Buying a residential condominium unit on installment

According to statistics found online, the Philippines has 154,700 condominium units as of 2023. This number is expected to reach 200,000 units by the end of 2025.

Based on this estimate, we can expect 45,000 more condominium units to be built in the next two years.

The rise in the number of condominium units has a direct correlation with condo prices. From 2017 to 2023, prices of residential condominium units have increased yearly by an average of about 8.55 percent a year.  The exception was in 2021 when prices decreased by 1 percent.

The thousands of condominium units being built and yet to be built by property developers will mostly be funded by loans from the banking sector.

Last year, the Bangko Sentral ng Pilipinas released data indicating that in the first three months of 2023, the banking industry extended P3 trillion worth of investments and loans to the real estate sector, which was 5.3 percent higher than the P2.85 trillion in the same period for 2022.

While some in the real estate sector have intimated that developers are scaling back residential developments in favor of commercial and office projects, the size of the residential condominium property sector will remain significant.

Considering that almost all property developers will finance their projects through loans and financing, it is but natural for a buyer, after having entered into a contract with the property developer for the purchase of a condominium unit, to worry that the developer may not comply with the promised specifications, or worse, might not even complete the project.

For those who can remember the financial crisis of 1997 and 2009, there were many unfinished structures that were promised to be beautiful high-rise residential condominium buildings.

Accordingly, it would be wise for potential buyers of condominium units, and those already paying for their units through regular installment payments, to be familiar with Presidential Decree No. 957 (“PD 957”).

Also known as the Subdivision and Condominium Buyers’ Protective Decree, its declared objective is “to provide a protective mantle over helpless citizens who may fall prey to the razzmatazz of what P.D. 957 termed ‘unscrupulous subdivision and condominium sellers…” (Francel Realty Corporation v. Sycip, G.R. No. 154684, 8 September 2005).

The practice of mortgaging the condominium project, defined by PD 957 as “the entire parcel of real property divided or to be divided primarily for residential purposes into condominium units, including all structures thereon”, to a bank, financial institution, or other creditors (“mortgage creditor”) is common practice.

While the availability of credit has helped the property sector to grow, there have been cases where fully paid buyers have had difficulty in consolidating the title to their condominium units or obtaining clean titles thereto.

Some mortgage creditors have refused to release the mortgage they hold over the condominium units on the ground that the mortgage debt has not been paid by the property developer.

In that regard, Section 18 of PD 957 specifically regulates the right of a developer to mortgage and encumber the condominium project. The law provides that the Housing and Land Use Regulatory Board (“HLURB”), now the Department of Human Settlements and Urban Development and Human Settlements Adjudication Commission pursuant to Republic Act No. 11201, must approve in writing any such mortgage or encumbrance for the same to be valid.

Mortgage of condominium units

In addition, PD 957 provides that: (a) proceeds of the loan should be used for the development of the condominium project, (b) effective measures have been provided to ensure such utilization, (c) buyers of condominium units must be notified before release of the loan, (c) buyers must be given the opportunity to pay their purchase price directly to the mortgage creditor who, in turn, shall apply such payments to the corresponding mortgage indebtedness and, (d) when fully paid, buyers have the right to the title and insist on the release of the mortgage as to their unit.

Mortgages of condominium projects that have not been approved by the HLURB are void (Home Bankers Savings and Trust Co. v. Court of Appeals, et al., G.R. No. 128354, 26 April 2005).

In one case, the Supreme Court declared void the mortgage of a condominium unit by the developer to a bank for non-compliance with PD 957.

The bank failed to check whether the developer secured the HLURB’s prior written approval, which approval is required by PD 957, before it accepted the properties as collateral and whether any of the properties offered as collateral already had corresponding buyers at the time the Mortgage Agreement was executed.

Even if the mortgage agreement between the bank and property developer was executed before the contract to sell and deed of absolute sale with the buyer, since the buyer paid its reservation fee four months before the execution of the mortgage agreement the court found that the bank should have verified with the developer if the unit already had a buyer. (Prudential Bank (now Bank of the Philippine Islands) v. Rapanot, et al., GR 191636, January 16, 2017))

Moreover, buyers must also verify whether the developer has mortgaged the condominium project, not only the specific unit, as it is also not a defense that the subject of the mortgage loan was for the entire land or building and not the individual subdivided units of the condominium project.

