This post is meant for those who are planning to buy, for the first time, real estate properties from developers, whether it’s a lot, a house and lot package or a condominium unit.

Many first time buyers have this notion that buying from a developer simply involves payment of two costs: the down payment and the monthly amortization. I can’t blame them, because most developers, in their desire to entice buyers, often initially specify only the down payment and the amortization and remain silent on other costs that ultimately inflate the final contract price of a real estate property.

How many times have you seen a condominium ad saying: “Own a condo unit for just P10,000 a month?” Believe me, it’s much more than that if these developers will be totally upfront about all the costs involved in the real estate transaction.

And why are developers not upfront about these costs? Because these costs tend to become “deal breakers,” i.e. potential first time buyers tend to be turned off by these additional costs, that many walk away from the deal after they realize that they should pay much more than the down payment and amortization.

E-VAT or Expanded Value Added Tax

Payment of the 12% E-VAT was made effective February 1, 2006. Among others, real estate developers are required to pay E-VAT under the following circumstances:

• Sale of residential lot valued at P1.5 million and above
• Sale of residential house and lot valued at P2.5 million and above

The amount specified above suggests that a lot or a house and lot that’s targeted for the middle class are the ones subject to E-VAT. Although it’s the developer who is supposed to pay the E-VAT, this tax is traditionally passed on to the buyers.

Thus, a lot that costs P1.5 million and a house and lot that costs P2.5 million will be subject to E-VAT amounting to P180,000 and P300,000, respectively, to be paid by the buyer – a significant and disheartening amount if he has a preconceived idea that payment of the down payment and amortization are all it takes for him to own a property.

Closing Fee

This cost is variably referred to by developers as Turnover Cost, Other Charges or Miscellaneous Fee. It is the amount spent by developers to transfer the title of the property to the buyer.

It consists of documentary stamp tax, transfer fee, registration fee, notarial and documentation fees. It even includes the cost of creating the title, lot plan. Others may include exotic sounding items such as Environmental Fund. Closing fee costs in the upward of 3.5% of the property’s contract price. I once sold an upscale lot with a net selling price of P2.5 million with a closing fee of P95,000.

My peeve with closing fee is the way developers time its collection. Since it is meant to transfer ownership of the property to the buyer, one would expect it to be paid by the time or just before the buyer has completed payment on the property. Fact, however, is, it is mostly required to be paid together with the down payment or 30 days after payment of reservation fee. Some developers offer payment terms of the closing fee that can be as long the term of amortization but the cost can go as high as 6% of the contract price.

These are the fees that first time real estate buyers should be aware of and save up for. Nothing is more frustrating than saving up for the down payment of your dream house and making adjustments in your lifestyle to pay the monthly amortization only to find out that there are other equally important expenses that you should have been informed of and prepared for.

I hope this post helps somehow.

Thank you so much.

Important: There are developers who are upfront about E-VAT and make it clear in their brochures if the tax is already incorporated in the Total Contract Price or not.

In some cases, closing fee may be as high as 5% of the property’s price – suggesting that there are developers who may be profiting from it.