Real Estate in the Philippines for Mr. Foreigner

Real Estate in the Philippines for Mr. Foreigner

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There’s no question that the Philippines is one of the destinations of choice among foreigners who wish to retire and be merry; and in recent time, for long-term business and even education. In other words, many foreigners make the Philippines, their home away from home. And what better way to cement this objective than to own real property in this country of choice, more specifically – LAND.

Unfortunately, our very own 1987 Constitution – the highest law in our jurisdiction, prohibits the owning of lands among foreigners. Sec. 7, Art. XII of the same provides: Save in cases of hereditary succession, no private lands shall be transferred or conveyed except to individuals, corporations, or associations qualified to acquire or hold lands of public domain.

You may probably be wondering why I omitted the rest of the provision. Well, I did not. This is basically it; the basis as to why foreigners can’t own land in the Philippines. Fortunately, this provision has been interpreted and explained countless times by the Supreme Court in many cases. One of them is Matthews v. Taylor (G.R. No. 164584, June 22, 2009) where it was ratiocinated, thus: Aliens, whether individuals or corporations, have been disqualified from acquiring private lands. The primary purpose of this constitutional provision is the conservation of the national patrimony. Our fundamental law cannot be any clearer. The right to acquire lands of the public domain is reserved only to Filipino citizens or corporations at least sixty percent of the capital of which is owned by Filipinos. With this interpretation, there can be no more room for debate.

At present, no functioning Register of Deeds, anywhere in the Philippines, would allow the issuance of a title to foreign individuals. Documents submitted to this government instrumentality for processing would simply be returned and brushed aside. Thus, because of this seeming legal obstacle, foreigners would often use Filipino friends, girlfriends, or even wives for that matter, whether for a fee or mere gratuity, as trustees to their ownership of lands. The question lies: What is then the legal effect of this practice?

To answer the foregoing query with legal precision, reference to yet another Supreme Court judicial precedent is wanting. Hence, I hereby present the case of Muller v. Muller (G.R. No. 149615, August 29, 2006). And here is their story, to wit:

Elena Muller (hereinafter “Elena”), a Filipino, and Helmut Muller (hereinafter “Helmut”), a foreigner, were married in Hamburg, Germany on September 22, 1989. They resided in Germany but decided to move permanently to the Philippines in 1992. By this time, Helmut had sold his house in Germany and used the proceeds to purchase a parcel of land in Antipolo and construct a house thereat. Due to the constitutional prohibition of owning lands for foreigners, the title to this piece of real estate was named after Elena.

Later in time, because of the couple’s incompatibilities and Helmut’s alleged womanizing, drinking and maltreatment, the spouses separated. Thereafter, Helmut filed a petition for separation of properties before the Regional Trial Court. And since he cannot own land, he sought reimbursement for all the amount he spent for the purchase and construction of the Antipolo property. The battle was fierce and the case went all the way up to the Supreme Court.

Before I proceed, allow me first to digress and give you the exceptions to the constitutional prohibition subject of this article, i.e., the instances where a foreigner can legally own land. Hopefully, this will allow your wondering mind to run wild as to the outcome of the case. The exceptions are, thus:

  1. Purchase by a former natural-born Filipino of a land to be used for residential purposes provided that the same would not exceed 1,000 square meters. If it is an agricultural land, up to 10,000 square meters is allowed (Batas Pambansa 185).
  2. Purchase by a former natural-born Filipino of a land to be used for commercial purposes provided that the same is an urban land and would not exceed 5,000 square meters. If it is a rural land, up to 30,000 square meters is allowed (Republic Act 8179).
  3. Acquisition through hereditary succession (1987 Constitution).
  4. Purchase of a condominium unit provided that the foreign ownership of the condominium project would not exceed 40%. (Republic Act No. 4726 or the Condominium Act of the Philippines in relation to Republic Act No. 7042 or the Foreign Investment Act of 1991).
  5. Acquisition before the 1935 Constitution where no prohibition existed.

Armed with the knowledge of the foregoing exceptions, do you already have an idea as to how the Supreme Court ruled in the above case?

It was decided against Helmut. The entirety of the Antipolo property was awarded solely to Elena, the Filipino spouse. Helmut’s prayer that he be reimbursed of all his expenses over the property was likewise denied. The basis of this ruling – the 1987 Constitution. It was explained by the Supreme Court that save for the exception provided in cases of hereditary succession, respondent’s (Helmut) disqualification from owning lands in the Philippines is absolute. Not even an ownership in trust is allowed. Besides, where the purchase is made in violation of an existing statute and in evasion of its express provision, no trust can result in favor of the party who is guilty of the fraud. To hold otherwise would allow circumvention of the constitutional prohibition. xxx. Further, the distinction made between transfer of ownership as opposed to recovery of funds is a futile exercise on respondent’s (Helmut) part. To allow reimbursement would in effect permit respondent to enjoy the fruits of a property which he is not allowed to own. Thus, it is likewise proscribed by law.

Clearly, Helmut’s case did not fall among the exceptions enumerated above. Thus, the Supreme Court neither gave him the Antipolo property nor allowed any reimbursement of whatever he spent for the said real property.

