Constitutional and Statutory Framework

The 1987 Philippine Constitution enshrines the fundamental policy of reserving the ownership and disposition of lands to Filipino citizens and qualified entities. Article XII, Section 7 states: “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 the public domain.” Article XII, Section 2 further limits the acquisition of lands of the public domain exclusively to Filipino citizens or to corporations or associations with at least sixty percent (60%) of whose capital is owned by such citizens.

This constitutional mandate is implemented through Commonwealth Act No. 141 (Public Land Act), Republic Act No. 4726 (The Condominium Act), Republic Act No. 7652 (Investors’ Lease Act of 1993), the Civil Code of the Philippines, and related regulations of the Department of Human Settlements and Urban Development (DHSUD), the Bureau of Internal Revenue (BIR), and the Register of Deeds.

General Prohibition on Foreign Ownership of Land

Foreign nationals, whether natural or juridical persons who are not at least sixty percent (60%) Filipino-owned, are absolutely prohibited from acquiring ownership of private lands, including the land on which any residential house stands. Any deed of sale, donation, or other conveyance purporting to transfer land title directly to a foreigner is null and void ab initio. The prohibition extends to agricultural, residential, commercial, and forest lands alike. The only constitutional exception is acquisition by hereditary succession, whereby a foreigner may inherit private land from a deceased Filipino relative.

Ownership of Houses as Improvements on Land

A foreigner may lawfully own the residential house or building structure itself, classified as “improvements” separate from the land. Ownership is perfected through a Deed of Absolute Sale covering only the house, while the land is simultaneously covered by a distinct lease contract with a Filipino landowner. The two contracts must be executed separately, registered independently, and must not contain provisions that effectively disguise a sale of land (e.g., perpetual renewal options or purchase options that convert the lease into a de facto sale). Courts will pierce such arrangements if they circumvent the constitutional ban.

Condominium Ownership – The Primary Exception

Republic Act No. 4726 expressly permits foreigners to own condominium units in buildings or projects where the aggregate foreign ownership does not exceed forty percent (40%) of the total floor area or the total number of units, whichever is applicable. Once the 40% cap is reached in a project, no further units may be sold to foreigners. A foreigner may own one hundred percent (100%) of an individual unit, including its undivided interest in the common areas, and receives a Condominium Certificate of Title (CCT). The unit is treated as personal property for purposes of transfer and mortgage. Ownership is subject to the Master Deed, the Declaration of Restrictions, and the by-laws of the condominium corporation.

Long-Term Lease of Land for Residential Use

Foreigners may lease private lands for residential purposes under the following rules:

Republic Act No. 7652 allows qualified foreign investors to lease private lands for an initial period of fifty (50) years, renewable once for an additional twenty-five (25) years, provided the lease is registered with the Register of Deeds and the lessor is a Filipino citizen or a qualified domestic corporation.
For non-investment residential leases not falling under RA 7652, the Civil Code permits lease contracts for periods not exceeding the lifetime of the lessee or, in practice, up to ninety-nine (99) years, but any lease that effectively grants perpetual possession or ownership rights is void as against public policy.
The lease must be for a definite term, must state the rental rate, and must be notarized. Automatic renewal clauses that extend beyond the constitutional limits are unenforceable.

Acquisition Through Marriage to a Filipino Citizen

When a foreigner marries a Filipino citizen, the couple may acquire land using the Filipino spouse’s citizenship. Title is commonly placed in the name of the Filipino spouse alone or as “spouses” with the understanding that the land forms part of the conjugal or absolute community property. Jurisprudence, however, holds that the foreign spouse acquires no direct ownership interest in the land itself; upon legal separation, annulment, or death of the Filipino spouse, the foreign spouse’s interest in the land portion is limited to reimbursement or indemnity, not title. The foreign spouse may own the house built on the land as separate property if purchased with exclusive funds.

Corporate Vehicles for Ownership

A domestic corporation or partnership with at least sixty percent (60%) Filipino equity may own land and the houses erected thereon without restriction. Foreign investors may hold up to forty percent (40%) of the equity in such an entity. A one hundred percent (100%) foreign-owned corporation may only lease land and own improvements. All corporate acquisitions must comply with the Foreign Investments Act of 1991 (RA 7042, as amended) and SEC registration requirements, including the filing of a Foreign Investment Application if the corporation engages in restricted activities.

Procedural and Documentary Requirements

Identification and Tax Compliance
Foreign buyer must present a valid passport and secure a Tax Identification Number (TIN) from the BIR. Non-resident buyers must appoint a resident agent for tax purposes.
Due Diligence
Verification of the seller’s title through a certified true copy from the Register of Deeds, non-encumbrance certification, real property tax clearance, and, for condominiums, certificate of non-deliquency from the condominium corporation.
Execution of Documents
- Deed of Absolute Sale (house only) or Deed of Sale of Condominium Unit.
- Separate Lease Contract (if applicable).
- Special Power of Attorney if executed abroad (must be consularized by a Philippine embassy or consulate).
Registration and Transfer
Payment of documentary stamp tax (1.5% of the higher of selling price or zonal value), capital gains tax (6% of the higher of selling price or zonal value, borne by seller), transfer tax (0.5%–1.5% depending on locality), and registration fees. The deed is presented to the Register of Deeds for issuance of a new Transfer Certificate of Title (TCT) for land (in Filipino name) or CCT for condominium (in foreigner’s name).
Additional Permits
For new construction on leased land, building permit from the local government unit, occupancy permit, and compliance with DHSUD rules if the project is a subdivision or condominium.

Taxation of Foreign-Owned Houses and Condominiums

Annual real property tax based on assessed value (payable by the registered owner).
For condominiums, share in common expenses and special assessments.
Income tax on rental income if the property is leased out (25% final withholding tax for non-residents).
Capital gains tax on subsequent sale (6% for real property).
Estate tax implications upon death of the foreign owner (subject to Philippine estate tax on properties situated in the Philippines).

Prohibited and Restricted Areas

Foreign ownership (even of improvements) is barred or restricted in:

Military reservations and zones within one thousand (1,000) meters of military boundaries.
Protected areas under the National Integrated Protected Areas System (NIPAS).
Areas covered by the Indigenous Peoples’ Rights Act where ancestral domain claims exist.
Strategic or security-sensitive zones declared by the President.

Penalties and Consequences of Violation

Any transaction that violates the constitutional prohibition is null and void. The foreigner acquires no title, and the land reverts to the original Filipino owner or the State. The parties may face:

Civil action for annulment or reconveyance.
Criminal charges for falsification if false declarations of citizenship are made.
Administrative sanctions by the DHSUD or HLURB (now under DHSUD).
Deportation proceedings if the violation is connected to immigration status.
Forfeiture of the improvement (house) in extreme cases where the arrangement is deemed a deliberate evasion.

Practical Considerations and Risk Mitigation

Foreign buyers routinely engage licensed Philippine attorneys to structure transactions through separate house-sale and land-lease agreements, ensuring the lease term does not exceed statutory limits and contains no disguised ownership clauses. Title insurance is not customary in the Philippines, making thorough due diligence essential. Escrow arrangements through reputable banks are recommended to protect funds until full registration. Any option to purchase the land granted to the foreigner is unenforceable and may invalidate the entire arrangement.

In summary, while foreigners face an absolute bar on direct land ownership, Philippine law provides viable, well-established pathways—primarily condominium ownership, ownership of house improvements on leased land, and corporate structures—to enable lawful acquisition and enjoyment of residential houses. Strict adherence to the letter and spirit of the Constitution and implementing statutes remains mandatory to avoid nullification and legal exposure.