Buying a real estate property is such a significant financial milestone. It calls for a celebration and a bottle of cold beer.
But before you twist that out with a churchkey, remember that this investment also involves a large sum of money, hard-earned money. So, it is normal to feel terrified and worried upon taking the big risk.
We know that all forms of investment come with risks, only that others are incredibly high-risk.
Most of us work our fingers to the bone for half of our lives for a dream house and lot that will serve as a trophy of success throughout the next half. It has always been part of the Filipino dream.
While many prefer a ready-for-occupancy (RFO) house and lot, even at less prime locations, others start investing in a lot-only property and soon enjoy more flexible house plans and designs.
Either way, careful planning and informed financial decisions must be at the very frontline.
Interestingly, buying and selling subdivision lots is also covered by the Presidential Decree 957 series of 1976, also known as The Subdivision and Condominium Buyers’ Protective Decree.
The decree safeguards the rights, welfare, and financial investments of home, condominium, and lot buyers against swindling and fraudulent practices of unscrupulous real estate developers, operators, and sellers.
Now before we go deeper, please do not mistake this as expert or legal advice. This is only for informational purposes but is still grounded on research and experience.
P.D. 957 — Subdivision and Condominium Buyers’ Protective Decree (Key Takeaways)
While the decree covers subdivision and condominium projects, i.e., houses and lots, lots only, and condominium units, this article mainly focuses on lots-only transactions with the developer, which may be the least common.
Subdivision Lot. As defined in the decree:
“A subdivision lot is any of the lots, whether residential, commercial, industrial, or recreational, in a subdivision project” (Section 2, Definition of Terms).
Registration of Projects. Suppose the developer, now the legal owner of the real estate property after acquisition or purchase, plans to develop it into a subdivision. In that case, it is required to have the project registered with the Housing and Land Use Regulatory Board (HLURB), now the Department of Human Settlements and Urban Development (DHSUD):
“The registered owner of a parcel of land who wishes to convert the same into a subdivision project shall submit his subdivision plan to the Authority, which shall act upon and approve the same, upon finding that the plan complies with the Subdivision Standards and Regulations enforceable at the time the plan is submitted” (Section 4, Registration of Projects).
License to Sell. The Certificate of Registration alone, however, is not enough for the developer to start selling units in a subdivision project.
The developer also needs to secure a License to Sell (LTS or LS), as indicated in the decree:
“Such owner or dealer to whom has been issued a registration certificate shall not, however, be authorized to sell any subdivision lot or condominium unit in the registered project unless he shall have first obtained a license to sell the project within two weeks from the registration of such project” (Section 5, License to Sell).
Performance Bond. For the issuance of a License to Sell, the developer also needs to file an adequate performance bond that is also required so to guarantee the completion of the development project.
“No license to sell subdivision lots or condominium units shall be issued by the Authority under Section 5 of this Decree unless the owner or dealer shall have filed an adequate performance bond approved by said Authority to guarantee the construction and maintenance of the roads, gutters, drainage, sewerage, water system, lighting systems, and full development of the subdivision project or the condominium project and the compliance by the owner or dealer with the applicable laws and rules and regulations.
The performance bond shall be executed in favor of the Republic of the Philippines and shall authorize the Authority to use the proceeds thereof for the purposes of its undertaking in case of forfeiture as provided in this Decree” (Section 6, Performance Bond).
Project Completion Time. A License to Sell then is a reasonable assurance that the developer’s warranty, approved plan, ownership, financial capacity, and all other legal papers are in place:
“Every owner or developer shall construct and provide the facilities, improvements, infrastructures and other forms of development, including water supply and lighting facilities, which are offered and indicated in the approved subdivision or condominium plans, brochures, prospectus, printed matters, letters or in any form of advertisement, within one year from the date of the issuance of the license for the subdivision or condominium project or such other period of time as may be fixed by the Authority” (Section 20, Time of Completion).
