How Does the Condominium Act Affect Foreign Real Estate Investors?
Introduction
Foreign investors may acquire condominium units in the Philippines, but this right is subject to a constitutional ownership limit. The restriction generally applies not to the foreign buyer’s individual ownership of a condominium unit, but to the aggregate foreign ownership of the condominium corporation and its related interests in the common areas.
This distinction is important because a condominium unit is not merely an apartment or physical space. Under the Condominium Act, it consists of a separate interest in the unit together with an undivided interest in the common areas, which may include the land on which the condominium project stands.
What Is a Condominium Under Philippine Law?
Section 2 of R.A. No. 4726, or the Condominium Act, defines a condominium as an interest in real property consisting of a separate interest in a unit and an undivided interest in common in the land and other common areas of the building.
The common areas, including the land, may be held by a corporation specially formed for that purpose. This entity is called the condominium corporation. The owners of the individual units automatically become members or shareholders of the condominium corporation in proportion to their respective interests in the common areas.
Thus, condominium ownership has two connected components:
- Exclusive ownership or other real property interest in the unit; and
- An appurtenant interest in the common areas, usually represented by membership or shares in the condominium corporation.
Can Foreigners Own Condominium Units?
Yes. Foreign nationals may acquire condominium units in the Philippines, provided that the constitutional and statutory limits on foreign ownership are observed.
In Hulst v. PR Builders, Inc., G.R. No. 156364, date of decision not available in the supplied record, the Supreme Court recognized that foreign nationals may own condominium units under the Condominium Act. The Court explained that the ownership of the land may be legally separated from ownership of the individual condominium unit when the common areas are held by a condominium corporation.
The foreign buyer therefore does not directly acquire ownership of Philippine land in the same manner as a Filipino citizen. Instead, the buyer acquires the condominium unit and the corresponding membership or shareholding connected with that unit.
Where Does the Forty Percent Restriction Apply?
The forty percent foreign ownership restriction applies to the condominium corporation and the aggregate alien interest connected with the project. It is not ordinarily measured by asking whether a particular foreign buyer owns more than forty percent of one individual unit.
Section 5 of R.A. No. 4726 provides that the transfer of a condominium unit must include the corresponding undivided interest in the common areas or, where appropriate, the related membership or shareholding in the condominium corporation.
The same provision states that, where the common areas are held by a corporation, the transfer of a unit is invalid if the accompanying transfer of membership or stockholding causes foreign ownership in that corporation to exceed the limits imposed by law.
The controlling principle is therefore the following:
| Issue | Legal treatment |
|---|---|
| Foreign ownership of an individual condominium unit | Generally permitted, subject to the project’s foreign ownership capacity and applicable law |
| Foreign ownership of the condominium corporation | Must remain within the constitutional and statutory limits |
| Transfer of the unit without the related common-area interest | Generally not permitted because the interests are legally appurtenant |
| Foreign ownership exceeding the permitted percentage | The transfer may be invalid and may create registration and corporate compliance problems |
Why the Restriction Concerns the Condominium Corporation
The condominium corporation may hold title to the common areas, including the land. Because private land ownership is generally reserved to Filipinos and to corporations or associations at least sixty percent of whose capital is owned by Filipinos, the condominium corporation must remain within the required Filipino ownership threshold.
In Hulst v. PR Builders, Inc., the Supreme Court stated that the condominium corporation owns the land while the unit owner holds the unit and participates in the corporation through the corresponding membership or shares. Foreign participation is allowed as long as the foreign interest in the condominium corporation does not exceed forty percent.
The same principle is reflected in the IRR of R.A. No. 11647, Rule XI, Section 37, which recognizes that List A of the Foreign Investment Negative List covers activities reserved to Philippine nationals, including activities subject to a maximum foreign equity of forty percent under the Constitution and specific laws.
How Unit Transfers Are Structured
A condominium sale normally involves more than the transfer of physical space. The buyer receives the unit together with the rights and interests appurtenant to it, including the corresponding interest in the common areas or the related membership or shareholding in the condominium corporation.
Membership in the condominium corporation cannot ordinarily be transferred separately from the condominium unit. Under RMO No. 18-2009, membership or shareholding in the condominium corporation is appurtenant to ownership of the unit. When a person ceases to own a unit in the project, that person also ceases to be a member or stockholder of the condominium corporation.
This structure prevents parties from separating the economic and voting interests in the condominium corporation from the units to which those interests relate.
Common Investment Scenarios
Foreign individual purchasing one unit
A foreign individual may generally purchase a condominium unit, provided that the project has not reached its allowable foreign ownership limit. The buyer should verify the condominium corporation’s current foreign ownership records before signing or completing the transaction.
Foreign investor purchasing several units
A foreign investor may acquire multiple units, but the aggregate membership or shareholding connected with those units must still be considered in determining whether the condominium corporation remains within the permitted foreign ownership level.
