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Tourist Visa Can You Invest on a Tourist Visa? (Additional Math Question)

Discussion in 'Passports and Visas' started by Rye83, Mar 16, 2019.

  1. IggyPop

    IggyPop DI Member

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    The foreigner will not have full control just because he is the majority share holder. But he will expect a return on his investment - which I thought is what this thread is about.

    You can invest on the open stock market if you're happy with 6-11% ?

    As to individual condo units falling apart after 50 years, this might also happen to a stock also?
     
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  2. TheDude

    TheDude DI Forum Patron Highly Rated Poster

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    I'm talking broad terms. You're diving into details. Okay, there are stock corporations and non-stock corporations. The point still stands. I guess I should have said "votes" rather than "shares." Does it matter in this particular discussion? :wacky:

    I mentioned that because I think nobody really gives a rats @$$ what you are doing until you start getting paid (I know rape and murder is against the law, don't get sidetracked.) Then people want their tax dollars and they want to know that you are playing by the rules.

    I don't think it matters who owns a big @$$ building or what you call that building. All people care about is who is getting paid from the deal.

    Remember, I'm replying to this quote...

    Your focus seems to be on who owns the building. The focus instead should be on who is getting paid. Again, a foreigner could by a condo and not operate it as a business. It's that business part which is important.

    And is your quote even correct? I think you are getting yourself confused in this long thread. When you buy a condo, you aren't buying a voting right for the corporation which owns the condo (right?) You're not buying a condo so much as you are buying a condo unit. Foreigners could own every unit in the condo. It's the corporation which owns the entire condo which would need to pass the 60/40 test.

    Edited to add: I think you started out with the concern that the corporate owner would stay 60/40 in the future, but you seem to have jumped on different track.

    To make money?

    @IggyPop mentioned this while I was writing this post.

    You don't own or control lots of things you might buy into. You can never invest and be without risk. If you buy into a stock, you aren't going to be telling the business what to do. The bottom line is that if you put $1 into something with the possibility of getting $1+ back, then it might be worth doing.

    Buying a building without owning property may not be your thing, but that doesn't mean it's a bad idea.
     
    Last edited: Mar 26, 2019
  3. OP
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    Rye83

    Rye83 with pastrami Secured Account Highly Rated Poster SC Connoisseur Veteran Army

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    The devil is in the details. Real estate cases are always unique. The details are all that really matters in these cases. There are a million "what if" scenarios you could come up with but I have already stated many times what really matters.

    No, I am focusing on the land/lot/real estate ownership. Condos are different from other real estate. The Philippines passed a law that specifically outlines who can and cannot purchase a condo. Search Republic Act 4726:

    I don't know why you are focusing so much on foreigners owning condos. The law is extremely clear on what foreigners can own when it comes to condos.

    No it isn't. Who has control over the property what matters. In the opinion from the SEC I sourced it went into charities and religious organizations that don't sell anything. Money makes no difference. Filipino having a legitimate 60% control over the land is the ONLY thing that matters. If you can't pass the control test your corporation/LLC/sole proprietorship/church/charity/contract/gang-bang/whatever-you-want to call it is not allowed to own land.

    If you think nobody is going to care until money is involved...well, what do you think property is worth? If someone thinks they have a claim to it they are going to contest your dummy-corporation, they are going to win and you are going to lose the property...and if you were found to have created your business entity in bad faith you will go to jail.


    Condos are almost always put under a condo corporation and the control over the corporation is almost always linked unit ownership. Foreigners could not own more than 40% of the condos in a building because that would give the foreigners (collectively) more than a 40% say over the property.

    No condo corporation is going to build a condo complex on leased land. The corporation will own the lot it sits on. Whatever loophole or hypothetical you are trying to get at here would just never happen in reality, or is completely lost to me. It sounds like whatever you are trying to describe is not actually a condo. The word "Condominium" seems to be a legal term for a very specific type of building with ownership that needs to be structured in a very specific legal way. If it falls out of that legal definition it is no longer a condo by definition.

    The Condominium Law also gives the exact definition of a condo:
    I interpret that as the building and land must come as a package deal...so foreigners could not own 100% of the condos...since a "condo" includes the land it sites on.
    His example was a very specific example: that example was for purchasing a lot under a dummy organization so you can "control" the lot and build a house. His example had nothing to do with condos. It was a very clearly the bad legal advice that many foreigners are told by sh*tty lawyers (or by their drinking buddies at the bar).