In my practice, I often encounter foreigners in the same situation as that of Helmut, albeit, in different degrees. Some even execute written Deeds of Trust expressly stipulating therein that the real property is being held by the Filipino, merely in trust, for the foreigner. Others are even more creative. They use domestic corporations, as juridical entities, to hide foreign ownership of lands. In this case, the Deeds of Trust are not over the real property but on the shares of stock under a Filipino’s name and stead, but owned by the foreigner. On paper, the foreigner would own merely 40% of the company, but in reality, he owns everything; using Filipinos as conduits to circumvent the constitutional prohibition.

Can the foregoing arrangements be effectively done? Apparently so. But whether the same can be enforced in the courts of law is a different story. Clearly, based on the Muller case, the answer would have to be in the negative.

So, is it already a lost cause for foreigners? I qualify. If owning is equated to having the title to the land named after the foreigner, my answer is YES. But if owning simply translates to having possession and control over the property; and eventual ability to assign the same, for valuable consideration, to another in the future, my answer would be NO; it will never be a lost cause.

This is so because the foreigner’s subsequent assignment of a land to a Filipino cures the defect of the former’s ineligibility to own the property. This doctrine also has judicial precedent. This is the case of Borromeo v. Descallar (G.R. no. 159310, February 24, 2009). Similar to the Muller case, a foreigner by the name of Wilhelm Jambrich (hereinafter “Wilhelm”) bought a real property located at Mandaue City, Cebu. The title was named after his girlfriend, Antonietta Descallar (hereinafter “Antonietta”), because Wilhelm, as an Austrian, cannot own lands. Eventually, their relationship turned sour and they separated. However, instead of filing an action in court, Wilhelm simply assigned all his rights over the Mandaue property to a certain Camilo Borromeo (hereinafter “Camilo”), a Filipino. And it was Camilo, who filed a complaint against Antonietta for recovery of real property before the Regional Trial Court. Trial ensued and eventually, the case reached the Supreme Court, where it held: that if land is invalidly transferred to an alien who subsequently becomes a Filipino citizen or transfers it to a Filipino, the flaw in the original transaction is considered cured and the title of the transferee is rendered valid. xxx. Since the ban on aliens is intended to preserve the nation’s land for future generations of Filipinos, that aim is achieved by making lawful the acquisition of real estate by aliens who became Filipino citizens by naturalization or those transfers made by aliens to Filipino citizens. As the property in dispute is already in the hands of a qualified person, a Filipino citizen, there would be no more public policy to be protected. The objective of the constitutional provision to keep our lands in Filipino hands has been achieved.

With the foregoing doctrine, what is then the practical approach among foreigners who own real properties held by Filipinos in trust? According to the Borromeo case, it is either to be naturalized as a Filipino, or have all rights over the property assigned to a Filipino. These actions will cure the flaw on the foreigner’s title to the land.

I personally believe that the doctrine laid in the Borromeo case was misplaced. I opine that it would set a bad precedent among unscrupulous foreigners. In my mind, the subsequent assignment of rights to a property one is prohibited by the Constitution to own is a circumvention of the law. As there is also this legal doctrine: Nemo potest facere per alium quod non potest facere per directum – No one is allowed to do indirectly what he is prohibited to do directly.

Be that as it may, my opinoin will stay as that, a mere opinion; without force and effect of law. Not unless I be called to serve as a magistrate in the august chambers of Padre Faura, Manila – the place where the highest court sits. Until that time, the Borromeo doctrine stands.

Then again, who would actually purchase a real property not in the name of the seller? Why would an assignee dip his fingers in an expensive and protracted litigation to recover a property he had the opportunity not to buy?

At the end of the day, after considering all the circumstances surrounding foreign ownership of lands in the Philippines, I stand to reason that the most prudent thing to do is to still abide by the constitutional prohibition. Anyway, there is still long-term lease to consider. This, not to mention the exceptions I provided above.  



4 Comments

The contents are
masterwork. you’ve done a fantastic task in this matter!

Reply

Your article isn’t very helpful for the foreigner who might want to live in the Philippines. As you stated, the law is clear: a foreigner may not own land. There is little more to be said on the matter.

However, the average European has a very different concept of ‘ownership’. For the Filipino, the purpose of owning land is merely to have it endlessly subdivided amongst their quarrelling clan, never once making any practical use of it, until it eventually evaporates into tiny parcels or is stolen from them. The law, therefore, does nothing to help keep the Philippines for Filipinos. Instead, vast tracts of your country are “missing”: the subject of unclear or contested titles, improperly surveyed, or occupied by squatters.

No foreigner with his eyes open wants any part of this mess. However, what he would like is to live and earn a living in peace, and to that end a lease is an ideal solution. The value of land lies in its productivity, not in holding it. The process of establishing who actually owns the land – and therefore who has the right to assign a lease – is still fraught with problems, but it’s a far better solution than attempting a purchase by means of a legal workaround.

Reply

It’s in reality a great and useful piece of information. I am glad that you shared this helpful information with us.
Please stay us informed like this. Thanks for sharing.

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