Frequently do we hear about the Maceda Law when we are involved in the real estate business. Whether we are members of the general public buying or selling properties or professionals immersed in transactions related to real estate, this statute is repeatedly mentioned. In essence, the law intends to protect buyers of realty through various financing schemes. As a response to onerous and abusive practices of developers in the past, Maceda Law was passed in 1972 and since then has formed part of the parameters set by developers and lenders in facilitating real estate mortgages and loans.

In cases of default or inability to continually pay monthly amortizations, certain consequences are defined by the law. These anticipated effects are ultimately aimed at protecting the interests of the buying public.

For it to take effect, the following conditions must first be present:

1. The subject property must be for residential use only, including "residential condominium apartments." Not included in the types of properties are industrial lots, commercial buildings, agricultural lots as defined in Republic Act No. 3844 as amended by RA 6389, and other properties categorized for special uses;
2. An existing contract to sell must be at least two years of age. This means that the buyer should have paid his amortizations religiously for not less than the said period. However, if a contract is less than two years old, a different set of computations shall apply; and
3. A delay in the payment of monthly amortizations had been recognized by all parties involved.

Grace Period to Pay Amortization Dues

The law set fixed rates of grace periods in the event of any delay in the payment of monthly amortizations, thus allowing the buyer to deem the contract valid. Consequently, it secures his right to demand for a definite length of time to pay his dues. There are two conditions in this case where computations vary, viz:

1. A contract that is at least two years of age. In this case, the buyer has the right to demand for a grace period equivalent to one month for every year of installment. For example, if a contract is three years old, the buyer may demand three months of grace period to pay amortizations due, without additional interest. However, there is a limitation to this since a buyer is allowed to exercise this option only once every five years; and
2. A contract that is less than two years of age. If the contract falls below the mandatory two years, the grace period to be availed is only a minimum of 60 days. 

Within the computed grace periods, the buyer may remedy his delay in payments by completing the same. Payments to satisfy dues are not subject to additional interests.


Consequences of Cancellation

Should the contract be eventually cancelled, there are also two possible effects. These define the amounts of refund that the buyer may receive.

1. A contract that is less than five years. The buyer is entitled to a refund of 50% of all payments made during the period of the validity of the contract. If within four years, the amortization amounts to P1.00M, the buyer may demand P500,000.00 as refund; and
2. A contract that is more than five years. For every year beyond the five years initially contemplated, the buyer may demand 5% of the total payments made. That amount is excluded from the first 50% mentioned in the prior item. For example, if payments amounting to P1.50M were made in six years, the buyer may avail of the P500,000.00 initial refund plus P75,000.00 for the sixth year. Refund however has a limit -- it should not exceed 90% of all payments made. 

Cancellations cause inconveniences on the part of the buyer and the seller. Thus, Maceda Law provides for defined equitability in the use of money by both parties.


Another important part of the law is the inclusion of down payments, deposits, and option money in the computation for refund. Also, the buyer has the choice to assign or sell the contract to a legitimate recipient. He may also advance any installment or the full unpaid balance to complete payments, without incurring interests in favor of the seller.

For all intents and purposes, the Maceda Law addresses the issue of ensuring that the buying public is protected from usurious and detrimental sellers. In the macroeconomic scale, it is a measure that promotes growth for the benefit of the larger state.

Understanding this law is a must for all planning to buy or sell real estate in the country. 


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Real estate parlance includes the types of properties in the market. It is helpful to understand them to be able to determine the estimated value of a parcel of land. Property types are also used if one is to align the nature of his future investments with the restrictions imposed by a local government unit. These restrictions may include the local Comprehensive Land Use Plan (CLUP) or other zoning ordinances and regulations imposed upon property owners. For example, a zone dominated by institutional use may not allow a commercial establishment to set up shop therein. This is a consequence of the state exercising its police power to regulate the classification of a realty albeit owned by a private entity.

