How to buy a property in the Philippines for Australian residents

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Investing in Philippines real estate

Filipinos are the fifth largest migrant community in Australia, with the government estimating some 293,770 Filipino-born residents in the country as of 2019. But despite having settled in the land down under, many still want to buy property in the Philippines–whether because of a sustained connection to Filipino culture or simply because of a desire to have a second home.

Even before a person reaches retirement age, it is common to want a holiday home for annual family vacations. For Overseas Filipino Workers (OFWs), choosing to buy property in the Philippines has the added benefit of preparing a retirement home that is closer to relatives.

But others may have different reasons too, such as diversification, investing for capital growth or passive income. 

Regardless of the reason for investing in property, it is no surprise that many Australian residents are discouraged by the overpriced real estate market here. They are being pushed to consider investing elsewhere, like in the Philippines, where property is offered at half the price.

Although Australian banks can’t fund your Philippine purchase outright, there are a few finance solutions available to you if you already own a property in Australia.

How to fund your property purchase in the Philippines?

Once you know what property you’re buying in the Philippines (a block of land, a condominium, or a built house) and you’ve researched the Philippine property market or have spoken with a real estate agent to get an understanding of the location where you want to buy, you’ll have to determine the needed budget to complete the purchase. 

If you have enough savings to fund the purchase, then you’re good to go. 

However, if you need to get a loan to fund the purchase, there are two ways to do this using the equity in your Australian property. 

Australian banks can’t take a Philippine property as security for a home loan. However, Australian banks can help you fund your property purchase in the Philippines if you have an existing property in Australia with enough equity.

Using your equity to buy an investment property

Releasing cash from your Australian property to fund the full purchase price

If your Australian property has enough equity to cover the full purchase price of your desired Philippine property, then a mortgage broker can help you do a cash out equivalent to the full purchase price of the Philippine property.

Example

A condominium in Cebu is selling for P5 million pesos. At today’s interest rate, 1 AUD is equivalent to 35 pesos. Therefore, you need $143,000 (rounded off) to buy the condominium in Cebu. By adding another $7,000 to the loan to cover the costs and fees for the purchase, that brings the loan amount to $150,000. 

The first thing your mortgage broker will need to do is to find out the value of your property in Australia. If your property has enough equity, you can then ask the mortgage broker to help you apply for a home loan, then cash out to release the equity to fund the 5 million pesos purchase price. 

Let’s say you own an Australian property currently valued at $600,000 with $300,000 owing on the home loan.  Your loan-to-value ratio would be around 50%–way below the 80% restriction for accessing equity.

In this scenario, you need to get a cash out of $150,000. Your mortgage broker will help you apply for a loan to release the $150,000 either with your existing lender or by refinancing you to a new lender. The existing loan of $300,000 and the new loan of $150,000 combined is still below the 80% loan-to-value ratio restriction. 

$300,000 (Existing loan) + $150,000 (Cash out) = $450,000 (New loan)

$450,000 (New loan) / $600,000 (Property value) =  75% (Loan-to-Value ratio)

Different lenders have different cash out policies. It is important that you speak to a mortgage broker to find out which lender is most suited to your situation. 

Releasing cash from your Australian property to fund 20% of the purchase price and getting a loan from a Philippine bank to fund the remaining 80%

If you want to release funds from your Australian property to cover 20% of the purchase price of your desired Philippine property, then you can do a cash out equivalent to just 20% of the purchase price. The remaining 80% can be funded by a loan from a bank in the Philippines. 

Depending on the type of property you’re buying, some banks would require only a 20% deposit, while buying a block of land would require at least a 30% deposit.

Example

A house in Tagaytay is selling for 20 million pesos. Twenty percent of 20 million pesos is 4 million pesos. That means you need 4 million pesos to cover 20% of the purchase price of the Tagaytay house. 

At an exchange rate of 35 pesos per 1 AUD, 4 million pesos is about $114,285. Add an additional 5% to cover the purchase costs and fees and this brings the funds required to $120,000 (rounded off). 

Let’s say you own an Australian property currently valued at $750,000 with $300,000 owing on the home loan. Your loan-to-value ratio would be around 40%–way below the 80% restriction for accessing equity.

In this scenario, you need to get a cash out of $120,000. Your mortgage broker will help you apply for a loan to release the $120,000 either with your existing lender or by refinancing you to a new lender. The existing loan of $300,000 and the new loan of $120,000 combined is still below the 80% loan-to-value ratio restriction. 

$300,000 (Existing loan) + $120,000 (Cash out) = $420,000 (New loan)

$420,000 (New loan) / $750,000 (Property value) =  56% (Loan-to-Value ratio)

Different lenders have different cash out policies. It is important that you speak to a mortgage broker to find out which lender is most suited to your situation. 

It’s important that you speak to a mortgage broker who has access to banks in Australia and the Philippines. 

Do you need help buying a property in the Philippines?

If you have an existing mortgage in Australia and want to know if you can cash out to invest in real estate in the Philippines, book a meeting with us at calendly.com/maverickfinance

Buying property overseas is possible with a little creativity and help from expert Filipino mortgage brokers.

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