The Philippine Condominium Act (RA 4726): How the 40% Foreign Ownership Rule Actually Works

The 40% rule is the single most cited number in Philippine real estate for foreigners and the most misunderstood. It is not a cap on what a foreign buyer can own personally. It is a cap on what the condominium project as a whole can sell to non-Filipinos. Knowing the difference matters when you are choosing between buildings.

The legal foundation

The Condominium Act of the Philippines is Republic Act No. 4726, enacted in 1966 and amended by RA 7899 in 1995. The key provision for foreigners is Section 5, which states that no condominium unit shall be conveyed to a transferee whose acquisition would cause foreign ownership of the units in the project to exceed 40% of the total.

The constitutional anchor is Article XII, Section 7 of the 1987 Philippine Constitution, which restricts ownership of private lands to Filipino citizens or to corporations at least 60% Filipino-owned. RA 4726 was drafted to accommodate condominium ownership within that constraint by separating ownership of the unit from ownership of the underlying land.

In a Philippine condominium, the condominium corporation owns the land. Individual unit owners hold a Condominium Certificate of Title (CCT) for their unit and shares in the condominium corporation proportional to their unit. As long as the corporation's foreign shareholding does not exceed 40%, the structure is constitutional.

What the 40% rule means in practice

The 40% cap applies project-wide, measured either by total floor area or by number of units, whichever is specified in the master deed. The Housing and Land Use Regulatory Board (now the Department of Human Settlements and Urban Development, DHSUD) enforces this through the project registration process.

Foreign buyers should ask the developer for two specific documents: the current foreign ownership percentage in the project, and the master deed's chosen measure (area or units). Some developers track this loosely. In practice, a buyer should require written confirmation in the reservation agreement that the unit being sold does not push the project over 40%.

If a project has hit 39.9% foreign ownership and a foreign buyer attempts to acquire another unit, the Registry of Deeds will refuse to issue the CCT. The buyer's reservation money may not be automatically refunded, depending on the contract.

What foreigners can and cannot do

A foreign buyer can own one unit, multiple units in the same project, or units across different projects, with no personal cap. The constraint is only at the project level.

A foreign buyer cannot own the land beneath the building, cannot acquire a freehold townhouse on its own lot, and cannot acquire a single-family home with land. Townhouses can be foreign-owned only if they are organised under a condominium corporation, which is uncommon in the Philippines.

A foreign buyer can lease land for up to 50 years renewable for another 25, under RA 7652 (Investors' Lease Act). The Investors' Lease Act covers commercial and investment use. Long-term residential leases of up to 99 years were extended under the amendments effective January 2026, but the specific implementing rules are still being clarified by the DHSUD.

A foreign buyer can own land through a Philippine corporation that is at least 60% Filipino-owned. The structure is legal under the Anti-Dummy Law (Commonwealth Act No. 108) as long as the Filipino shareholders are not nominees holding for the foreigner's benefit. Anti-dummy enforcement has intensified since 2020. Verify any corporate structure with a Philippine securities lawyer, not just the developer.

The Condominium Certificate of Title

The CCT is the foreigner's evidence of ownership. It is issued by the Registry of Deeds in the city or province where the project sits. The CCT names the unit owner, identifies the unit and parking slot (if any), references the master deed and the condominium corporation, and lists encumbrances on the back page.

Common encumbrances to check for: developer mortgages (Pag-IBIG, BPI, BDO, or similar bank financing on the project), lis pendens (legal action against the developer or prior owner), and unpaid real property tax. The back of the title (Memorandum of Encumbrances) is where these appear. Get a Certified True Copy from the Registry of Deeds, not a photocopy from the developer, before final payment.

Pre-selling versus ready-for-occupancy

Most foreign-targeted projects in Metro Manila, Cebu, and Davao are sold pre-construction. The contract is a Contract to Sell (CTS), not a deed of sale. Title transfer happens only after full payment and project turnover.

The 40% rule is checked at title transfer, not at reservation. A pre-construction reservation that pushes the project over 40% may be voided at turnover. Developers know this and most allocate a foreign-quota by unit type and tower, but the buyer should still verify in writing.

The Maceda Law (RA 6552) provides protection for installment buyers who default after paying for at least 2 years: refund of 50% of total payments plus 5% per additional year, capped at 90%. For payments under 2 years, the buyer is entitled only to a grace period to cure default. Foreign buyers on pre-construction contracts should know these rights before signing.

Common compliance gaps

Some developers issue Contracts to Sell that under-disclose the current foreign ownership percentage. A foreign buyer signing late in a project's sales cycle should require an updated certification from the condominium corporation, not just the developer's verbal assurance.

Master deed amendments occasionally adjust the foreign quota mechanism mid-project. These amendments require Securities and Exchange Commission filing for the condominium corporation. A buyer should review the latest registered master deed, not the original.

Provincial registries process CCT transfers slower than Metro Manila registries. In Davao and some parts of Cebu, transfer delays of 6 to 12 months are not unusual. Buyers should factor this into closing timelines and not assume the developer's stated turnover date matches actual title issuance.

What to verify before buying

Get a Certified True Copy of the CCT (for ready units) or the developer's CCT and tax declarations for the underlying lot (for pre-construction). Confirm the developer holds a valid License to Sell from the DHSUD. Verify the project's current foreign ownership percentage in writing from the condominium corporation. Run the developer's name against SEC and DHSUD complaint records. Confirm the unit's real property tax is current and not in arrears.

For pre-construction projects from newer developers, the delivery record matters more than the brochure. Bektu tracks Philippine developer delivery history and ongoing disputes, which is a useful starting point before committing to a long-tenor installment plan.

The bottom line

The 40% rule is a project-level constraint, not a personal cap. A foreign buyer's job is to confirm that the specific unit being purchased fits within the project's remaining foreign quota and that the title issued is clean. The Condominium Act has been in force for nearly 60 years and the framework is well-tested. The risks come from individual developer behaviour and from pre-construction timing, not from the legal structure itself.