    I don't even know WTF we are talking about anymore. So here are some facts:
    1. Foreigners cannot own more than 40% of condo units. Source: Republic Act 4726
    2. Foreigners cannot own and land. Source: Article XII, Section 8, of the Philippine Constitution
    3. Foreigners cannot create dummy corporations to purchase land. Source: CA 108 and G.R. No. 195580
    4. Foreigners cannot buy land under a corporation that allows them 100% ownership on the negatives list. Source: G.R. No. 195580
    5. Foreigners can lease land for 25+25 years either as an individual or through a corporation owned either partly or in whole by the foreigner. Source: Presidential Decree 471
    6. Foreigners can be a part of a corporation that owns property so long as Filipinos actually and in good faith CONTROL 60% of the corporation. Source: G.R. No. 195580
    Here is a legal opinion from the SEC agreeing with every single "fact" I mention above: http://www.sec.gov.ph/wp-content/up...ns16-15.pdf?utm_source=DI&utm_medium=referral

    Everyone is just throwing a bunch of hearsay and un-sourced/unrealistic hypothetical nonsense. Provide some sources showing where someone has proven any of my "facts" above incorrect. I will not waste any more time on replies without a source.
     
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  4. OP
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    Rye83

    Rye83 with pastrami Secured Account Highly Rated Poster SC Connoisseur Veteran Army

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    I thought your comment about creating a corporation was about a workaround to the property ownership rule in the Philippines. If that was not the case then I wasted a lot of time today.

    That's not bad.

    Go look at any condo in an urbanized area that is older than 20 years. Then go look at the history for the past 20 years of the PSEi. One looks significantly better than the other.

    Then go back 50 years....one is a complete sh*t show, the other looked like an awesome investment.

    You also don't buy just one stock. You should have a diversified portfolio to reduce risk. Can you do that with a condo unit?

    There is also a possibility of this:


    Go check out the construction quality of that condo by Cafe Racer. Nice. lol
     
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    Last edited: Mar 26, 2019
  5. TheDude

    TheDude DI Forum Patron Highly Rated Poster

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    Ah, I didn't realize that you actually received part ownership of the corporation which owns the condo. This is obvious in hindsight, who else would look out for your interest if you weren't part owner of the company which owns the condo? Article 5 of RA 4726 is saying that you transfer this ownership when you sell, but that the transfer is invalid if it doesn't stay within that split.

    You're right, I should have done my homework. I didn't know how condo ownership worked. It's actually a bit better than my understanding because it appears that once the condo is toast, you could get everyone on board to rebuild. I figured once the building was done then you were just SOL (maybe you still mostly would be.)

    It also seems like 40/60 might not be as much of a problem as it first might appear. [Warning! speculation alert!] Article 5 says that a transaction is "invalid" if it upsets the split. I would think would be like buying a house and not getting the process correct. That would be between you and the buyer and the rest of the corp wouldn't get roped into it?

    This would actually make me more willing to buy a condo elsewhere (not the Philippines.) I had the idea all wrong.
     
  6. OP
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    Rye83

    Rye83 with pastrami Secured Account Highly Rated Poster SC Connoisseur Veteran Army

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    Right, which is why I was saying it could potentially be a bad investment down the road. You may be limited to only selling to locals.

    But other people's actions/sales can indirectly influence who you can sell to in the future. Once all the gullible long noses have thrown stupid amounts of money at the condo units raising their property value far beyond what it is really worth will any locals be able to afford to buy?
     
  7. IggyPop

    IggyPop DI Member

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    I don't understand why you are thinking "workaround". I never said foreigners can own 100% of land. They can own 40% through a corporation. They can however own 100% of the improvements on the land. That's all I was saying. Do you want me to dig out sources for these?

    That's subjective. 6% isn't going to make you rich - it is not much more than Philippines inflation.

    You can't seriously be comparing an old building with a 20 year performance of a stock market index. That's like comparing a particular stock that tanked in 2018 with the Philippines real estate market over the past 20 years. huh?

    Although having you said that (and getting off topic) a 20 year+ collapsed building in an urbanized area is probably sitting on some prime location. In prime areas of Manila it's not uncommon to see Php 200 Billion worth. Divide that between 400 unit owners on a perpetual ownership.

    Also I think you underestimate the number of Filipinos that are not in relative poverty. Like the rest of south east Asia there is a burgeoning middle class.
     