In a case, the court declared that the unit was also mortgaged when the entire parcel of land or building, of which it was a part, was mortgaged (Far East Bank & Trust Co. v. Marquez, G.R. No. 155344, 20 January 2004).

If the project or unit was mortgaged by the developer, the buyer may demand that they be allowed to pay the purchase price directly to the mortgage creditor, who shall apply the payments to the corresponding mortgage indebtedness, so that when fully paid, they would have the right to insist on the release of the mortgage of their unit and transfer title to their names.

On the other hand, in the event the property developer has not developed the condominium project according to the approved plans, or has not completed the construction within the agreed time limit, the buyer may stop paying their installments by giving notice to the owner or developer, and demand reimbursement on amounts already paid (Section 23, PD 957).

The right to stop payment is immediately effective upon giving due notice to the owner or developer, or upon filing a complaint before the HLRUB against the erring developer (Francel Realty Corporation v. Sycip, G.R. No. 154684, 8 September 2005).

When all is said and done, buyers must make sure that they know their rights under PD 957, and choose financially stable, socially-responsible and trustworthy developers, with whom to invest their hard-earned cash.

Source: Inquirer

The potential impact of the Real Property Valuation Act

The Real Property Valuation and Assessment Reform Act (RPVARA) under Senate Bill No. 2386 was ratified by Congress in March 2024 and is awaiting the President’s signature.

The RPVARA—part of Package 3 of the Department of Finance’s (DOF) Comprehensive Tax Reform Program—aims to promote an objective, standardized valuation of real property based on internationally accepted principles.

What are the implications when it passes into law?

Single value base

Real property valuation or appraisal determines the value of real property, and the type of value determined depends on where and how it will be used. In RPVARA, the market value of properties will be determined using internationally accepted valuation methods, for taxation and other real property-related government transactions.

Currently, different government agencies prepare valuations for multiple different purposes, such as taxation, expropriation, road-right-of-way acquisitions, and mortgage lending, among others. Apart from the costs and time allocated by different agencies involved, doing multiple different valuations can cause confusion and disputes in values, their bases, and even in methodologies.

The RPVARA intends to address this by establishing a single value base. It can also bring about other benefits including improved fiscal autonomy of local government units with potential increase in real property tax revenues; updated valuations that meet international standards; accessible centralized real property transactions database; improved ease of doing business; and higher investor confidence.

The Bureau of Local Government Finance (BLGF), under DOF, will lead the implementation of the RPVARA. It will develop and maintain the planned centralized real property transactions database, wherein the offices of the Register of Deeds, Bureau of Internal Revenue, notaries public, officials issuing building permits, and geodetic engineers conducting surveys within a locality are required to electronically submit relevant transactions data quarterly.

Impact on real property taxes

How will the RPVARA affect real property taxes then?

Real property taxes (RPT) are computed by multiplying the market value of a property by its assessment level and tax rate (basic RPT). There will also be an additional levy on real property for the Special Education fund at 1 percent of the assessed value, on top of the basic RPT.

Assessors will prepare a schedule of market values (SMV) where they base the market values of properties indicated in tax declarations. Proposed SMVs will be submitted to the BLGF, subjected to mandatory public consultations, and eventually approved by the DOF Secretary.

The SMV will be updated no earlier than every three years—with penal provisions for noncompliance with the periodic updates.

Assessors shall recommend “off-schedule” SMV revisions when there is a material change in property market values because of “…introduction of road right of way or similar infrastructure, in times of calamities, disasters, whether man-made or natural, during a pandemic or a declared public health emergency, whether national or localized, and other analogous adverse circumstances, or where corrections of errors and inequalities in the SMV is deemed necessary.” (SB 2386, Article III, Chapter 1, Section 19, Paragraph 2).

Assessors may suspend the conduct of revisions in case of a national emergency declared by the president or a local state of calamity declared by the local chief executive.

After the SMV is approved, assessors will then determine the assessment levels and tax rates, subject to the maximum levels identified in the Local Government Code of 1991, Book II (LGC). Since the SMV lists updated market values, the base values for computing assessed values will be higher.

