“HOUSING IN PHILIPPINE”
HOUSING IN PHILLIPINE
I.
HOUSING IN PHILIPPINE:
1.
SOCIO-ECONOMIC SNAPSHOT:
1.1.
POPULATION :
1.2.
PER CAPITA INCOME:
1.3.
AFFORDABILITY:
1.3.1 AFFORDABLE HOUSING:
a.
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I.
HOUSING IN PHILIPPINE:
1. SOCIO-ECONOMIC SNAPSHOT:
1.1. POPULATION1:
1) The Philippines, officially known as the Republic of the Philippines, with a
population of more than 92 million people, is the 7th most populated Asian country
and the 12th most populated country in the world. An additional 12 million Filipinos
live overseas. Multiple ethnicities and cultures are found throughout the islands.
2) The first official census in the Philippines was carried out in 1877 which recorded a
population of 5,567,685. The population increased from 1990 to 2008 with 28
million at a growth rate of 45%. As of 2011, the Philippines has become the world's
12th most populous nation, with a population of over 92 million.
3) It is estimated that half of the population resides on the island of Luzon. The
population growth rate between 1995 to 2000 of 3.21% decreased to an estimated
1.95% for the 2005 to 2010 period, but remains a contentious issue. The
population's median age is 22.7 years with 60.9% aged from 15 to 64 years old. Life
expectancy at birth is 71.94 years, 75.03 years for females and 68.99 years for
males.
4) There are about 11 million Filipinos outside the Philippines. Since the liberalization
of United States immigration laws in 1965, the number of people in the United
States having Filipino ancestry has grown substantially totaling to an estimated 3.1
million in 2007. According to the United States Census Bureau, immigrants from
the Philippines made up the second largest group after Mexico that sought family
reunification. Some two million Filipinos work in the Middle East, with nearly a
million in Saudi Arabia alone.
1.2. PER CAPITA INCOME:
1) The Philippine gross national income (GNI) per capita is the dollar value of the its
final income in a year, divided by its population, reflecting the average income of a
citizens, at present is US$4,744.
2) Philippine is among the Newly Industrialized Countries. 2The term “Newly
industrialized country” (NIC) is applied to countries whose economies have not yet
reached “advanced” or “developed” status but have outpaced their developing
counterparts. These are the countries, which include China, India, Brazil, Malaysia,
Philippines and Thailand, are experiencing industrialization and rapid economic
growth.
1.3. AFFORDABILITY:
1.3.1. AFFORDABLE HOUSING:
1) Affordable housing, the term used to describe dwelling units whose total
housing costs for either rented or purchased unit, are deemed affordable to
those that have a median household income." In Australia, the National
1
2
‘Philippines’ , the free encyclopedia
Countries By Income Groups – ‘http://www.gfmag.com’
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Affordable Housing Summit Group developed their definition of affordable
housing as housing which is "reasonably adequate in standard and location
for lower or middle income households and does not cost so much that a
household is unlikely to be able to meet other basic needs on a sustainable
basis." In the United Kingdom affordable housing includes "social rented
and intermediate housing, provided to specified eligible households whose
needs are not met by the market."
2) Mostly the affordable housing refers to a number of forms that exist along
a continuum - from emergency shelters, to transitional housing, to nonmarket rental (also known as social or subsidized housing), to formal and
informal rental, indigenous housing and ending with affordable home
ownership.
3) Acknowledging the growing housing needs of the bottom-of-pyramid
population in the Philippines, Avantage Ventures has conducted an analysis
of the affordable housing landscape in the country.
4) Scattered across the three island groups of Luzon, Visayas and Mindanao, the
country has a population of over 94m. The Filipino population growth rate is
among the highest in the developing world. Throughout 1990s, the Filipino
population has grown at 2.3% per annum, compared to that of 1.6% in
Indonesia and 1.4% in Thailand.
5) The effect of high population growth on housing demand is profound.
According to Medium-Term Philippine Development Plan (MTPDP) 2011 2016, the housing need is estimated to reach about 5.8 million units in 2016,
driven by the yearly-added new housing demand driven by population growth
and the outstanding housing backlog resulted from previously unaddressed
demands. The country’s unequal economic performance has further added to
the housing problem. While Filipino families earned an average yearly
income of $4,791 in 2009, the bottom 30% families have had only an
averaged yearly earning of $1,442. The size of this group of households has
grown from 3.67 million in 2006 to 3.86 million in 2009, creating extra
demands for housing from a segment of population with the Philippines
Affordable Housing particularly constrained purchase power. In addition,
housing expenses already accounts for 9.4% of the bottom 30% families’ total
expenses, constituting the largest non-food expense for them. That ratio has
even reached 12.8% for overall Filipino households. As a result of the lack of
housing provision and limited household affordability, it is estimated that
more than a third of urban populations are slum dwellers.. In Metro Manila
alone there were about 581,059 informal settlers (Housing & Urban
Development Coordinating Council in 2010). Built without proper regulation
and monitoring on safety and hygiene, these communities are vulnerable to
fire hazards and public health threats as well as suffered from limited access
to public services.