Non-Forfeiture of Payments. Now, if the developer fails to deliver the property based on the contract and the approved subdivision plans and time limits, the buyer has the right to demand reimbursements.
“No installment payment made by a buyer in a subdivision or condominium project for the lot or unit he contracted to buy shall be forfeited in favor of the owner or developer when the buyer, after due notice to the owner or developer, desists from further payment due to the failure of the owner or developer to develop the subdivision or condominium project according to the approved plans and within the time limit for complying with the same. Such buyer may, at his option, be reimbursed the total amount paid including amortization interests but excluding delinquency interests, with interest thereon at the legal rate” (Section 23, Non-Forfeiture of Payments).
Property Turnover and Issuance of Title. Upon full payment, on the other hand, the developer is expected to deliver the property and its title to the buyer:
“The owner or developer shall deliver the title of the lot or unit to the buyer upon full payment of the lot or unit. No fee, except those required for the registration of the deed of sale in the Registry of Deeds, shall be collected for the issuance of such title” (Section 25, Issuance of Title).
R.A. 6552 — Realty Installment Buyer Protection Act or Maceda Law
Apart from the P.D. 957, R.A. 6552 or Realty Installment Buyer Protection Act, also popularly known as Maceda Law, is another essential legal reference, particularly for buyers on an installment basis.
This Maceda Law applies to two types of buyers – those who have paid at least two (2) years of installments and those who have paid less than two years. As per the law:
“If the buyer has paid at least two (2) years of installments, the buyer is entitled to the following rights in case he defaults in the payment of succeeding installments:
(a) To pay, without additional interest, the unpaid installments due within the total grace period earned by him, which is hereby fixed at the rate of one month grace period for every one year of installment payments made: Provided, That this right shall be exercised by the buyer only once in every five years of the life of the contract and its extensions, if any.
(b) If the contract is canceled, the seller shall refund to the buyer the cash surrender value of the payments on the property equivalent to fifty per cent of the total payments made, and, after five years of installments, an additional five per cent every year but not to exceed ninety per cent of the total payments made: Provided, That the actual cancellation of the contract shall take place after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value to the buyer” (Section 3).
On the other hand,
“In case where less than two years of installments were paid, the seller shall give the buyer a grace period of not less than sixty days from the date the installment became due.
If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel the contract after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act” (Section 4).
3 Strongest Protective Shields Against Real Estate Scams and Fraud
In this age where scams are getting increasingly sophisticated, there are two basic shields of protection that buyers should always look for in a real estate development project — a Certificate of Registration and a License to Sell.
Certificate of Registration
As already mentioned, a Certificate of Registration is a certification issued by HLRUB (now DSHUD) to a property developer after satisfactory compliance with the Subdivision Standards and Regulations.
The registration requires the developer’s profile, business address, financial capacity, subdivision or condominium plan, advertisement of the project, sample contract to sell, and property title free from all liens or encumbrances.
License to Sell
A registered developer, however, is not yet authorized to sell any subdivision lot or condominium unit in the registered project unless it has secured a License to Sell (LTS or LS).
The issuance of both the Certificate of Registration and License to Sell will give the home buyers and real estate investors peace of mind that the developer has both a legal personality and a financial capacity to undertake and deliver the subdivision or condominium project as marketed and promised.
Licensed Sales Agents and Brokers
In addition to the first two, it is a must to transact only with licensed and accredited real estate brokers and sales agents, hence the third shield of protection. The decree is even clear about this, saying that:
“No real estate dealer, broker or salesman shall engage in the business of selling subdivision lots or condominium units unless he has registered himself with the Authority in accordance with the provisions” (Section 11, Registration of Dealers, Brokers, and Salesmen).
To reaffirm, the best and safest time to buy a real estate property is when the developer already secures these legal permits and licenses and that the transaction is also through a licensed sales agent or broker.
But ‘safest’ does not always guarantee favorable outcomes. Note that some developers, even the established and reputable ones, still fail to complete projects and deliver units to buyers based on contracts. So, you should also look into other less critical factors.
