The 40% Rule That Stops Most Foreigners From Buying Property in the Philippines

If you're a foreigner looking to buy property in the Philippines, you'll quickly meet one of the most important restrictions: the "40% rule." This rule, rooted in the Condominium Act and Philippine law, is a major reason why many foreigners get frustrated or are unable to buy a home here. Below I explain exactly what it is, why it exists, how developers enforce it, and practical workarounds that actually work in the Philippines.

What the 40% rule actually means

• Foreigners cannot own land in the Philippines.
• Foreigners can own condominium units, but there is a cap: foreign ownership in a single condominium project cannot exceed 40% of the total units.

The legal basis is the Condominium Act (Republic Act No. 4726). Practically, if a condo building has 100 units, foreign nationals may only own up to 40 of them. The remaining 60 must be owned by Philippine citizens or by corporations at least 60% Filipino-owned.

Why this matters: many attractive urban condominiums (Makati, BGC, Ortigas, Cebu, Davao) are high-demand. When a developer launches a project, the foreign quota can be claimed quickly - sometimes by investors from a single country or by developers holding units for sale to foreigners at premium prices. If the foreign percentage is filled, no more foreigners can register new condominium titles in that project.

Why the government set the rule

Philippine laws restrict foreign ownership of land to protect national patrimony and ensure control over land remains primarily with Filipinos. The Condominium Act was a compromise: it allows foreigners to own units that are not strictly "land" (a condo is an air space concept), but limits how much foreign ownership a project can have. This is the origin of the familiar 40% ceiling.

How it stops most foreigners - real-world mechanics

• Developers allocate a limited number of units for foreign buyers. When demand is high, those units sell out fast.
• Banks and lenders: local banks may be reluctant to finance foreigners for condominiums if the project's foreign quota is low or exhausted. Getting a mortgage as a non-resident is harder.
• Title registration: even if you sign a contract, the Register of Deeds will not issue a condominium certificate of title to a foreigner if the 40% cap has been exceeded.
• Resale complications: you might buy a unit from a foreigner who later sold it without proper transfers; that can create title and registration headaches.
• Secondary markets: developers sometimes price the foreign-eligible slots higher, reducing affordability.

How to check the foreign quota before you commit

1. Ask the developer directly: request the Master Deed, Project Declarations, and the condominium corporation's records on foreign-owned units.
2. Review the Master Deed and By-Laws: these documents show the total units and often note restrictions on foreign ownership.
3. Check with the Register of Deeds: ask if titles already issued to foreign nationals approach the 40% threshold.
4. Get a lawyer or licensed real estate broker to confirm: they can run the title history and confirm whether the unit you want can actually be transferred to a foreign buyer.

Do this before you sign a reservation agreement or pay a big down payment.

Practical options for foreigners who want property in the Philippines

If the 40% rule is a roadblock, these are the legal, commonly used alternatives:

1. Buy a condominium unit in a project with available foreign quota

   • This is the most straightforward. Ask the developer which units are still eligible for foreign ownership.
   • Tip: newly launched projects often reserve and release foreign quota in phases-ask for guaranteed allocation in writing.

2. Form a Philippine corporation (60% Filipino-owned minimum)

   • Corporations that are at least 60% Filipino-owned can legally acquire land and property. However:
     • This is suited for business or investment purposes, not for circumventing personal ownership rules.
     • Run this by a local lawyer and accountant - compliance, corporate governance, and taxes matter.
     • Beware of anti-avoidance rules: using nominee arrangements or sham corporations is illegal.

3. Long-term lease (50 years, renewable)

   • Foreigners can enter into long-term lease agreements for land or houses. The maximum lease terms for land may be set in contract (commonly 25–50 years with possible renewals).
   • Leases are common for foreigners who want to build a house or run a tourism business.

4. Acquire the building (not the land)

   • A foreigner may own a building or other improvements, provided the land remains Filipino-owned. This often requires careful structuring and legal advice.

5. Marriage or inheritance

   • A foreign spouse of a Filipino may acquire property in certain ways (e.g., conjugal property), and inheritance can transmit rights. These are complex, family-law issues and require counsel.

6. Buy through a Filipino spouse or trusted Filipino buyer

   • This approach is common but carries legal and ethical risks. If you use this route, get airtight legal agreements, and consult a lawyer to avoid future disputes.

Due diligence checklist for foreign buyers

• Confirm the foreign quota status with developer and Register of Deeds.
• Obtain and read the Master Deed and By-Laws (look for foreign-ownership clauses).
• Verify title and encumbrances with the Register of Deeds (Torrens title).
• Get a certified true copy of past title transfers to see who currently owns units.
• Confirm taxes (BIR withholding, documentary stamp tax), transfer fees, and other transaction costs.
• Ask how the developer treats "buyer's list" and held-back foreign units-are they reserved or released at developer's discretion?
• Check financing options early: ask local banks if they will lend to a non-resident on that project.
• Hire a Philippine-licensed lawyer experienced in real estate and foreign transactions.
• Understand repatriation rules for sale proceeds and foreign exchange requirements via Bangko Sentral if you'll move money abroad.

Negotiation tips and practical realities

• Move fast on projects that still have foreign slots: developers may require a quick reservation and a higher deposit.
• Consider buying off-plan in pre-selling phases when foreign allocation is clearer.
• Expect developers to require proof of nationality, passport, and other documents early.
• If a developer promises a foreign slot later, get it in writing (addenda to the contract) and specify remedies or refunds if the foreign quota fills up first.

When things go wrong: common pitfalls

• Paying a deposit without checking foreign quota - you may lose money if the developer cannot transfer title.
• Relying on verbal assurances from sales agents - get everything in writing and preferably notarized.
• Buying from a private seller without checking whether a subsequent title transfer to a foreigner is possible.
• Using nominee arrangements - these can be voided later and lead to costly litigation.

Final thoughts

The 40% rule isn't an arbitrary barrier - it's an enforceable legal limit. But it doesn't mean foreigners cannot own property in the Philippines. Many do - especially condo owners - by planning ahead, doing thorough due diligence, and working with reputable developers and lawyers.

If you're serious: talk to a local real estate lawyer and a trusted broker who handles foreign buyers. That single step will save you time, money, and headaches.

Happy house hunting!

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