PhilippinesDownload Full Scorecard
The legal framework that deals with securing and protecting property rights is well defined thanks to the constitutional provisions, Philippine Civil Code on ownership, Administrative Code, and related laws and regulations at the national and municipal levels. Rules on government expropriation are also clear and citizens can challenge the legality of state decisions (Rule 67, Revised Rules of Court). The rules for just compensation require the government to select three competent and disinterested people to ascertain the appropriate rate and the owner has the power to contest the people selected, as well as the rate ascertained. Nonetheless, businesses report that there is a discrepancy between laws on the books and how they are applied in practice.
Cadastral information is currently publicly available on the website of the Department of Environment and Natural resources but it is incomplete with over 5.6 million hectares that have not yet been surveyed.11 There are also proposals in Congress to have a new cadastral survey for the entire Philippines. The system used by the Land Registration Authority is the Torrens System of title guarantees by the government, an internationally accepted standard. However, transactions with title registries take too long (39 days, because of 8 steps involved) and cost too much for small businesses (4.8 percent of the transaction value, not including creditable withholding tax).12
The extent of informal settlements is a serious problem impeding the development of secure property rights system in the Philippines. According to the United Nations Development Program, in 2005,13 close to half (43.7 percent) of the population were living in slums, and were thus unregistered. Informality in the business sector is likewise an issue, with 37.5 percent of firms reporting competition with unregistered or informal firms. This is evidence that barriers or disincentives to formal ownership of property persist.
One key factor contributing to extensive informality is the aforementioned lax implementation of the laws on property rights, in part due to bureaucracy involved. There are 19 agencies involved in property administration and new laws are continually being passed. Many of the laws are outdated and conflicting, and there are inconsistencies and overlap between the function and mandates of the agencies. Thus there remains a large presence of unregistered or illegal uses of property, as well as a large presence of informal markets for goods. Small businesses see that the rule of law is not followed and are therefore discouraged from participating in the formal system.
Goal – Property rights that are legally protected, secure, recorded in a single, accurate, widely accessible electronic registry and that lead to high levels of formal ownership for all citizens
1.1 Legal Protection
Core Question: Does an effective and sufficient legal framework exist to protect property rights for all citizens? No – Weak – a survey of the land administration laws affirms that these laws are “outdated and conflicting with each other. Due to the large number of these laws, inconsistencies often arise, especially on the mandates and functions of agencies.”
Source: Rheya Lyn M. Dealca, “Initiatives to Improve Land Administration in the Philippines,” www.fig.net/pub/vietnam/papers/ts03d/ts03d_dealca_3652.pdf
1.1.1 Are property rights clearly defined and protected by law? No – Weak – Ranking 105th out of 142; Score 3.61 out of 7 Trend ↓
Security of Tenure
1.1.2 Can citizens challenge the legality of government takings? No – Very Weak – 118th ou
Bundle of Rights
SQ1: What is the bundle of rights (group of rights such as occupancy, use and the right to sell or lease) associated with both residential and commercial property ownership? Strong – the 1987 Constitution sets out three types of ownership – ancestral, public and private. Moreover, the following bundle of rights is associated with ownership of residential and commercial property:
(2) Possession/Occupancy (Art. 523, Civil Code)
(3) Use of and the right to the fruits of the property (Art. 437, 440, Civil Code)(4) Right to sell/convey/mortgage the
property (Art. 428, Civil Code)
(5) Right to lease the property (Art. 525, Art. 1643, Art. 1650, Civil Code)
Core Question: Does a reliable property registry exist including cadastral, title and mortgage lien information? No – Weak, there are great problems in enforcement and with unregistered land. Moreover, there are complaints about the national government departments that hand out titles, as well as those that facilitate registration.
1.2.1 Cadastral Information
Status – Weak. Implementing regulations for The Cadastral Act (Act No. 2259) were revised in July 2007 but a large portion of land still has not been surveyed.
SQ2: Is cadastral information (information about the dimensions and location of land parcels) accessible to the public? Yes
SQ3: Is zoning/permitted use information included and are use regulations respected and enforced? No
SQ4: Are Geographic Information Systems (GIS) including Global Positioning Satellite (GPS) information used to create and update the registry? Yes, but not at all levels. Though this has been mandated by the national government, city governments have not entirely migrated to GIS. In Manila, this is not yet in place due to budgetary constraints. However, in the City of San Fernando Pampanga, the first stage of the GIS is already complete.
