Dateline: San Isidro, Davao Oriental, Philippines
Mindinao Island is the largest island in the country and home to much of the Philippines’ fertile agricultural land.
It’s estimated that some eighty percent of the population in the Philippines is engaged in some sort of agricultural occupation. That number has been relatively consistent, even as agriculture’s share of the Philippines’ GDP declines.
Like Jim Rogers, I’ve become bullish on agricultural land as a store of value against money printing madness and other government factors. People will always need to eat, and Asia’s population of nearly four billion people will consume more food than they have in generations.
While agricultural land in the Philippines is well positioned to serve the fast-rising Asian continent, I also believe that farmland in Western countries will continue to shrink, creating more demand for imported foods.
Not only that, the Philippines — especially here in the south of Mindinao — is home to some of the cheapest agricultural land in the world.
My contact that brought me to San Isidro used to run a piggery here. She started a business where she actually lived on and worked the land to get the process started. She knows the numbers inside and out.
And when she sold her first four hectare (ten acre) farm almost two years ago, she pocketed almost double what she paid only two years earlier.
Even with a 100% appreciation rate in such a short period of time, her agricultural land — half of which was hilly and suitable for plants, and half of which was suitable for livestock — sold for about $600 an acre.
There’s talk online of acres of land “as cheap as a hamburger”. People tend to point to South America as a place to buy dirt cheap agricultural land; and while farmland in South America can be a bit cheaper than land in the Philippines, it is harder to find in the bite size parcels that are available in the Philippines.
The law here limits any one person to five hectares of land. Beyond that, you either need to start roping in family members, do a work-around with a Filipino corporation, or set up a complicated “agriculture tourism” project to qualify for an exemption to the law.
However, for someone who has a limited amount of money to invest, or someone who even wants to work their land, the Philippines really is a cheap farmland hub. You could get a nice tract of land in the four figures.
There’s just one caveat: foreigners can’t own land in the Philippines.
How to buy land in the Philippines
Perhaps in a move to stomp out so-called financial imperialism, the country only allows foreign buyers to purchased condo units. Foreign buyers can’t own detached homes or acreage.
Of course, there are a series of legal loopholes. For example, I met with one developer who is building townhouse-style “condos” near a secluded beach. Each townhouse connects in one place in the back of the unit, near a storage area. Since the law doesn’t mandate how many units need to be connected in order to qualify as a “condo”, nor where they must be connected, it appears this particular development found a way to get around the spirit of the law.
Foreigners are allowed to own up to 40% of a Filipino corporation that has in-country business interests (they’re allowed to own 100% of corporations that sell only offshore).
And everywhere you turn, someone has a new “fool proof” way to own land in the Philippines as a foreigner.
One way is for the foreigner to own 40% while dividing the remaining 60% among numerous Filipino nominees so as to dilute the voting rights of any particular nominee.
Another way is to set up a Filipino corporation where the vast majority of the stock is owned by a foreign corporation (i.e. a US LLC or a Hong Kong limited corporation), and have Filipino nominees fill in the remaining scraps.
You should always consult with an attorney before enacting these measures because plenty of foreigners have been screwed by flimsy schemes they thought would allow them to get around the spirit of the law.
And the spirit is clear: foreigners shouldn’t own land in the Philippines.
Of course, plenty of foreigners simply put the land in the name of their Filipino girlfriend or relative. Suffice to say, nothing — absolutely nothing — has ever gone wrong with that strategy.
You’d think there could be a business for having globally-minded Filipinos — such as dual US-Philippines citizens — owning land for lots of people as their nominee. However, according to a real estate expert I met with in Cebu, that idea has been tried and is now being cracked down on by the government.
Foreigners do have the right to lease agricultural land, and in some cases, that strategy could be the most lucrative as long as you have a trustworthy landlord.
Typical leases run 25 years with a 25-year renewal option and a clause that allows you to buy the land for one peso if the law on foreign ownership changes during that time. Some very eager people even fund a land purchase and then lease it back from a nominee at a very low rate.
Many have speculated that foreign ownership rules could be loosened up in the next ten or fifteen years, but it’s anyone’s guess.
Rents on agricultural land can be quite cheap as well, and yields can actually be halfway decent. Most people I talk to here suggest livestock such as pigs or goats as the most profitable way to go, but some have also suggested a mix of pigs and fruits and vegetables in order to feed the pigs homegrown food and save on feed cost.
How to make a profit off agricultural land in the Philippines
There are plenty of crops that can be grown here in Mindinao, from tobacco and coffee to rice or rubber trees. Coconut trees are plentiful, although coconut prices are down.
Meanwhile, you can raise everything from piglets to goats, chickens, cattle or even quail (quail eggs are popular in the Philippines).
If you have a lot of money to invest and don’t want to go through the hoops of land ownership in the Philippines, you can take advantage of some of the world’s cheapest agricultural land with an “ag tourism” project.
The guys at Philagrivest, for example, have a large plantation growing pili nuts and a strand of beachfront property featuring homes, shopping, and future tourist facilities. The Philippines offers exemptions on foreign ownership rules and the five hectare limit on individuals for those that start such a project.
Personally, I see land investing for a store of value as something that requires a title in hand. Here in the rural Philippines, there’s plenty of land where the last title was recorded a century ago. Since rural titles are recorded at the local “barangay” level, legal protections aren’t up to Western standards.
And if you get in a legal battle over property, expect it to be long and drawn out. The good news is that some legal battles can be settled easily by sending a little cash in the other direction.
The Philippines does have some of the cheapest agricultural land you can find, at an entry point accessible to almost anyone. If you’re willing to put in the time and play a somewhat active management role along the way, you could be successful.
I see agriculture in the Philippines as more of a cash flow play than an appreciation play due to the title issues, but if you’re a bit adventurous and willing to do your due diligence on a lease with a purchase option, you might get a huge bump, especially if foreign ownership restrictions ease up in the future.
If you are interested in agricultural investment in the Philippines, simply contact us.