How Splitting of Property Works

Splitting Large Properties in Palawan: A Comprehensive Guide to Property Subdivision and Titling

In Palawan, particularly in the developing areas of San Vicente, real estate properties are known for their substantial size. Most original landowners refer to their holdings in terms of hectares or acres, and it’s common to find families that collectively own vast tracts of land. For instance, if a husband and wife each own 5 hectares before marriage, their family may end up with a combined 10-hectare property, which could stretch from the beachfront through rice fields and even up to the mountains.

This abundance of large properties is part of what initially attracted investors to Palawan, as they could acquire significant portions of land, often well-suited for residential, agricultural, or tourism-related developments. But as Palawan's real estate market grows, there is increasing demand for subdividing these large properties into smaller parcels for individual buyers. Understanding how this process works, from surveying the land to transferring titles, is crucial for investors and developers.

Why Buyers Are Opting for Smaller Portions

In the past, it wasn’t uncommon for investors to purchase large tracts of land, such as 2 to 5 hectares, in Palawan. However, with real estate prices increasing—driven by developments like Paragua Coastown—many buyers now seek smaller portions of larger properties. For example, if a 2-hectare (20,000 sqm) property is for sale, but a buyer can only afford 1,500 sqm, they may negotiate with the seller to purchase a smaller piece of the land.

However, not all of the sellers are open to the idea of splitting their property, particularly those who engage in real estate landbanking. Landbanking refers to the practice of holding onto large parcels of land with the expectation that their value will increase over time. For these sellers, it’s often more advantageous to sell the entire property as one large unit rather than breaking it up into smaller portions specially if splitting will lessen the value of the property in the back end portion. As a result, their stance is typically "take it or leave it," meaning they prefer to sell the entire lot or not at all.

This approach is driven by the understanding that the land’s value is expected to appreciate, even if the current buyer walks away from the negotiation. Sellers in landbanking are less motivated by immediate sales because they recognize the long-term potential for their land to grow in value, especially in rapidly developing areas like El Nido, Coron, and San Vicente, Palawan. With ongoing infrastructure developments and rising demand for prime properties, these sellers can afford to wait for a buyer willing to purchase the entire property, knowing that they stand to make a substantial profit in the future.

In these cases, the pressure to sell quickly is reduced, allowing sellers to hold firm on their terms. Buyers interested in purchasing only a portion of the land often find it challenging to negotiate, as sellers see more value in waiting for a higher offer that aligns with their landbanking strategy. This makes it particularly difficult for those looking for smaller, more affordable parcels of land to find sellers willing to split.

Sellers who engage in landbanking are playing the long game, confident that the increasing property values will attract buyers who are willing to meet their full asking price. As such, they have little incentive to accommodate requests for splitting, unless the buyer offers significantly above-market rates that justify the extra effort and cost involved in subdividing the property.

In such cases, the buyer is often willing to pay a higher price per square meter to incentivize the seller to agree to a partial sale. But what about the expenses related to splitting the land?

Splitting a Portion from the Whole Property

The process of splitting or subdividing a large property involves several steps, which include surveying the land, applying for a new title, and paying the required taxes and fees. Each step must be carefully handled to ensure that the new portion of the property can be legally transferred and titled under the new owner’s name.

1. Original Ownership and Title

Let’s begin with the original property, which is often under an Original Certificate of Title (OCT), indicating the property’s legal ownership. For example, a 10-hectare property owned by a single family might be sold off in smaller parcels over time, with each buyer acquiring a portion of the land.

2. First Sale and Property Subdivision

When the first buyer purchases a portion of the property (let’s say 1 hectare), they typically have the land surveyed by a Geodetic Engineer to delineate their portion from the larger property. This survey is critical, as it provides the precise boundaries of the portion being purchased.

• The buyer must apply for a new title under their name for the portion they purchased, which requires paying taxes such as Capital Gains Tax (CGT), Documentary Stamp Tax (DST), and other associated fees.
• After approximately 6 to 7 months (depending on the speed of the government offices involved), the new title is issued. The original title is updated to reflect the reduced lot size, and the new portion is titled under the buyer’s name.