Source:Revised Regulation on Land Surveys, Dept of Environment and Natural Resources http://gepwebportal.com/docs/dump2000/1211250715-RevisedRegulationsOnLandSurveys.pdf
Civil Society Resource: Geodetic Engineers of the Philippines http://gepwebportal.com/index.php
1.2.2 Title Registry
Weak – Ranking – 117th out of 183 Trend ↓
18.104.22.168What is the number of procedures required to register the transfer of a property from one owner to another? 8 to 9
22.214.171.124 What is the duration of time in calendar days that it would take to complete the transfer? 39
126.96.36.199What is the total cost of the transfer including all fees, taxes, etc. expressed as a percentage of the value of the property? 4.8% (not including creditable withholding tax)
Source:Doing Business 2012 – Registering Property, World Bank
1.2.3 Mortgage Registry
Status – Weak, while the registry follows the Torrens System of title guarantees, implementation and capacity at the regional level is insufficient.
SQ5: The mandatory use of notaries or similar officials slows down and adds cost to the process. Does a notary need to be involved in the registration process? Yes
SQ6: Is information in the registry available electronically? Yes, but this is still limited. The repository of Land Information is still in the process of transition from manual to electronic. See www.lra.gov.ph/
SQ7: Title insurance is indemnity insurance against financial loss from defects in title and from the invalidity or unenforceability of mortgage liens. Is title insurance available to lenders? No. However, there have been attempts to enact relevant legislation. See www.nenepimentel.org/bills/SBN-116.asp
1.3 Formal Ownership
Core Question: Do citizens understand and trust property rights institutions and avoid the informal sector? Yes – but Weak. Although significant legal advances have been achieved over the last few years, more than half the properties remain unregistered.
SQ8: What is the status of land ownership? Weak – 19 different government agencies are involved in land administration.
Source: Rheya Lyn M. Dealca, cited above
SQ9: What is the percentage of formal home ownership? Strong – City records show: in Manila, 66.43% estimated formal home ownership as of 2007. In San Fernando Pampanga, 90.5%
Source: City Governments of Manila and San Fernando Pampanga
1.3.3 What is the percentage of service firms that report competing with unregistered or informal firms? 37.5% – Weak. In Manila, 22.6% of formal sector businesses reported competing with informal markets in the industries of printing and contracting.
Source: Enterprise Surveys 2009, www.enterprisesurveys.org/ExploreEconomies/?economyid=153&year=2009
Despite the legal framework enacted to secure the formal ownership of property, widespread informal activity exists in the Philippine property market. This includes illegal possession or occupation of public and private property by impoverished populations, non-registering of property titles, and unrecorded transactions due to high transactional costs. As a result, the property market has been significantly less transparent and considered more hostile compared to other countries within the Asia-Pacific region. It is very common to find land squatters blatantly occupying property illegally not only in rural areas but within the central urban districts as well. Throughout Metropolitan Manila, slum shanty towns are built up adjacent to waterways and the fringe areas of modern urban corridors of formal property developments, reflecting the socio-economic dichotomy that clearly exists in the Philippines between the affluent and the impoverished.
Source: “Recommendations on Real Estate Market Reform in the Philippines,” Capstone Thesis, Brandon Feráren, 2010, Georgetown University School of Continuing Studies.There are what is called “professional squatters and squatting syndicates,” which abuse the law on the Urban Development and Housing Act of 1992. Politics likewise plays a part in the determination of properties for expropriation. There has been a national drive, backed by legislation, to remove professional squatters. However, the conflict is more political. Professional squatters are protected because they add to the votes that local chief executives receive, so there is a greater incentive to appease them rather than relocate them outside of the already densely populated urban areas.
FQ 2: Are standard purchase contracts used for commercial properties? If not, how are property purchases usually completed?
No. Purchase transactions are usually done with varying purchase contracts. Moreover, the City Governments are not mandated to intervene except when the transactions deal with City Property. As such, there has been no mandate to enforce standardized purchase contracts. The process involves (after the buyer and seller discuss and agree on the price), obtaining the deeds from the City Assessor’s Office and Tax Clearance, and proceeding to the Treasurer’s Office to pay Transfer Tax.
FQ 3: Do separate contracts or other means exist to hide value from authorities when registering property transactions?
Yes. There are instances where the buyer and seller try to hide the value from authorities to avoid paying high taxes. However, even if buyers understate the sale value, they will eventually pay a standard fee based on the zoning value or the fair market value, whichever is higher.