The following are the general classifications of properties:

Residential. Arguably one of the most common types of real estate, residential zones provide a space for habitation. This may include housing for the masses in the form of subdivisions. Condominiums and apartment buildings are also expected to be situated in this area. This segment of the local real estate is provided to support the housing needs of its residents -- including its workers, students, and the general population. Residential zones are typically located in the safest areas and provide easy access to the other property types.

Industrial. Examples of this type are factories, manufacturing structures, and economic zones. These are the centers of production and sourcing of processed resources. Work that caters to the market demand can be found in the industrial zones. Factories for spare parts, agro-business materials, and production lines are their usual occupants.

Commercial. Still another common real estate type are commercial areas. Shops, resorts, hotels, and all other business endeavors are conducted within this zone. This is a critical center in a locality since all members of the population deem commercial activities as both necessity and leisure. Malls provide a comprehensive array of products and services for purchase of residents. Resorts support local tourism and eventually become the brand of otherwise unknown places like Boracay and Palawan. In general, the commerce of man thrives in the heart of the commercial district.

Agricultural. Lands yielding primary resources like produce and grains are classified as agricultural. This type of land is commonly the oldest in the roster of properties of a locality. This is where farmers till and livestock are raised. The agricultural lands do not always support the local demand for food because it is possible that production is designed for export or distribution in markets outside the immediate region. Thus, Makati City can survive without a sizable area for agriculture since most of its agricultural needs are supplied by enterprises from other towns and cities.

Special Use. Lastly, the other types of properties are clumped in one group for special uses. These properties do not fall into the first four types yet they exist and remain an essential contributor to the functioning of a region. Examples of special use realty are cemeteries, churches, institutional centers like city halls, and others. They are commonly zoned sporadically, depending on the land use priorities of a town or city.

These classifications of real estate present a system of predictability in the planning of a region. It prevents noncompliance in the use of land, where a funeral parlor cannot be built inside a subdivision. Moreover, appraisal of properties becomes easier when the types are clear. A land or structure that is commercial may not have the same value as a residential property. Potential investments are also guided according to these classifications.

Through time, these classifications can change. A commercial zone may expand and an agricultural property may eventually become residential. These are products of an ever evolving real estate market congruent with national and local shifts in the economy.

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Real estate ownership is unique in the sense that the owner of any realty also possesses an aggregate of related rights. This is an inherent characteristic of real property and is anchored on the economic theory of "bundle of rights." Investopedia defines this theory as "a set of legal rights afforded to the real estate title holder."

Right to possess. In legal terms, this may also be called jus possidendi and gives the owner or lawful possessor the right to exclude any person from the enjoyment of a property. However, "possession" must be distinguished from "ownership." An owner is someone granted the right over a thing or an object in such a manner that makes that thing belong to him. In real estate, proof of ownership can be found in titles. On the other hand, a possessor is someone merely given physical control over a thing but that control does not imply ownership. For instance, an owner may allow someone to rent his property making the latter merely a possessor of rights. Moreover, the right to possess -- being an inherent right in realty ownership -- may also be exercised by the owner himself over his property. A simple example of this would be a family home.

Right to dispose. This is also called jus disponendi and gives the owner the legal authority to transfer ownership to another at will. The right to dispose allows the owner to sell, donate, or assign his property legally without interference from third parties. Because of this right, the real estate economy is enabled to operate properly by ensuring that the supply for the market is sufficient. In some socialist and communist countries, this is a situation that is not possible since the state is the collective owner and disposition must be with the permission of its people.

Right to use. Also referred to as jus utendi, this right is the essence of ownership itself -- be it real property or chattel. Once ownership is established, it is expected that the property may be used to its full potential. Some quarters even believe that this is more of an obligation placed upon the owner rather than an absolute right, by virtue of the theory of "stewardship." This theory is based on an ethic that embodies the responsible planning and management of resources. That is why properties left to underperform are discouraged, as manifested in penalties when paying taxes and other local dues therefor. Use of a realty assists the macroeconomic foundations of a country and encourages responsibility among participants of the industry.

