As the real estate industry booms in the Philippines, we see more and more companies engaging in real estate brokerage, some of which even have foreign-sounding names, which makes one wonder:
Are foreigners allowed to put up a real estate brokerage company in the Philippines?
Or can they even be partial owners of it?
This was the question posed by RE/MAX Philippines to the Securities and Exchange Commission in 2016.
In a letter dated December 11, 2015, RE/Max Philippines, which is engaged in the business of selling RE/MAX franchises in the Philippines, asked whether a foreigner may be an incorporator in a real estate brokerage company where 60% of the shares are owned by Filipinos and 40% by foreign nationals.
RE/MAX Philippines argued that Section 32 Republic Act No. 9646 or the Real Estate Service Act of the Philippines (“RESA”) expressly allows the corporate practice of real estate service. RESA itself does not require that a corporation engaged in the business of real estate service be 100% Filipino-owned. Corporate practice of real estate service by Filipinos is also allowed under the 10th Foreign Investment Negative List. A “Philippine national” under the Foreign Investment Act, RE/MAX Philippines argued, includes a corporation that is 40% owned by foreign nationals. Thus, a corporation engaged in real estate brokerage can at least be 40% owned by foreign nationals.
The SEC, however, was not convinced.
In its SEC-OGC Opinion No. 16-14 dated May 23, 2016, it held that no foreign participation is allowed in corporations, such as real estate brokerage company, that will engage in the practice of real estate service.
The SEC based its opinion on the general rule under the 1987 Constitution that the practice of all professions in the country is exclusively reserved to Filipino citizens. It acknowledged that the provision itself provides an exception, that is, when there is a law which provides otherwise, but it noted that RESA is silent as to whether foreign participation is allowed in such corporate practice. It also referred to the 9th Foreign Investment Negative List, which disallowed foreign equity in the practice of professions, including real estate services and its previous Opinion No. 16-04 dated February 16, 2016, in which it held that no foreign participation is allowed in the corporate practice of interior design.
Nevertheless, the SEC acknowledged that the l0th Foreign Investment Negative List indicates in a footnote that (1) foreigners are allowed to practice several professions, including real estate services, subject to reciprocity rule, and (2) real estate services allow corporate practice by Filipinos. Thus, it reiterated its recommendation that the National Economic and Development Authority and the Professional Regulation Commission be consulted regarding the amendment in the latest Negative List in relation to the relevant provision/s in the RESA.
A review of the latest (11th ) Foreign Investment Negative List shows that there is still no clear allowance of foreign participation in the corporate practice of real estate service, suggesting that, as matters stand, foreigners are still not allowed to own, even partially, a real estate brokerage company. Foreigners and real estate brokerage companies found in violation of this prohibition may find themselves violating Commonwealth Act No. 108 or the Anti-Dummy Law, which imposes a penalty of imprisonment of not less than five nor more than 15 years, and a fine not less than the value of the right, franchise or privilege, enjoyed or acquired.