3. Subsequent Sales

As more portions of the property are sold, the process is repeated. Each new buyer will have their portion surveyed, apply for a title transfer, and pay the necessary taxes and fees. The remaining portion of the original property will continue to decrease in size as more parcels are sold.

For example, if a second buyer purchases another hectare from the remaining property, they too will have it surveyed, apply for a new title, and pay the associated costs. The remaining property will again be reduced in size and the seller’s title will be updated accordingly.

4. The Role of Geodetic Engineers and Licensed Brokers

While Geodetic Engineers are responsible for surveying the property and processing the approval of subdivision surveys, licensed Real Estate Brokers play a key role in guiding buyers and sellers through the title transfer process. Real estate brokers ensure that all legal requirements are met, and they handle the submission of documents to the appropriate government offices.

• Survey Approval: Obtaining approval for a subdivision survey can take between 3 to 6 months. This approval is crucial because it ensures the legal recognition of the new property boundaries.
• Title Transfer: After the survey is approved and the taxes are paid, it typically takes around 6 to 7 months to receive a new title under the buyer’s name. The timeline may vary based on how quickly government offices process the necessary paperwork.

Challenges with Untitled Properties and A&D Classification

While titled properties follow the process outlined above, untitled properties present additional challenges, particularly in Palawan, where large portions of land remain untitled but are classified as Alienable and Disposable (A&D). This classification means that the land can be titled, but the process is more complicated and time-consuming.

1. Issuance of Survey Authority

For untitled land classified as A&D, a Survey Authority must be issued before any subdivision or titling process can begin. This authority is granted by the Department of Environment and Natural Resources (DENR) and can take more than a year to obtain, especially since titling in Palawan was previously suspended and only recently resumed.

2. Survey and Title Processing Timeline

After the Survey Authority is granted, the actual survey can take place, and the approval process takes approximately 6 months. However, given the current backlog, securing a Survey Authority for A&D land can extend the overall process to over a year, making it much longer than for titled properties.

Taxes and Fees Associated with Property Subdivision

When purchasing or splitting a portion of a property, buyers must be prepared to pay several taxes and fees. These include:

• Capital Gains Tax (CGT): Typically 6% of the selling price or the fair market value, whichever is higher.
• Documentary Stamp Tax (DST): Generally 1.5% of the property’s sale price or value.
• Transfer Tax: This varies depending on the local government, but it is usually a percentage of the property’s value.
• Miscellaneous Fees: These include notary fees, registration fees, and survey fees paid to the Geodetic Engineer.

It’s essential for both buyers and sellers to factor these costs into their calculations when negotiating the sale of a property. Failure to account for these additional expenses can lead to misunderstandings and delays in finalizing the transaction.

A Necessary Process

The process of splitting and transferring ownership of large properties in Palawan, such as those in San Vicente, can be lengthy and complex, but it is a necessary step for buyers looking to invest in this region. Working with licensed professionals, including Geodetic Engineers and Real Estate Brokers, is essential to ensuring that each step of the process is completed correctly and within a reasonable timeframe.

For buyers dealing with untitled properties, patience is required, as the titling process can take significantly longer due to the need for a Survey Authority from the DENR. Nevertheless, the rewards of owning a piece of Palawan’s pristine land make the process worthwhile for those willing to navigate the intricacies of property subdivision and title transfer.

Who Pays for the Cost of Splitting Property in Palawan?

As real estate prices in San Vicente, Palawan, have risen—particularly since Megaworld's Paragua Coastown township development in Kemdeng—many buyers are no longer able to purchase large chunks of land. Instead, they often negotiate to buy smaller portions of large properties. While sellers may prefer to sell an entire lot, some buyers try to convince them to sell just a portion by offering a price higher than the prevailing market rate to make the deal more attractive. However, with this approach comes the question: who shoulders the cost of splitting the property?

This article will explore the costs involved in splitting a property and who typically pays for these expenses.