The potential impact of changes in market values on real property taxes can be managed at this stage by regulating assessment levels and tax rates.

Impact to property owners

At present, valuations are not updated as often as mandated, resulting in lower RPT due from property owners.

With the penal provisions in RPVARA, LGUs will need to ensure that assessed values are updated to reflect current market values no earlier than every three years, or when there is a significant change in market values.

Assessors will then need to propose the assessment levels to be applied to different property types. When determining the assessment levels, LGUs should consider the impact of updated market values on property owners, adjusting assessment levels to ease the strain and facilitate the transition for taxpayers.

Execution is key

The RPVARA will certainly address the years-long issues we have been experiencing.

However, like any other law, we have yet to see if the Implementing Rules and Regulations are in keeping with the law’s original provisions, will address the objectives of the law, and if the implementation and execution of the provisions will be applied consistently.

Hopefully, moving forward, the new system will foster a more consistent, reliable, equitable, and transparent valuation system that will improve the ease of doing business in the country, making the Philippines even more attractive to potential investors.

Source: Inquirer

Government claiming properties from a person who died without a will

“Death is not the end,” said American journalist Ambrose Bierce. “There remains the litigation over the estate.”

This applies, whether the decedent or owner of the estate died with or without a will.

The Supreme Court has consistently held that from the moment of the decedent’s death, the heirs become absolute owners of his property, subject to his rights and obligations thereon, and even before judicial declaration of their being heirs in the corresponding proceedings.

Where the decedent died intestate, or without a will, his heirs shall inherit in the prescribed order under the Civil Code. Absent any of these heirs, the Philippine State shall inherit the entire estate pursuant to the law governing escheat proceedings.

In Republic v. Court of Appeals, the Supreme Court defined escheat as a proceeding where the State, by virtue of its sovereignty, steps in and claims the real or personal property of a person who has died intestate, leaving no heir. Absent any lawful owner, a property is claimed by the State to forestall an open “invitation to self-service by the first comers.”

Since escheat is one of the incidents of its sovereignty, the State may prescribe conditions and limits the time within which a claim to the estate may be made.

Under the Rules of Court, the Solicitor General or his representative may file a petition instituting escheat proceedings before the Regional Trial Court (RTC) where the decedent last resided or if he resided out the Philippines, where he had estate.

If the petition were sufficient in form and substance, the RTC shall issue an order fixing a date and place for the hearing thereof. This date shall not exceed six months after the entry of the order. Meanwhile, a copy of that order shall be published before the hearing at least once a week for six successive weeks in some newspaper of general circulation published in the province, as the court shall deem best.

At this hearing, the court shall pass on the sufficiency of proof that: (a) its earlier order was published, as directed; and (b) the decedent died intestate, seized of real or personal property in the Philippines, leaving no heir or person entitled to the same.

Afterwards, no sufficient cause being shown to the contrary, the RTC shall adjudge that the decedent’s estate in the Philippines shall escheat, after payment of just debts and charges. Moreover, pursuant to the applicable law, the RTC shall assign the personal estate to the municipality or city where he has last resided in the Philippines, and the real estate to the municipalities or cities, respectively, in which the same is situated.

If the decedent never resided in the Philippines, the whole estate may be assigned to the respective municipalities or cities where the same is located, for the benefit of similarly located public schools and public charitable institutions and centers. In this regard, the Civil Code authorizes the RTC, at the instance of an interested party, or on its own motion, to order the establishment of a permanent trust so that only the income from the property shall be used.

A devisee, legatee, heir, widow, widower, or other person entitled to the decedent’s estate should file a claim thereto with the same court within five years from the date of such judgment. Afterwards, this claimant shall have possession of and title to the same, or if sold, the municipality or city shall be accountable to him for the proceeds after deducting reasonable charges for the care of the estate.

A claim not made within this five-year period shall be forever barred, even when as alleged in the Republic case, the supposed claimant, a donee of a property belonging to the decedent’s estate, has only discovered the purported deed of donation beyond said period.

A judgment in escheat proceedings, when rendered by a court of competent jurisdiction, is conclusive against all persons with actual or constructive notice, absent dishonest intent on the part of petition to deprive such persons of any right, or in any way injure him.

Source: Inquirer