Land Lease Reform and the Future of Foreign Property Investment in the Philippines

The Philippines may be on the verge of a major shift in its property investment landscape.

With the passage of the 99-year land lease reform under Republic Act No. 12252, the country has taken a significant step toward making itself more attractive to foreign investors — without changing constitutional limits on land ownership.

For decades, foreign nationals have been restricted from owning land in the Philippines. While they can own condominium units (subject to the 40% foreign ownership cap per project), land ownership has remained exclusively reserved for Filipino citizens and corporations with majority Filipino ownership.

The new lease reform doesn’t change that rule — but it changes the game in a different way.

What Changed Under the 99-Year Lease Reform?

Previously, foreign investors could lease private land for up to 50 years, renewable for another 25 years.

Under the new law, qualified foreign investors can now lease land for up to 99 years — a major extension that significantly improves long-term project viability.

This applies particularly to:

• Industrial estates

• Tourism developments

• Manufacturing facilities

• Logistics hubs

• Large-scale commercial projects

In practical terms, this gives foreign companies near generational control of land use — without transferring ownership.

Why This Matters for Real Estate

Long-term leases are critical for capital-intensive investments.

A 50-year lease often limits:

• Financing options

• Return-on-investment projections

• Institutional participation

• Large-scale infrastructure development

A 99-year lease dramatically improves bankability. Investors can amortize development costs over a longer period, making major projects more financially feasible.

This reform aligns the Philippines more closely with regional neighbors that offer long-term leasehold arrangements, such as Thailand and Vietnam.

Industrial and Logistics: The Biggest Winners?

The immediate impact is likely to be strongest in the industrial sector.

The Philippines has been actively positioning itself as a manufacturing and logistics alternative in Southeast Asia amid global supply chain diversification.

Longer land leases make it easier for:

• Multinational manufacturers

• Data center operators

• Warehousing firms

• Renewable energy developers

to commit long-term capital.

Industrial real estate has already been one of the country’s most resilient sectors. The lease reform could accelerate new industrial park expansions, particularly outside Metro Manila in emerging growth corridors.

Tourism and Integrated Developments

Tourism-linked property development could also benefit significantly.

Foreign hotel chains and integrated resort developers often require long investment horizons. A 99-year lease provides greater certainty when building large-scale resort complexes, theme parks, and mixed-use tourism estates.

Areas such as:

• Subic

• Clark

• Cebu

• Palawan

• Boracay

could see renewed foreign interest if lease structures become more attractive.

What About Residential Real Estate?

While the reform primarily targets large-scale commercial and industrial projects, there may be indirect effects on the residential market.

Foreign developers participating in township or mixed-use projects may now have more flexibility to structure long-term land control arrangements.

However, individual foreign buyers are still limited to condominium ownership under existing constitutional restrictions.

So while this reform won’t suddenly open landed residential property to foreign ownership, it could stimulate broader development that supports residential growth.

Potential Risks and Considerations

Like any major policy shift, implementation matters.

Key questions include:

• How will regulatory approvals be streamlined?

• Which industries qualify for 99-year leases?

• How will local governments respond?

• Will land values in industrial zones rise quickly?

There is also the risk that speculative pricing could inflate land costs in areas expected to attract foreign capital.

If supply-side bottlenecks remain — such as permitting delays or infrastructure gaps — the full benefits of the reform may not materialize.

The Bigger Picture: A Strategic Signal

Beyond its technical details, the lease reform sends an important signal:

The Philippines is open to long-term foreign investment.

In a competitive ASEAN landscape, capital tends to flow where certainty and stability exist. A 99-year lease provides both.

Combined with ongoing infrastructure expansion, improving digital connectivity, and demographic advantages, the country may be positioning itself for a stronger industrial and commercial property cycle from 2026 onward.

Final Thoughts

The 99-year land lease reform does not alter constitutional ownership restrictions — but it meaningfully expands the tools available to foreign investors.

For developers, institutional investors, and multinational corporations, the reform enhances project feasibility and long-term planning.

For the Philippine real estate market, this could mean:

• Greater industrial expansion

• Stronger tourism-linked developments

• More institutional-grade commercial projects

• Increased foreign capital inflows

If implemented effectively, the reform could mark the beginning of a new chapter in foreign property investment in the Philippines.

The next few years will determine whether this legislative change translates into cranes on skylines — and sustained growth across key real estate sectors.