Right to abuse. Even the right to abuse one's own property is guaranteed. However, it must be ensured that exercise of this right is without detriment to the rights of others and does not violate any other laws. Also known as jus abutendi, this right can be observed in quarries and mines. Dynamites and other high-impact excavations literally damage a real estate but with proper permits and certifications from government offices, these are accepted practices that are assumed to contribute to the national and local economies.

Right to fruits. Jus fruendi is a result of the right to use a property. All benefits resulting from the ownership of a property are considered fruits thereof. An agricultural land may have produce, livestock, and other farm products that are solely reserved for the benefit of the owner. It could also be revenues in other forms like sales from outputs of the land or its improvements. Even a single mango tree within a lot may yield fruits that exclusively belong to the owners of the land where the tree is planted.

Right to recover. This may be legally described as jus vindicandi. Upon deprivation of rights over a property, the owner may exercise his right to recover the same. However, it must be assumed that the manner of recovery is legal. Recovery could be done by simple sales, court orders, or legally binding agreements among parties.

Article 429 of the Civil Code of the Philippines explains the rights of the owner of a thing. The owner may even use reasonable force to uphold his rights to own a property.

Consequently, the above bundle of rights legally grants the owner to enclose his property, "without detriment to servitudes constituted thereon." The law also allows the owner to demand indemnity should his property be damaged or to ask for compensation as a result of expropriation. To construct, plant, or excavate on his own land is another mode of exercising the above rights. Hidden treasures found within a lot accrues to the benefit of the owner and the right to "quiet title" is reserved for him as well.

Knowing this special set of rights is a must for any property owner. It instructs him of his privileges and bounds when asserting himself within his own real estate and teaches him prudence when inside another's property.

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Floor Area Ratio is commonly referred to in the industry as FAR. It is defined as the arithmetic relationship of the total area of a building to the area of the land upon which it is erected. In simple mathematical equation, FAR = total building area / land area.

For example, if a four-story building is proposed to be constructed on a 100-meter by 50-meter lot, occupying the total land area, the FAR is equal to 4. First, the lot area is computed at 5,000 square meters (sqm) by multiplying 100 meters by 50 meters. Since the number of floors of the building is four, the total building area would be 20,000 sqm. Using the basic formula for FAR, 20,000 sqm divided by 5,000 sqm yields 4. If we increase the number of floors to ten, it simply means that the FAR will also change to 10. Therefore, the higher the FAR, the more intense and aggressive the development is.

FAR is also sometimes called floor space ratio, floor space index, site ratio, or plot ratio. In the Philippines, FAR is more commonly used.

The importance of FAR is observed in the land use plans and programs of a local government unit (LGU). It is the LGU, through its relevant offices, that assigns permissible FARs within certain zones of its jurisdiction. During the process of designing a Comprehensive Land Use Plan (CLUP) and zoning ordinances, the LGU assigns varying FARs in identified zones, depending on their purpose. For example, one is to find a higher FAR in the commercial districts as compared to low-density residential zones. The purposes for the variances in FAR may include consideration of current pedestrian and vehicular traffic, intentional economic development of a locality, adaptation in global standards as regards planning, disaster preparedness, and cultural and tourism concerns. The enforcement of FAR is a legitimate exercise of the police power of the state to ensure that no high-rise structure is erected in a low-density residential zone. It may also help in decongesting city centers by restricting the height of buildings when excessive human activity is observed therein. Existing road widths and parking spaces are considered to maintain a healthy balance between developments and circulation.

High FARs are also observed in territories where land is scarce, like Singapore and Hong Kong. There, it is commonplace to see commercial and residential towers since plots are limited. These diminutive horizontal dimensions could have otherwise limited the now prominent economic dominance of these regions.

FAR allows architects and other designers a certain degree of flexibility in conceptualizing their development plans. However, it provides a specific restriction as well. An application for construction may be rejected if it is determined by building officials that a violation of the prescribed FAR is present. In short, building designs must always remain within the bounds of the FAR.