FQ 4: Are standard leases used for commercial space?
If not, what is a typical arrangement for rental?
No. The law that governs this is Art. 1654 of the Civil Code, and it lists the obligations of lessors/building owners, which includes the obligation to deliver services “in such a condition as to render it fit for the use intended.” This may include “all the necessary repairs in order to keep it suitable for the use which it has been devoted.” However, there is also the provision that these will happen “unless there is a stipulation to the contrary” which may lead to confusion at times.
FQ 5: What are the typical rates, terms and availability of office, retail, manufacturing and logistics facilities?
Source: Ms. Marissa Benitez, Director for Valuation & Advisory Services from Colliers International
FQ 6: What are the processes for government expropriation of property especially notice and due process for owners? Are those laws followed or do expropriations happen by collusion between officials and connected elites?
The process for government expropriation can be found in Rule 67 of the Rules of Court. Expropriation requires the filing of a complaint for expropriation with the Regional Trial Court, which will then proceed to determine: (1) whether due process was followed in the expropriation of the property, and (2) if due process was indeed followed, the proper amount of compensation to be paid to the property owner. Local government units can also expropriate land to reclassify residential, commercial or industrial lands within their jurisdiction. Despite the rules, however, politics seems to play a part in the determination by the bodies responsible for the process of expropriation, both at the local and the national government level. When it comes to executing the expropriation, there are also instances when payment is delayed due to a failure to agree on the rate of compensation. In some instances, the expropriation proceedings take years to be completed. Sources: Rules of Court; “Standards for the Assessment of the Value of the Land Subject of Expropriation Proceedings or Negotiated Sale”; interviews with industry practitioners.
FQ 7: Are businesses owners compensated fairly when their property is taken for public use?
While Philippine law requires just compensation, in practice the determination of the just compensation takes too long, so that there are great opportunity costs for small businesses that are not paid immediately as a result of a failure to agree on the proper amount for compensation, even when their land has already been taken.
FQ 8: What protections do businesses who lease space have from arbitrary eviction by owners?
The main protection that businesses have from arbitrary eviction by property owners are the terms and conditions of the lease. If there is no lease, or if there are gaps in the lease, provisions of the Civil Code will apply. It is worth noting that Section 10 of the Rent Control Law of 2009 prohibits the lessor or his successor-in-interest from ejecting the lessee simply by reason of sale or mortgage of the property being leased. In practice, for as long as there is a lease contract, the lessees are able to obtain sufficient protection from arbitrary eviction.
FQ 9: What services are typically provided to tenants (common areas, public access, security) and what means of redress are available if services are not provided?
Currently, electricity and water services are provided by the lessor, while the lessee usually pays on the basis of consumption. There is a common understanding that the lessor should cover repairs due to the normal wear and tear of the leased property, while the lessee shall cover repairs due to wrong use of the property.
FQ10: What is the actual experience of transferring a property, accessing the registry and dealing with registry officials?
Although there is a title registry system currently in place, many properties have not yet been registered. Over the years, improper dealings, unrecorded property transfers, or attempts to avoid taxation and/or lessen transactional costs, have discouraged property owners from utilizing the proper formal procedures for property transactions and transfers. Only 10 million of the estimated 23 million (40%) parcels are registered. The Philippines has one of the highest costs associated with property transactions and requires a number of procedures (more than typical) compared to other countries in the Asia-Pacific region. As a result, informal activities, such as bribery and not recording property, occur to avoid high taxation and transactional costs.Source: “Recommendations on Real Estate Market Reform in the Philippines,” Capstone Thesis, Brandon Feráren, 2010, Georgetown University School of Continuing Studies.
FQ 11 How large is the presence of unregistered and/or illegal uses of commercial property?
It is hard to put a number on the unregistered/illegal uses of commercial property in both cities because officials claim that these improper uses are addressed as soon as these are tracked. The most common illegal use of property is subleasing.
FQ 12 How large is the presence of informal markets for goods, i.e. itinerate vendors?
Both cities have ongoing programs to reduce the presence of informal markets. However, the presence of informal markets is seen not as a factor of inefficient government but as a result of poverty. The City Governments have thus tried to improve the situation with more flexible rates for registering businesses through a daily payment to the city’s bureau in charge of registration. These daily rates, while they are equivalent to the total amount of yearly payment, are easier to comply with for formerly unregistered small businesses.Source: Unless noted, research and interviews conducted by the Institute for Solidarity in Asia in June and July 2011.