Source: Ziggurat Real Estate

Big bold reform: Land tenure

As part of the “big bold reform” initiative by the administration, the Department of Agrarian Reform (DAR) is contemplating issuing an administrative order (AO) purportedly removing the requirement of securing the agency’s clearance on land transactions on private agricultural lands and the transfers of awarded agricultural lands under Republic Act 6657, or the Comprehensive Agrarian Reform Law (CARL), as amended.

The agency believes that this will significantly alter the land market in the country.

First, it will enable farmer-entrepreneurs to own land beyond the 5 hectares limit for a couple tilling the land and 3 hectares for an individual cultivator. This will allow consolidation of farmlands, which have fragmented into miniscule sizes (average farm size now is 0.83 of a hectare) due to the protracted implementation of CARL. In turn, land consolidation will enable producers to enjoy economies of scale in production.

The other implication, which is no less significant, is that it will facilitate conversion of agricultural lands to nonagricultural uses such as real estate development and the construction of more industrial sites and tourism spots. The difficulty in converting agricultural lands into nonfarm purposes is seen as one of the causes of rising real estate and industrial development costs.

The proposed AO brings a sense of excitement because it has the potential to trigger massive investments from the private sector, both local and foreign, to the rural sector, in particular. However, the problem is that despite the AO’s issuance, pundits are claiming that its potential of contributing to development will not be realized due to legal infirmities.

A position paper, written by Erwin Tiamson, a recognized legal expert on land laws in the country and a member of the Foundation for Economic Freedom, elaborates on the reasons.

He argues that the proposed AO indeed “weakens the operational relevance of the 5-hectare retention limit without repealing it” since lands can now can be consolidated through ordinary transactions without fear that the ceiling will be enforced by DAR during the point of transfer. Take note that the AO lifts DAR’s clearance authority during the process. The result is that while there is a CARL land ownership retention ceiling provision, the removal of DAR’s clearance authority at this transaction point means the absence of an agency to enforce this provision.

Thus, the AO has the effect of making the retention ceiling “dormant” or temporarily inactive.

Tiamson clarifies that this is not a new legal ploy, as this was also applied to the share tenancy law, which declared that this tenurial arrangement is illegal (criminal) though hardly enforced now. By resorting to this legal maneuvering, the measure avoids the trap of raising the issue to Congress where such an amendment will expectedly trigger controversies and divisions. And the Marcos administration can ill-afford this given its declining political capital.

The downside of this “dormant” approach, Tiamson observes, is that since the proposed AO is a statutory amendment, its continued implementation will be at the whims of the Executive branch of government. A change in the administration with a pro-agrarian reform bias in the future will likely trigger a return to the low land ownership retention ceiling as stipulated in CARL.

However, Tiamson sees land conversion as the more problematic aspect of the DAR AO. Rigidities in the land conversion process have negative downstream consequences on the ability of local government units (LGUs), and the Department of Human Settlements and Urban Development (DHSUD) to reclassify lands for nonagricultural development purposes such as designation for residential areas and industrial sites. Similarly, investors will be discouraged by the lengthy and costly land conversion process.

The AO does not address this problem, Tiamson said. While LGUs, DHSUD and even the private sector can formulate zoning and development plans in their respective localities for the rational use of their scarce land resources, the matter becomes moot and academic if a land conversion authority is not issued by DAR.

“The reform improves land mobility and consolidation. It does not reconcile the institutional conflict between decentralized planning and centralized conversion control. Until conversion authority is harmonized with land use planning, development uncertainty persists,” Tiamson said.

What are the key takeaways from Tiamson’s assessment of DAR’s AO?

First, it obviously does not constitute a “big bold reform.” It is neither “big” nor “bold” because it does not structurally address the root cause of the problem in a more assertive manner.

Two, there will be a need to amend the specific provision in CARL regarding the land ownership retention ceiling to raise it at a level where our food producers can enjoy economies of scale. Only by introducing such an amendment by Congress that the uncertainties over the retention ceiling and the land market can be resolved.

Three, a big bold reform will require streamlining the land conversion process that might involve stripping partly the powers of DAR on land conversion. This will necessitate the formulation and passage of a national land use plan that identifies in detail areas designated for agricultural, real estate, industrial development, among others. This then becomes the basis of whether lands should be retained for further agricultural development or for nonagricultural uses, which facilitates the land conversion process.

