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Miscellaneous Costs in Buying Developer Properties

A couple had recently bought a lot in one of the subdivisions in Metro Cebu.  It was to be their first property. Having come from humble backgrounds and now earning dollars by working abroad, they were so excited about it.

With the help of an agent, they were able to find the lot which suited their needs from a reputable developer. However, they were apprehensive about the computation made by the agent because it did not spell out all the details. There was an item simply called “miscellaneous fees” over and above the price of the lot which they agent was not able to explain properly.

In another instance, a foreigner had been hopping from one developer to another and finally found a lot to his liking. He was dismayed, however to find out later that the quoted price did not include the “miscellaneous fees.”  The other developers had told him that the miscellaneous fees were included in their prices and so expected that to be the same with the others.

What are these fees? Should they really be included in the quoted prices of a developer?

When buying real estate properties, there are associated costs which are added to the raw price of the land. These are necessary costs from which no one can escape. They are as inescapable as death is to a living organism.  Of course, I am talking about taxes.

Value Added Tax

First and foremost, there is the value added tax or VAT. The rate of this tax is 12% of the purchase price, zonal value or tax declaration value of the property, whichever is higher. In most cases, the market price of the developers is higher than the zonal or tax declaration value.

Fortunately, there are some exemptions from the VAT. If you buy lots below P1.5 million or a residential property below P2.5 million, your transaction is tax exempt.  So, if you buy properties above the mentioned limit, you will be charged the VAT of 12%. 

Some buyers get the idea of buying two small lots each costing below the VAT limit so that they will be able to escape from paying the VAT.  While it is a good idea, it is unfortunately illegal. The BIR has already given a clear guideline regarding this. This is not allowable. If your total purchase price is above the VAT limit even if the individual properties are below it, you will still be charged VAT. Whether all developers comply with this is another issue.

Documentary Stamps

The documentary stamp tax is payable to the BIR upon the execution of the Deed of Sale (DOS). This is equivalent to 1.5% of the purchase price, zonal value, or tax declaration value of the property.  There are no exemptions for this.

Local Transfer Tax

Then, there is the local transfer tax imposed by the local government unit where the property is located. The rate for this is 50% of 1% of the purchase price, zonal value, or tax declaration value of the property, whichever is higher.

Registration Fees

In addition to those above, there is a registration fee to be paid to the Registry of Deeds where the property is located. The fee is P8,796.00 for the first P1.7 million plus P90.00 for every P20,000.00 or a fraction thereof in excess of P1.7 million.

Developers Miscellaneous Fees

Miscellaneous fees usually declared by developers include the registration fees, local transfer tax, and documentary stamps. VAT is usually not included in the miscellaneous fees.

Aside from these, the developer may also impose other fees, such as administrative fees on top of the above mentioned. This would cover for the cost of preparation of the documents from their end and the endless additional costs of transferring properties to their buyers.

Most often, developers do not give you a breakdown of the price of properties, unless you ask for it, to reduce the shock effect one gets when seeing the size of the tax one has to pay for a property.

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