Buying Philippines Real Estate on Installment

Consumers are accustomed to making purchases on the installment plan, so they think nothing of buying Philippines real estate properties the same way. But this is very different because you don't get to take over the property immediately. All you get initially is a purchase agreement with all provisions favoring the seller. A copy of the Contract to Sale comes six months later after you have made several installments. When the time comes for you to sign the contract, many provisions not discussed during the initial offering could be included.

One of these is the "escalation clause" that the cost of the project is based on a certain dollar exchange rate or depreciation of the buying power based on the 91-day Treasury bill or the pronouncement of the buying power of the pesos by the Bangko Sentral. Other charges such as closing costs are only then mentioned, making it difficult for the buyers who had made substantial downpayments to back out of the deal.

The Supreme Court of the Philippines had on numerous occasions dealt with the problem of the escalation clause based on the foreign exchange. It states: "The contract in question is a sale of a parcel of land in the Philippines payable in Philippine pesos. While the balance of the purchase price is payable in Philippine currency measured by a foreign currency, no foreign currency was directly involved in the transaction. The obligation should therefore be paid in the same amounts of Philippine currency as stipulated in the contract without any adjustment based on the prevailing exchange rate of the U.S. dollar to the Philippine Peso. The transaction does not involve a loan in a foreign currency stipulated to be payable in Philippine currency but measured by a foreign currency, in which case the rate of exchange prevailing at the stipulated rate of payment shall prevail.

Buyers who bought pre-sold units through installment can lose their fortune without even the slightest enjoyment of the unit. This happens when the buyer cannot keep up with the installment. Unlike buying through mortgage where the title has changed hand, buying by installment while waiting for the house to be erected, the buyer does not have title nor possession and no foreclosure proceeding that gives him a chance to redeem the property. Buyers need more than the Philippines' "Maceda Law" to protect their investments, considering that they never get to enjoy the property.

While the Philippine Supreme Court has recognized in repeated decisions the power of the real estate sellers to terminate the contract extrajudicially for failure to complete the payment and retain all or part of the instilments, this practice can be subject to negotiation. Always expect the unexpected. The buyers should negotiate for the refund of up to 90% of the total amount paid for units they never get to enjoy. This is unlike buyers on installment who were able to enjoy the house and even cause damage and depreciation to the units.

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