In terms of marketing real estate, FAR is significant in understanding the concentration of development within a certain zone of a city or town. With regard to real estate appraisal and consultancy, FAR permits the professional to estimate the value of a property more correctly. It gives the investor a tool in visualizing a proposed real estate project.

Understanding FAR means deciphering the logic of a locality and its economic consequences.

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Commonly known as PFS among real estate professionals, the project feasibility study is an essential tool for the investor in a proposed real estate project. It is a collection of important information analyzed by an industry professional that answers the fundamental questions related to returns and the bottomline. Only licensed real estate consultants (REC) are qualified to execute and sign PFSs. The study may thereafter be used for loan applications, presentation to potential investors, or simply to ascertain the probability of success of a proposed project.

However, the legal qualifications of an REC does not preclude one from conducting his own PFS. The only negative consequence of this approach is that outside parties would not be easily convinced as to the soundness of findings and conclusions. Banks and other financial institutions would still require a professional opinion from a third party. Potential investors would be more convinced if an REC is involved in the preparation of a PFS. In short, for proposed projects seeking leverage, a PFS completed and vouched for by a licensed REC presents more credibility.


The Parts of a Real Estate PFS

Typically, the PFS is composed of at least four segments. They are the market analysis, technical study, competitive analysis, and financial feasibility. But it must be noted that the parts of a PFS are not limited to four, since every proposed project possesses varying requirements and atypical dimensions that are dictated by the complexity of the work presented to the REC.

A market analysis tells the potential investors of the current contours of the business environment where the project is to take root. It considers both national and local economies to guide the REC in shaping the general concept of a specific proposal. After deciding what type of development is best suited to the existing market, the client and the REC proceed to the next steps.

The technical study may involve other professionals such as engineers, architects, landscape architects, and interior designers. The purpose of a technical study is the physical design of a proposed project. From the interiors to the landscape, the design professionals determine the complete appearance of the new space considered. Engineers and contractors may then move to estimate the quantity and costs required to complete the project.

Competitive analysis offers comparatives in terms of design and market segments targeted. It enumerates similarly constructed developments and reviews their strengths and weaknesses in relation to the proposed concept.

Finally, the most important section of the PFS to investors is the financial feasibility analysis. It tells the reader if the intended development is worth investing in. This part of the study gauges the projected success in a manner that is easy to understand yet supported by scientific and mathematical methods. In situations where the REC is not a certified public accountant (CPA), the latter may be hired for the specific purpose of providing sound financial reviews in the conduct of the PFS.


Measures of Profitability

It is not novel for an REC to hear the phrase "return of investment" (ROI) from lay persons. Though it is true that this measure of financial success is used in the PFS, it is not the exclusive determinant of the soundness of an investment. The following are some examples of other profitability indices:

Net Profit After Tax. This indicates the projected profits after deducting tax obligations. It is usually described in terms of money.

Payback Period. One of the easiest concepts to understand is payback. After all the computations of expenses and revenue, the investor may ask how long it would take for his money to return. Time is the unit of measure in this case.

Net Present Value. A result of considering all present values projected annually, the NPV is useful in weighing in the actual value of money at a given point in time. A peso today is not the same value as a peso in the future. The advantage of presenting all present values of a peso, as compared to its future values, is important in ascertaining the power of investments through time.

Profitability Index. This is the present value of future cashflows divided by initial investment. Expressed in real numbers, the investor may understand the efficiency of his money throughout the life cycle of the project.

Even the common ROI is classified into "arithmetic" or "geometric," where differences lie in the mathematical construct of their behaviors.

As in any serious consideration of a business endeavor, it pays to understand the complete terrain of a proposed real estate project. A PFS is such a tool to assist the untrained investor in quantifying the risks and projected returns before even spending the first centavo. The proficient REC is equipped with sufficient training and experience in guiding a client from conceptualization to anticipation of future gains.

A minimal investment in hiring an REC to intelligently invest in real estate is but a drop in the client's ocean of future financial growth.

