company; the rest can be owned by a foreign partner or partners. The arrangement makes it particularly easy for foreigners to buy condominiums, as long as they don't compose more than 40 percent of a building's ownership.
As a result, Walters owns two of his properties in his own name. He has put the other two in his wife's name, a common practice but one that can cause problems in the event of a divorce.
Foreigners cannot claim citizenship in the Philippines without renouncing their original nationalities. Hardly any do.
But people of Filipino descent may be able to claim dual citizenship and, with it, the right to buy land. And even natural born Filipinos who have lost or given up their citizenship can own as much as 5,000 square meters, or about 54,000 square feet, in an urban development or three hectares, or 7.4 acres, in the countryside.
As a result, it is increasingly popular for overseas Filipinos to invest back home.
The expatriate Filipino population is global and extensive, but centered in the United States. Big developers like Ayala Land, Megaworld and Rockwell Land have started advertising their developments in major U.S. cities, trying to attract investment from the Balikbayans, the Filipino word for nationals who live abroad permanently.
Foreigners without local blood ties who want to make purchases other than condos must get more creative. Sometimes they fall back on a variation of the corporate structure: The foreign partner makes an off-the-books arrangement with local "owners."
"Basically you can set up a Philippines corporation, have your lawyers or Filipino friends as 1 percent owners, but in reality the entire money is foreign," said Monique Pronove, managing director for Pronove Tai & Associates property consultants. However, there are laws explicitly aimed at preventing such dummy partnerships.
"The reality is, yes, you can do it," Pronove said. "But I would rather, if you are my client, that you be safe and do it legally and own condominium properties. And anyway, it is easier as well."
Some foreigners have managed to secure beachfront property legally, through the use of 25-year leases, often with automatic renewals. This is particularly common on the popular resort island of Boracay, where Germans pioneered the resort trade and there are many properties in foreign hands. The lease holders then are free to build homes, although eventually the ground can be sold out from under them.
For the most part, though, foreign interest is centered on high-end condo developments in Manila's best neighborhoods. There are some condo projects in Cebu, the country's second city, but almost none elsewhere.
John Riad, chief executive of the online real-estate brokerage HousingInteractive.com, said he specialized in condos in the Makati, Rockwell and Fort Bonifacio neighborhoods, the most exclusive parts of Manila.
"Condos are very cheap compared to any country in Asia, probably the cheapest," Riad wrote in an e-mail.
Walters said he and his wife have paid around 4 million pesos, or $77,000, for one-bedroom condos in a complex with a gym, a swimming pool and 24-hour security. At the top end, a three- or four-bedroom apartment in Fort Bonifacio or the Greenbelt, another popular area, could be expected to sell for 21 million to 30 million pesos.
The relatively low prices lead to strong rental yields. Walters is hoping to generate an annual return of 10 percent on the properties he owns, enough for the couple to live on.
But Riad, like many other people doing business in the Philippines, lamented that the country's poor reputation for bribery, corruption and unreliable infrastructure has pushed it way behind regional rivals like Thailand in attracting foreign investment, even though the potential is similar.
Very few home buyers get mortgages in the Philippines. Banks can finance as much as 70 percent of a property's purchase price, but interest rates approach 12 percent, so most buyers pay in full and in cash.
Buyers should expect to pay a value added tax of 12 percent of the purchase price, another 1.5 percent in stamp duty, a half a percentage point in transfer fees and a little more for title registration.
Brokers are not required, but they can help navigate the many property pitfalls in the Philippines, which certainly has its fair share of traditions and superstitions.
The Philippines, the only predominantly Catholic country in Asia, is a mixture of Spanish, American, Chinese and Pinoy - or traditional Filipino - influences. The blend has produced a country and a people that sometimes seem to have more in common with Central America than with Southeast Asian neighbors.
When it comes to property, the Chinese influence is strong, mostly because Chinese merchants traditionally played a significant role in the local business scene and property market.
Zenaida Seva, a Manila-based astrologer, said that dominance had brought feng shui into general use. So, Seva said, it is important that a property not be in a "tumbok," or dead end, that will block the flow of energy or have an "estero," a still creek or pool of stagnant water behind it. Somebody who doesn't believe in the feng shui principles of fateful energy may be able to get a bargain in such circumstances, but rental or resale might be tough.
Also, it is a uniquely Filipino superstition that prospective buyers should inspect a lot for small mounds of earth or hillocks. They may be the calling cards of a "Nuno sa Punso," a type of earth spirit akin to a gnome or dwarf.
"It's O.K. to have them, but they should not be disturbed," Seva said. "These gnomes or dwarves may bring wealth, but they should be respected. Permission must be asked when passing by their hillocks."
Last among the Filipino traditions are the delays, a modern invention. The Philippines bureaucracy is extensive and often unorganized, so it is quite common to make an under-the-table payment to speed a title application or to secure a construction permit. But such bribery is done on a small scale and is not necessary if you are willing to wait. And wait.
Some Filipinos consider taking one's time to be a national trait. For example, Walters says he got a 20 percent discount to buy two properties in a Megaworld development. They were supposed to be ready last June, then in July. He finally took possession in mid-January, more than six months later, but they still need work.
"It's just a headache - you've got to be patient," Walters said. "We got a good discount, but that has been wiped out by the loss of rental. I would have been better off buying something directly and renting it immediately."
But Walters says the lifestyle that he and his wife enjoy have made all the effort worthwhile.
"Once the other apartments are up and running, I can literally go and spend a couple of weeks every month at the beach if I want," he said. "If you put in a bit of money, you can have a very good standard of living."
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