The number of units alone is not always determinative. The parties must examine the corresponding appurtenant interests, the project’s master deed, the declaration of restrictions, and the condominium corporation’s capitalization and membership records.
Foreign corporation acquiring a unit
A foreign corporation may face additional restrictions depending on the structure of the transaction and the nature of the corporation’s interest in the project. The acquisition must not result in foreign ownership of the condominium corporation exceeding the limit imposed by law.
Corporate documents should also be reviewed to determine whether the foreign entity is acquiring only a condominium unit or is acquiring a separate interest in land, common areas, or the condominium corporation beyond what is legally permitted.
Requirements Investors Should Review
Before completing a purchase, a foreign investor should review the following documents and information:
- The condominium certificate of title;
- The master deed and declaration of restrictions;
- The articles of incorporation and by-laws of the condominium corporation;
- The condominium corporation’s capitalization and current membership records;
- The project’s total foreign ownership or foreign membership percentage;
- The deed of sale or contract to sell, including the description of appurtenant common-area interests; and
- Any restrictions annotated on the title or imposed by the condominium corporation or a government agency.
The buyer should also confirm that the seller is authorized to transfer the unit and that the transfer will not cause the foreign ownership limit to be exceeded.
Role of the Condominium Corporation
The condominium corporation is formed primarily to hold or manage the common areas and administer the condominium project. Under Bureau of Internal Revenue v. First E-Bank Tower Condominium Corp., G.R. No. 215801, 2020, the Supreme Court recognized that its purposes are limited to holding the common areas, managing the project, and performing acts necessary, incidental, or convenient to those purposes.
The condominium corporation is not ordinarily established as a profit-making vehicle for its members. Its corporate powers must be exercised consistently with the Condominium Act, the enabling or master deed, and the declaration of restrictions.
What Happens If Foreign Ownership Exceeds Forty Percent?
A transfer that causes foreign ownership in the condominium corporation to exceed the lawful limit may be challenged as invalid. It may also result in difficulties in registration, issuance of title, corporate recording, and enforcement of the buyer’s rights.
Parties should not rely solely on the seller’s representation that foreign buyers are allowed to purchase units. The relevant question is whether the particular transaction, including its accompanying membership or shareholding, will keep the condominium corporation within the permitted ownership structure.
Arrangements designed to conceal the true foreign ownership of the unit or the condominium corporation may expose the parties to separate legal and regulatory risks. Nominee arrangements and simulated ownership structures should therefore be avoided.
Does a Condominium Unit Give the Foreign Buyer Land Ownership?
Not in the same direct sense as ownership of a parcel of land. The condominium unit is a separate real property interest, while the land and other common areas may be owned by the condominium corporation.
The foreign buyer nevertheless receives an appurtenant interest connected with the common areas. That interest cannot simply be separated from the unit and transferred independently. The legal structure permits foreign participation in condominium ownership while preserving the constitutional restriction on foreign ownership of land.
Important Exceptions and Limitations
The ownership structure matters. Where the common areas are held directly by the unit owners as co-owners, Section 5 of R.A. No. 4726 expressly restricts transfers to persons other than Filipinos or corporations at least sixty percent Filipino-owned, except in cases of hereditary succession.
Where the common areas are held by a condominium corporation, foreign ownership may be permitted up to the legally allowable limit, but the transfer of the unit and its related corporate interest must not cause the corporation’s foreign ownership to exceed that limit.
Other restrictions may also arise from the project’s master deed, declaration of restrictions, zoning rules, financing arrangements, and applicable registration requirements.
Practical Guidance for Foreign Investors
Foreign investors should obtain a written confirmation from the developer or condominium corporation stating the project’s current foreign ownership percentage and the effect of the proposed transaction on that percentage.
The transaction documents should clearly identify the unit, the condominium certificate of title, and the corresponding common-area or corporate interest. The documents should also state that completion is subject to compliance with the applicable foreign ownership restriction.
Before making substantial payments, the investor should have Philippine counsel examine the title, project documents, corporate records, and proposed transfer instruments. A review based only on the unit’s floor area, selling price, or availability may not adequately address the ownership restriction.
Conclusion
The Condominium Act allows foreign nationals to acquire condominium units in the Philippines because ownership of the unit may be legally separated from ownership of the land and common areas. The forty percent restriction generally concerns the aggregate foreign interest in the condominium corporation or the common-area ownership structure, rather than a foreign buyer’s ownership of one individual unit.
Foreign investors should verify the condominium corporation’s ownership records, confirm that the proposed transfer will not exceed the lawful foreign participation limit, and review the master deed, title, corporate documents, and transfer instruments before closing the transaction.
About Nicolas and De Vega Law Offices
Nicolas and de Vega Law Offices is a full-service law firm in the Philippines. You may visit us at the 16th Flr., Suite 1607 AIC Burgundy Empire Tower, ADB Ave., Ortigas Center, 1605 Pasig City, Metro Manila, Philippines. You may also call us at +632 84706126, +632 84706130, +632 84016392 or e-mail us at [email protected].