Who Pays for Splitting the Property?

When a buyer negotiates to purchase only a portion of a larger property, splitting the lot involves additional costs that go beyond the simple purchase price. These costs include surveying the portion to be sold, applying for a new title, and paying taxes and fees associated with the subdivision process.

Buyer’s Responsibility:

Typically, the buyer is responsible for covering the costs associated with splitting the property. Here’s why:

1. Benefit to the Buyer: The subdivision and title transfer process ultimately benefits the buyer. Splitting the lot and having it surveyed allows the buyer to receive a clean, titled property in their name. Since the seller was originally offering the entire lot and not smaller portions, it’s logical for the buyer to bear the costs of this additional step.

2. Survey and Subdivision Costs: The process of splitting a property requires the services of a Geodetic Engineer to conduct a survey and delineate the boundaries of the portion being sold. This is followed by the submission of the subdivision plan to the local government for approval. These costs are typically covered by the buyer, as they are requesting the subdivision.

3. Title Transfer Fees: Once the subdivision is approved, the buyer must apply for a new title in their name, paying taxes such as Capital Gains Tax (CGT), Documentary Stamp Tax (DST), and other fees associated with the transfer. Again, these expenses fall to the buyer because they want to legally own the portion they’ve purchased.

Seller’s Role:

In most cases, sellers prefer to sell their property in its entirety, which would relieve them of the costs of splitting the property. However, if a buyer offers a price that’s higher than the prevailing market rate, a seller may be more willing to consider a partial sale. The terms of the sale, including who shoulders the costs of subdivision, should always be clearly agreed upon between the buyer and seller.

Custom Agreements:

Although buyers typically shoulder the costs of splitting, the responsibility can vary depending on the negotiation. Some sellers may agree to cover a portion of the costs if it means securing a quick sale, especially if the price per square meter is higher than expected. However, based on common practice in Palawan, buyers are usually responsible for these additional expenses.

Costs Involved in Splitting a Property

Here’s a breakdown of the typical costs associated with splitting a property:

1. Survey Fees: The services of a Geodetic Engineer are required to survey the portion being sold. Survey fees are typically charged per square meter and can vary based on the size of the lot and the complexity of the survey.

2. Subdivision Plan Approval: After the survey, the Local Government Unit (LGU) must approve the subdivision plan. This can take several months, and there are administrative fees associated with this process.

3. Title Transfer Costs: Once the subdivision is approved, the buyer will need to pay the necessary taxes and fees to transfer the title for their portion of the property. These include:

   • Capital Gains Tax (CGT): 6% of the selling price or fair market value, whichever is higher.
   • Documentary Stamp Tax (DST): 1.5% of the selling price or fair market value.
   • Transfer Tax: Varies by locality but typically a small percentage of the property’s value.
   • Notary Fees: The Deed of Sale must be notarized, and these fees are usually borne by the buyer.
   • Incidental costs to the transfer.

Why Buyers Should Expect to Pay These Costs

While sellers may be open to partial sales, they typically want to avoid the additional hassle and cost of splitting their land. This is why, in most cases, the buyer should expect to shoulder these expenses. Splitting the property is done for the buyer’s benefit—allowing them to purchase a smaller, affordable portion of the land—and covering the costs ensures that the transaction proceeds smoothly.

Additionally, by covering these costs, buyers can ensure that the property they acquire is legally titled in their name, reducing the risk of future disputes over ownership or boundaries.

Negotiation and Flexibility

In today’s real estate market, particularly in prime areas like San Vicente, Palawan, buyers and sellers must be flexible and open to negotiation. While buyers typically pay for the costs associated with splitting a property, there may be room for negotiation, especially if the buyer is offering a price above the going rate.

The key is to have a clear agreement in place, so both parties understand their responsibilities. Buyers should also factor in the costs of splitting the property when determining their budget, as these expenses can add up quickly.

By understanding the typical cost structure and being prepared for these additional expenses, buyers can better navigate the process of acquiring a portion of a large property and ultimately secure their investment in one of Palawan’s most desirable locations.