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  8. OP
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    Rye83

    Rye83 with pastrami Secured Account Highly Rated Poster SC Connoisseur Veteran Army

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    Nope. I already provided those for what you are saying. Just curious how you keep the Filipinos from selling the land out from under you? Just keep your fingers crossed and hope for the best?

    Philippine inflation is around 3-4% right now and there is more to look at than just inflation for expats. The exchange rate also needs to be factored in since the majority of my wealth and investments are, and will remain, in the US. And I'll be honest, how all of it ties together seems quite complicated and above my current understanding.

    I'm not looking to get rich through these investments. However, a condo certainly won't make you rich and is a lot harder to get rid of than stocks.

    I'm looking at the quality of every large building I've seen in the Philippines. They all seem to fall into a state of disrepair very quickly, unless they are managed by a huge corporation (not condo corporations). You can ask a ton of money for a turd sandwich but eventually the word is going to get around that it tastes like sh*t and it's going to be rather hard to find buyers.

    Talk about comparing apples and oranges. Areas like Makati do not come close to representing the vast majority of the Philippines.

    I think you are overestimating the wealth of the middle class in the Philippines and SWA and just how much poverty there is in the Philippines. The "middle class" just doesn't earn enough to be buying up these condos.
    filipino income.png
    filipino expenses.png
    https://psa.gov.ph/sites/default/files/FIES 2015 Final Report.pdf?utm_source=DI&utm_medium=referral
    When 40-60% of your income is spent on food you just can't afford to be buying up property. (By comparison, the middle class in the US spends around 13% of their income of food.)

    The top 1% of Filipino families (that is about 174,000 families) earn about P122k/month. That's around P1.5M per year. It would take the top 1% 30+ years to pay off a P5M condo if they maintained their current level of expenditures, and if they could find a good interest rate. It is just out of the reach for middle class Filipinos.

    If the middle class is taking out irresponsible loans (and if banks are willing to give them out...and they seem to be), well, we saw what happened to the housing market in the US back in 2008 and what is still happening with the younger generation who just can't afford to buy houses anymore. Looking at the property prices, I don't see how it can't be a bubble.

    I'm no expert on the subject, but I just don't see how the prices can continue to go through the roof when there is nobody that can afford to buy the property. I think a lot of places, especially in Dumaguete and other areas with lots of expats, is going to be in for a rude awakening when all the Baby Boomers die off. The flow of expat retirement/life savings money is going to slow significantly.
     
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  9. IggyPop

    IggyPop DI Member

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    Me comparing apples with oranges? You've been comparing lemons with grapes, the lemon of a crumbling building with the longevity of the PSEi.

    I think you're mixing up :
    a) condo units - which of course one would buy in the best of locations by a most reputable local developer, and
    b) condominium buildings - which of course you would partner with a reputable builder usually referred by lawyers who know the local legalities, along with surveying, architects etc (hence forming the corporations).

    But rather than a condominium tower which consists of many titles and is subject to strict local and regional government regulations , better to do an apartment building or small number of dwellings.

    But for you I think it's best you stick with stocks. I'm sure you don't buy lemon stocks, you seem smart enough in your analysis to pick a rising stock and sell on the high before it's returns are about to crumble.

    Good luck.
     
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  10. TheDude

    TheDude DI Forum Patron Highly Rated Poster

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    I think he did get some things confused, but this has been a long and winding thread. Though it has stayed together well.

    Though @Rye83 has been sparring with everyone in this thread, I think the discussion has flushed out some great information. I learned something myself as I had a major misunderstanding of how condo ownership works in general (not just the Philippines.)

    I like your contributions here and you brought up great points, even if @Rye83 spars with you, I'm sure he appreciates as well.

    I think you could tie this in with the point @IggyPop made about the middle class. It's growing even if the 1% isn't that great. The prices of condo unit ownership will reflect that growing income. But like any growing "thing" it will likely look bubbly at some point while the market over-compensates and then prices correct.

    This goes to show that this market has its own quirks. You still stick to the basics, but there are the regional differences you have to look out for. Emerging market. Evolving infrastructure. Different system of law.

    I think the bottom line is that you need to be somewhat savvy for the sort of investment before getting into it. Real estate has different challenges than the stock market. Emerging markets have different challenges than more established markets, etc. Though you may have different weights which you apply. Needing a place weights different factors than needing a place to park money. Then there are the visa concerns (parking money for a visa.)

    This is why I think the way to go is a fund which tracks the S&P500 and then do the bare minimum you might need to do to get the option to stay in the Philippines. The tourist visa still looks good to me. :wink:
     
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