Pre-Selling Subdivision Lots (Current Trends in the Philippines)
Pre-selling happens when a real estate developer is already marketing its properties – houses and lots, lots, and condominium units – before the date of the project or the property’s completion.
In other words, the project may not yet exist or is still under construction.
Pre-selling or selling off-the-plan real estate properties is sometimes allowed, through a temporary License to Sell, so for the developers to conduct marketing activities and test the market viability of the project. Normally, it is valid only for just six months.
However, the biggest problem that even the DSHUD admits is that there are many developers that pre-sell real estate projects, especially the lots-only subdivisions, way too earlier than expected against the existing laws, and that is, without having secured the necessary permits and licenses.
If you will take the decree seriously, such pre-selling activities violate the law and are, thus, illegal. But they are common even under the nose of the law as there are always buyers willing to take risks while units are still sold at low prices.
These only come to light when developers vanish into thin air or fail to deliver their promises. That is also when buyers realize they have fallen victim to the scam and desperately demand their money back.
The government authorities, particularly the DSHUD, have long warned the public about these illegal activities and transactions.
In reality, other developers use the proceeds of their pre-selling to finance the complete acquisition of the property from the original owner, the registration of the project, and the actual development that is usually promised in three to five years. In other words, pre-selling is a critical aspect of their business model and operations.
With this, the biggest risk of buying on a pre-selling is the chance that the project will not push through, especially if the developers fail to secure the necessary permits from the authorities or encounter financial problems along the way.
On the other hand, some advantages of pre-selling properties that many risk-taking buyers cannot let go of include cheaper prices than those ready for occupancy, i.e., usually by 30% to 50%, more flexible and longer payment terms, and more choices of good locations.
You can even hit the jackpot and earn higher returns on your investments if the property appreciates in value in just a few years, even during the amortization period, because of the rapid and significant developments in the area.
It is also expected that these developers will eventually increase the prices of lots as soon as they secure the necessary permits and licenses and start the actual and physical developments.
Until such time that you see the developments, everything remains a big drawing. Thus, you are making a big gamble and risking your money. So, be careful.
9 Tips for Buying Pre-Selling Subdivision Lots in the Philippines
[1] Verify two important documents — a Certificate of Registration and a License to Sell. Whether on a pre-selling or not, buy only a subdivision lot, even a house and lot or condominium unit, from a developer that has secured the necessary permits and licenses for your protection. That’s the ultimate tip, and that’s the safest.
In principle and as previously discussed, the HLRUB or DSHUD will only issue a License to Sell to developers with proven integrity and financial capacity to develop a subdivision project.
There is always a higher risk of incomplete or no development for projects without a license. And you will not have that peace of mind if you know about that probability. Well, even if the developer says it already has, verifying it with the nearest DSHUD office is still best.
[2] Check the developer’s track record. It may not be easy to trust a developer if it has been operating for just a few years, but for one that has been in the industry for decades, it must have already established its reputation.
You can always find a portfolio of successful projects and testimonials from happy home buyers and real estate investors.
You may visit the developer’s website and social media pages or use relevant keywords in doing a web search. You can also check with DHSUD about its previous projects and issued licenses.
[3] Transact only with a licensed and accredited sales agent or broker. The developer may be legitimate, but the sales agents or brokers may be not.
These con artists are sometimes called ‘colorum’ agents who make victims believe they are licensed and affiliated with well-known real estate developers.
With their social engineering tactics, they will lure interested buyers into making down payments to their accounts or sometimes through bogus websites and then vanish without any trace.
You better confirm their accreditation, ask for their IDs, or insist that you do your transactions and payments at the developer’s office with their assistance.
[4] Consider various factors when picking the best lot. Expect that lots in subdivision projects vary in terms of strategic locations and so the prices per square meter. Outer and corner lots that are more accessible from main roads and offer better views are always more expensive than inner lots.
