Real-Estate 101:  The cost of transferring a land title in the Philippines

Real-Estate 101: The cost of transferring a land title in the Philippines

Buy land, they aren’t making anymore of it. – Mark Twain

The cost of transferring a land title in the Philippines

 

We will be bringing you a series of articles that discuss commonly asked questions regarding real estate in general.  One of the most commonly asked questions we encounter whenever we conduct trainings and orientation seminars for those interested to get into the real estate industry is “How much does it cost to transfer the land title”?

 

Buying property is generally considered one of the biggest steps a person can take in life, typically due to the large amount involved. But unlike other purchases that one can make, real estate is not something you can normally have by paying for in one quick transaction. Along with the property’s price are other expenses that come as part of the purchase.  In this respect, the most important is perhaps the cost to transfer the land title.

 

For buyers or sellers, transferring the land title can prove to be a challenging experience. The paperwork involved and the fees that need to be paid can be daunting for first timers.  With that said, let’s start off by discussing the fees associated with purchasing property.  Let’s start off with the cost of transferring the land title.  This fee needs to be paid whenever property is purchased, sold, donated or inherited. Having the land title under your name is very important as it serves as your proof of ownership of the property, regardless if you are a buyer, a donee or an heir. The absence of this document can lead to the ownership of your property being disputed. Therefore, it is imperative that you ensure the correct processing of this document.  And one of the ways to ensure this is to pay all the required fees and taxes.

 

The following are the fees and taxes that you need to be aware of.  The amount of these fees and taxes are based on how much the property cost at the time of the transaction or transfer:

 

  • Any Unpaid Real Estate Taxes due – always check if the property you are buying has any unpaid real estate taxes particularly if you are buying property directly from the owner
  • Capital Gains Tax (CGT) – this is computed as 6% of the selling price specified on the Deed of Sale or the Zonal value, whichever amount is higher
  • Withholding Tax – this only applies when the seller of the property is a corporation (e.g. a land Developer)
  • Transfer Tax (Local Treasurer’s Office) – this is tax imposed on the sale, barter, or any other method of transferring of the ownership or title of real property, at the maximum rate of 50% of 1 percent of a property’s worth (in the case of cities and municipalities within Metro Manila, this is 75% of 1 percent)
  • Transfer Tax (BIR) – Transfer taxes may also be owed to the Bureau of Internal Revenue. If the property was donated, the Transfer Tax is in the form of Donor’s Tax. If the property was transferred via inheritance, this is in the form of estate tax.
  • Documentary Stamp Tax – this is commonly set at 1.5 percent of the selling price, or the zonal value or fair market value, whichever is higher.
  • Registration Fee – commonly set at 0.25 percent of the selling price, or zonal value or fair market value, whichever is higher.
  • Commission of the Agent and/or Broker
  • Incidental and miscellaneous expenses – typically any expense incurred in the registration process, such as notary fees, etc.

 

The total amount of all these fees and taxes is the cost of transferring a land title. As you can see, all these fees and taxes can quickly add up.

 

Now, closely related to this topic is another question often asked immediately afterwards: “Who should shoulder the Land Title Transfer expenses?”

 

The common practice in the Philippines is that the seller is responsible for the following:

 

  • Capital Gains Tax
  • Withholding Taxes
  • Any unpaid real estate taxes that are due
  • Commission of the Agent and/or Broker assisting in the completion of the transaction

 

The buyer on the other hand, takes care of the following:

 

  • Documentary Stamps
  • Transfer Taxes
  • Registration Fees
  • Incidentals and miscellaneous expenses incurred in the registration process

 

This arrangement is considered standard practice. But in other cases, the buyer and seller can also mutually agree on who pays for what during the negotiation period, when the Deed of Sale (a.k.a. Deed of Absolute Sale) has not been signed yet.  This document shows the legal transfer of real estate property ownership and is submitted to the Registry of Deeds for filing after the buyer pays the Documentary stamps, transfer tax and registration fees for the aforementioned Land Title Transfer.

 

As you can see, the entire process and everything involved can prove to be very burdensome to both buyer and seller.  Since most buyers are willing to pay millions to buy property, it is sometimes worth it to engage a company that specializes in land title transfers in order to take the burden away from the buyer and seller.  This also ensures that the transfer is done correctly and completely.

 

 

What is Mortgage Redemption Insurance?

What is Mortgage Redemption Insurance?

Mortgage Redemption Insurance or  MRI is a type of Life Insurance required by Banks and other Lending Institutions when you apply for a Home Loan. An MRI pays off the outstanding mortgage balance of the borrower in case of his or her death or total disability.

 

While there are those who do not see the need for an MRI, as it supposedly just adds to the money that needs to be shelled out. The purpose of an MRI is two-fold: First, it protects the bank – the MRI guarantees that the bank will be paid back the amount that was lent out. Therefore, the bank or lender does not have to sequester the house from the borrower’s surviving family. Secondly, it protects the borrower’s surviving family – the MRI helps settle the outstanding house loan amount so that the borrower’s surviving family does not have to worry about how to pay off the outstanding loan amount.

 

Whenever you make a significant investment, you need to protect it via insurance. To be clear, MRI is not like fire insurance which is typically an add-on to your property insurance, or insurance that includes protection from Acts-of-God. Hopefully, You now have a better understanding of MRI and how it is different from fire insurance.

 

Should you have any other real-estate related questions, please feel free to comment or email your questions to broker.doah@philrep.com.ph

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