Buying a condo in Manila? Read this…

October 7, 2006 by reyna11 · Leave a Comment
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WITH the uncontrolled congestion of Metro Manila and the inconvenience of travel to far-off suburbia, the lure of high-rise living has become a tempting proposition. And condos are now on top of everyone’s wish list. Whether one’s budget is good for a swanky loft or studio unit, the sales truism of caveat emptor or let the buyer beware has to be taken in mind.

Though still catering to middle to upper income earners, condominium projects are a dime-a-dozen nowadays. With well-thought out advertising strategies, real estate developers continue to expand their target markets. Sales agents are everywhere with their flyers and the huge billboards promising paradise for those who can afford. Sometimes calling to inquire about one property could lead to a gazillion other alternatives.

Second-hand condos, on the other hand, are usually found in the classified ads section of our favorite newspaper, or are posted in buy-and-sell ads on the Internet.

Other than saving up for the down payment and sweating out the monthly amortizations, what must the buyer remember when buying a condo?

Taxes, of course.

Upon expressing the desire for a condo unit in a brand new development, a prospective buyer is presented by the real estate developer’s agent with the specifications of the unit itself. The agent then furnishes the prospective buyer with a quotation of the selling price, itemizing therein the components payable by the prospective buyer such as the net selling price and the taxes. With such a breakdown, the prospective buyer is informed of the taxes and the corresponding rates he would have to pay if he does decide to purchase the condo unit.

When it comes to second hand condo units, the specifications as well as the price are usually provided in the ads themselves. The difference lies in the fact that unless actually inquired into, the prospective buyer is not provided with a breakdown of the selling price and the taxes involved in the purchase.

It is easy to be lured by attractive advertisements and the promises of convenience. But we should be wary not only of false promises, but also of overlooking whether we are indeed paying the correct taxes and their correct rates.

So, before we hop on to the condo bandwagon, we should study the following checklist of taxes generally involved in condominium purchases, as well as their corresponding rates:

1. The 12 percent value-added tax (VAT). VAT is payable if the purchase is from a real estate developer. This is because according to our Tax Code, the sale of real properties held primarily for sale to customers in the ordinary course of trade or business of the seller shall be subject to VAT.

But the fact that the seller is the one stated by the law as the person liable to pay the VAT, the law also says that VAT is an indirect tax which may be transferred to the buyer. VAT is based on the gross selling price (GSP) or current fair market value (FMV) of the said condo (whichever is higher).

2. The 6 percent capital gains tax (CGT). CGT is payable if the condo to be purchased is second-hand. CGT is likewise based on the GSP or FMV of the said condo (whichever is higher), and is usually payable by the owner since it is his gain that is being taxed.

There are three common scenarios when it comes to CGT liability. The ideal scenario is that the selling price as advertised does not include the CGT, and the owner takes care of the CGT payment without the intervention of the buyer. In some cases, the CGT is included in the selling price of the condo as advertised (GSP or FMV + CGT = price advertised), thus effectively passing the burden of payment on the buyer.

In other cases, however, the selling price advertised is that which the buyer would want to receive net of all taxes that would have to be paid. This means that the buyer should shoulder the CGT, among other taxes and/or expenses. To prevent undue confusion between the parties to the transaction, it is recommended that they first discuss who should shoulder the CGT.

3. The 1.5 percent documentary stamp tax (DST). DST is imposed on conveyances of real property (condo units, in this case) at the rate of P15 for every P1,000 (or 1.5 percent, for easy computation) of the consideration or value received for such property. DST is applicable whether the sale concerns a brand new condo unit (sold by a real estate developer) or a second-hand unit (sold by a broker or the owner), and is also usually payable by the seller. Like CGT, the party liable therefore may also be previously agreed upon by the parties.

4. The 0.50-0.75 percent local transfer tax (LTT). With respect to the transfer of real property, the LTT thereof shall not be more than 0.50 percent if the condo unit is located in a municipality, or 0.75 percent if located in a city, of the GSP involved in the acquisition of the condo unit or the FMV, whichever is higher. The LTT is usually shouldered by the buyer, and is likewise payable whether the condo unit is brand new or second-hand.

5. Registration fees (to Register of Deeds). Registration fees vary depending on locality. It is safe to assume, however, that said fees range from 0.25 percent to 0.50 percent of the selling price or assessed value of the condo unit, whichever is higher. Registration fees are usually paid by the buyer.

Every time we deal with real estate developers, real estate brokers or condo owners, we should keep in mind the above list and keep on hand our trusty calculator. It pays to be informed, especially if taxes are in issue.

This article: Condo-mania: Tax travails of buying a condo was written by Rommel R. Ramos, Jose A. Osana of the Philippine Daily Inquirer: Posted date: October 06, 2006

Tags: Real Estate