Four, the ultimate measure to remove uncertainty over the land market is the declaration that CARL has been completed, with a promise that no further extension will be accommodated. Further implementation will just be confined to areas which have been issued with a notice of coverage (NOC) and no further NOC will be issued by DAR. Note that as per DAR data, almost 88 percent (or nearly 5 million hectares) of targeted lands for distribution have been placed under agrarian reform.

In the past, agrarian reform advocates theorized that land reform would increase agricultural productivity and result in countryside development. Ironically, scholarly studies have now revealed that in the Philippine case, agrarian reform actually led to a decline in farm productivity by around 17 percent due to fragmentation of lands into miniscule plots. In other words, the way we implemented agrarian reform consigned our small farmers to poverty. It is high time that we shift gears.

Let us not allow an economic dogma popular in the mid-20th century to continue to dominate our agriculture development policy landscape. We are now in the 21st century wherein adopting and adjusting to new technologies, particularly the advent of artificial intelligence, will determine whether our economy will further progress or stagnate.

Source: Manila Times

Builder in Bad Faith: Forfeiture of Improvements Under Philippine Law

Property disputes often arise when one party constructs improvements on land that does not belong to them. Philippine law draws a sharp distinction between a builder in good faith and a builder in bad faith. The consequences for the latter are severe: a builder in bad faith forfeits everything he has built, without any right to indemnity or reimbursement.

This article explains the legal basis for this rule, its practical implications, and why the law imposes such a strict sanction.

Legal Basis Under the Civil Code

The governing provisions are found in the Civil Code of the Philippines, particularly Articles 449 and 450.

Article 449 – Forfeiture Without Indemnity

Article 449 provides:

“He who builds, plants or sows in bad faith on the land of another, loses what is built, planted or sown without right to indemnity.”

This provision leaves no room for interpretation. When construction is undertaken with knowledge that the land belongs to another, or despite awareness of defects in one’s claim of ownership, the law imposes an automatic penalty: total loss of the improvements.

Article 450 – Rights of the Landowner

Article 450 further strengthens the position of the lawful landowner:

“The owner of the land on which anything has been built, planted or sown in bad faith may demand the demolition of the work… at the expense of the person who built… or he may compel the builder to pay the price of the land…”

Under this provision, the landowner has several options:

• Demand demolition or removal of the improvements at the builder’s expense;

• Compel the purchase of the land by the builder; or

• Require restoration of the property to its former condition.

The choice belongs exclusively to the landowner.

What Constitutes “Bad Faith”?

In legal contemplation, bad faith is not mere error or negligence.

A builder is deemed in bad faith when he:

• Knows that the land is owned by another;

• Is aware of defects in his title or right of possession; or

• Continues construction despite objections, warnings, or a pending ownership dispute.

Philippine jurisprudence consistently holds that knowledge or conscious disregard of another’s rights is sufficient to establish bad faith.

No Reimbursement, Even for Useful Improvements

Unlike a builder in good faith, who may be entitled to reimbursement under Articles 448 and 546, a builder in bad faith has no right to compensation whatsoever—even if the improvements increased the value of the land.

The law denies:

• Reimbursement for construction costs;

• Compensation for labor or materials; and

• Claims based on equity or unjust enrichment.

The principle is well-settled: equity cannot be invoked to reward wrongdoing.

Jurisprudential Consistency

The Supreme Court has consistently affirmed this doctrine, ruling that:

A builder in bad faith forfeits the improvements without any right to indemnity, and the landowner may appropriate them or demand their removal.

This reflects the judiciary’s firm stance on protecting property rights and discouraging unlawful occupation.

Policy Considerations

The strict treatment of builders in bad faith serves important legal and social objectives:

1. Protection of property ownership, particularly under the Torrens system;

2. Deterrence against land grabbing and opportunistic construction; and

3. Preservation of order and predictability in property relations.

Allowing reimbursement would undermine these objectives and encourage disregard for lawful ownership.

Practical Guidance

Before undertaking any construction, individuals and developers should ensure:

• Clear proof of ownership or lawful authority to build;

• Due diligence on land titles and boundaries; and

• Proper documentation and written consent when building on land owned by another.

Failure to do so may result in total financial loss of the improvements.

Conclusion

Philippine law is unequivocal: a builder in bad faith loses what he has built, without indemnity or reimbursement. This rule underscores the fundamental principle that no one may profit from an act done in bad faith or in violation of another’s property rights.

For landowners and builders alike, understanding this doctrine is essential to avoiding costly and irreversible consequences.

Source: Ziggurat Real Estate