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The law that defines the practice of real estate in the Philippines is Republic Act 9646. It is also known as the Real Estate Service Act or RESA. Among its provisions are the definitions of professionals legally authorized to practice real estate in the country. The four practitioners are the following: salesperson, broker, appraiser, and consultant. The layman may simply understand their functions if he relates them to selling and purchasing (salesperson and broker), valuation of property (appraiser), and technical advising (consultant).


Brokers and Salespeople Buy and Sell

One may ask the difference between a broker and a salesperson. In colloquial contexts, the two terms are interchangeable. However, RESA provides a clear explanation as to their difference. A salesperson, according to law, is one registered in the Professional Regulation Commission (PRC) as such and is under the direct supervision of a licensed broker. No examination is required to be recognized as a salesperson since one only needs to finish at least two years of college education and complete a minimum of 12 units of any course on real estate brokerage. On the other hand, a broker is a natural person (not an organization or a corporation) who has successfully passed the licensure examinations administered by the PRC. Effective this year, an individual who intends to take the examinations for brokers must finish a bachelor's degree on real estate service.

If a broker intends to participate in the real estate market as a juridical entity (organization or corporation), the company must follow the 1:20 rule in organizing its brokers. This means that every broker may only accredit under him a maximum of 20 salespersons.


Appraisers Estimate the Value of Realty

Other countries may call appraisers "assessors" or "valuators." In the RESA, assessors are differentiated from appraisers in that the former is commonly under the employ of government -- typically at assessors' offices and financial institutions.

An appraiser is qualified to estimate the value of real properties for various purposes. They assist in the purchase and disposition of realty, ascertain values for loans, or simply inform the owner of the present worth of a property. Using valuation standards, the appraiser makes an educated declaration of the value of a real property and reports the same to his principal.

Appraisers can also give expert opinions and testimonies at judicial proceedings. Some may remember the role of the appraiser in the recent Senate hearings investigating the market value of certain properties owned by local personalities.


The Real Estate Consultant Does Not Sell

Contrary to the abuse of the term "consultant" by the typical marketer of realty, buying and selling is not the province of the licensed real estate consultant. The market is quite familiar with well-dressed subdivision and condo sellers handing out leaflets at malls and calling themselves by various species of the term "consultants." There are "sales consultants," "marketing consultants," "realty consultants," and other various flavors of the noun "consultant." One detergent soap even had a fake "real estate consultant" vouch for their brand on TV. After complaints from a group of legitimate real estate consultants, the ad was discontinued.

Section 29 of the Implementing Rules and Regulations (IRR) of RESA even states that "(N)o person shall practice or offer to practice real estate service in the Philippines or offer himself/herself as real estate service practitioner, or use the title, word, letter, figure or any sign tending to convey the impression that one is a real estate service practitioner, or advertise or indicate in any manner whatsoever that one is qualified to practice the profession, or be appointed as real property appraiser or assessor in any national government entity or local government unit, unless he/she has satisfactorily passed the licensure examination given by the Board (i.e., the real estate regulatory board of the PRC)..."

In the same law, a real estate consultant is defined as a duly registered and licensed natural person who, for a professional fee, compensation or other valuable consideration, offers or renders professional advice and judgment on: (i) the acquisition, enhancement, preservation, utilization or disposition of lands or improvements thereon; and (ii) the conception, planning, management and development of real estate projects.

The real estate consultant renders advice and conducts studies to ascertain the feasibility of a proposed project. He is not a salesperson or a broker. Among the requirements of being a licensed consultant are at least ten years of experience as a licensed broker or five as an appraiser, completion of a feasibility study, 120 units of training, passing of a written examination, and a formal defense of the feasibility study before all members of the Board.

In the declaration of its policies, the RESA has the intent of effectively regulating and supervising "a corps of technically competent, responsible and respected professional real estate service practitioners whose standards of practice and service shall be globally competitive and will promote the growth of the real estate industry."

Trust only the professionals.

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