Other factors to consider when choosing a subdivision lot include the slope and shape, the direction the house to build will face, the proximity to the main roads, gates, and amenities, and others that are possibly more personal.
Before you go on tripping, you might want to pick in advance your top choices based on the available map and then confirm at the site. You might also want to solicit suggestions from your sales agent or other buyers.
[5] Read and examine the contract. As soon as you express your interest in purchasing a subdivision lot, the developer will lay before you the contract for you to scan and affix your signature on every page and in multiple copies.
While you may feel the urge to finish dealing with the contract in minutes, it is your right to go through every single detail.
Take your time and carefully read the stipulations in the contract, which generally include the actual start of property development, turnover time, refund terms and conditions, and cancellations, among others.
Since what you’re buying is just a lot and you think you have all the freedom to use it in any way you want or build a house of your preferred plan and design, other contracts may have special clauses about building fences around the perimeter, reservation of particular areas for green projects, and a prohibition against commercial and agricultural uses of the property.
[6] Do prior research and consult a legal expert whenever necessary. In a disclaimer, this article, however well-researched, informative, and practical, does not necessarily constitute professional, legal, or expert advice.
You are thus encouraged to do further research, make informed financial decisions on your own, and even seek guidance from legal experts should you have confusion, suspicions, and matters that require legal clarification.
For example, you might want to consult with your lawyer friend before signing the Contract to Sell to ensure that you will not have legal problems and headaches in the future.
[7] Secure a notarized Contract to Sell and all payment receipts. Don’t make payments yet if you think the developer cannot issue you a notarized contract and official receipts.
It may still be just a Conditional Contract to Sell for now, but it must be notarized. It is a legal arrangement in which the developer retains the title until the buyer meets a predetermined condition, i.e., having the subdivision lot fully paid in years.
Typically, you leave copies of the signed contract for a few days or weeks to have them notarized, but you will be given on the same day a copy for yourself.
Remember that even the absence of the registration and license of the developer, the project, and the sales agent does not render the Contract to Sell void as it is a valid contract, provided that it bears all the legal and valid elements.
Also, don’t forget to claim and keep your official receipts for the down payment made and the succeeding ones for the amortizations.
[8] Track the progress of the subdivision project. You may have been paying for just a year against a five-year installment plan, but it’s good that you keep yourself updated about the progress of the subdivision project.
You buy on a pre-selling, and there may be changes from the original plans. Clarify these as you visit their office to make monthly payments. Keep subscribed to the developer’s page or join groups of buyers for important updates.
[9] Know your rights as a buyer and investor. Your knowledge of the existing real estate laws and understanding of the entered contract will also help you elucidate your rights as a buyer and real estate investor.
Suppose you’re acquiring the property on an installment basis. In that case, the Maceda Law, for example, provides you enough grace period before the final cancellation of the contract and may even entitle you to a refund.
Equally, suppose the developer faces delays or fails to deliver the property based on the contract. In that case, you may demand reimbursement of the total amount paid or just suspension of amortization payments until such time that the project is completed.
Final Thoughts
To reiterate, as I see it imperative, it is strongly advised that you buy and invest only in subdivision lots from legitimate and reputable real estate developers that have already secured a Certificate of Registration and License to Sell and also through licensed and accredited sales agents and brokers.
Read also:
How to Check Your Developer’s License to Sell (LTS). This article answers frequently asked questions about a License to Sell (LTS) and provides a guide on how and where to check if a real estate development project, whether a subdivision or condominium, has it.
9 Reasons Ordinary Filipinos (and Possibly, You) Still Don’t Invest in Real Estate. This article lists and discusses the top reasons why many Filipinos still shy away from investing in real estate despite its popularity, promising returns, and other advantages.
How to Buy a House with Middle-Class Income. This short article provides an insightful guide and helpful tips on how to start planning to buy a house with a middle-class income without drastically changing one’s lifestyle and making other big sacrifices.
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