Investing in Philippine Real Estate - Smart Structures for Foreigners to Succeed Despite Ownership Limits

By: Noel C Ducusin

Foreign investors and corporations interested in real estate development in the Philippines often encounter the restriction that at least 60% of a development or joint venture corporation must be owned and controlled by Filipino individuals or entities. At first glance, this may seem like a significant barrier to entry. However, is this really a dealbreaker for profitable real estate ventures in the country? Let's explore the options available for structuring investments effectively.

Shareholder Agreements & Structuring Control Beyond Ownership

The restriction on foreign ownership applies strictly to the percentage of equity and voting rights - but how these shares are voted on is an entirely separate matter. Through carefully structured shareholder agreements between the 60% Filipino-owned shares and the 40% foreign-owned shares, investors can establish mechanisms to jointly decide on crucial business matters including but not limited to approval of new projects, liquidation or sale price of assets, admission of new investors that could dilute existing shareholdings, and the like. Such agreements ensure that foreign investors maintain a level of influence beyond their nominal ownership percentage focusing on profitability rather than mere control

Asset Liens & Securing Investments Beyond Share Ownership

Ownership and control of shares do not necessarily equate to control over the company's assets. Investors can use liens as a financial instrument to protect their interests. By placing liens on company assets foreign investors can secure their investments ensuring that their financial contributions are protected even if ownership changes in the future. These liens can be formally annotated on property titles creating a legal safeguard against any adverse ownership shifts.

Long-Term Leases & Maximizing Investment Returns

Ownership is separate from possession - meaning that foreign investors can still secure control over real estate assets through long-term leases. If the business strategy focuses on generating cash flow through rentals rather than selling properties, then leasing becomes a highly viable option. Additionally, these long-term lease agreements can be assigned to third parties at a profit further enhancing investment flexibility and returns.

The 40% Equity Share is Still A Strong Position

Even in a worst-case scenario, holding a 40% equity share still provides foreign investors with significant influence over major corporate decisions. Under current Philippine laws, major corporate resolutions such as liquidation, investment of corporate funds in unrelated businesses, amendments to the company's charter, and the like, require a supermajority vote of at least two-thirds (approximately 67%) of all shares. This means that a 40% stake is still a blocking minority offering substantial control over major corporate decisions.

Rethinking Investment Objectives Profitability Over Ownership

At the core of any investment is the goal of generating returns and not necessarily owning a majority stake in the joint venture corporation. Structuring a real estate investment with a focus on revenue generation and asset control through contractual agreements allows foreign investors to participate in the lucrative Philippine real estate market without being overly hindered by ownership restrictions. By leveraging shareholder agreements, asset liens, long-term leases, and other methods of strategic structuring, foreign investors can still maintain significant control to protect and grow their investments even with a less than majority equity position.

About the Author

Atty. Noel C. Ducusin is the senior and founding partner of the N. Ducusin & Partners Law Offices - a law firm based in Metropolitan Manila, Republic of the Philippines that specializes in Corporate Advisory, Cross Border Regulatory Matters, Mergers & Acquisitions, and Commercial Litigation.

Atty. Ducusin is also the President & Sole Director of DoingBusinessPH OPC - a company dedicated to empowering foreign investors to do business in the Philippines through online executive education resources, digital books, seminars, as well as online and offline events.

His mission for this Community is to help foreign investors, business owners, and managers by breaking down complex legal concepts and dense technical material into simple, straightforward, and actionable legal information for better business decisions. For easy reading, articles and briefs will be in simple everyday language without legal jargon.

This is not the place for academic writing and legalese will not be tolerated here.

The simpler and the more practical the better.

“Everything should be made as simple as possible, but no simpler.” – Albert Einstein