1.3.2. UNFULFILLED ROLE OF GOVERNMENT:
1) The Government has a significant role in facilitating, if not spurring,
innovative and affordable housing strategies in view of resolving this housing
deficit across the country. However, in the last four decades, the Government
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has failed to address the housing needs of the masses. As a matter of fact, the
government has allocated less than 1% of the total government expenditures
for housing, making the public spending on housing of the Philippines one of
the lowest in Asia (Habito, 2009).
2) The Philippines Government has pledged to pick up this issue of affordable
housing. The current plan targets at providing some 1.47 million housing
units between 2011-2016. The outlook remains less than optimistic given that
the Philippines Government has had a mixed record on reaching housing
target. For example, during the period of 2001-2004, the government was
able to provide only 827,437 housing units, or 69 percent, of the target 1.2
million units. Even if the Government is able to deliver its promise, this is
only 23 percent of the total housing backlog of 3.6 million for the same
period.
1.3.3. CONCLUSION:
In view of the tremendous demand for affordable housing and the limitation of
the Government, new approaches beyond the traditional public-sector efforts
must be devised so as to mobilize broader societal resources to tackle the housing
issue which is bound to be exacerbated in the future by the continuing rural-urban
migration.
2. MEASURES OF AFFORDABILITY3:
2.1. INOME/ REPAYMENT/ COST OF HOUSING:
1) "A common measure of community-wide affordability is the number of homes that a
household with a certain percentage of median income can afford. For example, in a
perfectly balanced housing market, the median household (and the half of the
households which are wealthier) could officially afford the median housing option,
while those poorer than the median home could not afford the median home. 50%
affordability for the median home indicates a balanced market."
2) A community might track the percentage of its housing that is affordable to
households earning 60% of median income.
2.1.1. HOUSING EXPENDITURE TO INCOME RATIO TOOL:
Determining housing affordability is complex and the commonly used housingexpenditure-to-income ratio tool has been challenged. Canada, for example,
switched to a 25% rule from a 20% rule in the 1950s. In the 1980s this was
replaced by a 30% rule. (Bacher, 1993; Hulchanski, 1994b)
2.1.2. HOUSING AFFORDABILITY INDEX (HAI):
One of its greatest strengths of the HAI developed by MIT is its ability to capture
the Total Cost of Ownership of individuals’ housing choices. In computing the
index the obvious cost of rents and mortgage payments are modified by the
hidden costs of those choices.
3
Affordable Housing-Wikipedia, the free encyclopedia
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2.1.3. HOUSEHOLD INCOME AND WEALTH:
1) Income is the primary factor— not price and availability, that determines
housing affordability. In a market economy the distribution of income is the
key determinant of the quantity and quality of housing obtained. Therefore in
order to understand challenges of making housing affordable, it is essential to
understand trends and disparities in income and wealth. Housing is often the
single biggest expenditure of low and middle income families. For low and
middle income families, their house is also the greatest source of wealth.
2) The most common approach to measure the affordability of housing has been
to consider the percentage of income that a household spends on housing
expenditures.
3) Another method of studying affordability looks at the regular hourly wage of
full-time workers who are paid only the minimum wage (as set by their local,
regional, or national government). The hope is that a full-time worker will be
able to afford at least a small apartment in the area that he or she works in.
4) Other countries look at those living in relative poverty, which is usually
defined as making less than 60% of the median household income. In their
policy reports, they consider the presence or absence of housing for people
making 60% of the median income.
2.2. DEFINITION OF LOW-INCOME HOUSING4:
Housing for low-income families is a widely discussed topic. Many government
programs have been instituted in past decades to help low-income families afford
housing. In USA, the U.S. Department of Housing and Urban Development is the
primary agency responsible for assisting low-income families, with the Section 8
housing voucher program seen as the most successful program for housing assistance.
2.2.1. THE FACTS:
Low-income housing is aimed at individuals without enough income to provide
adequate housing for themselves and/or their families. These families are usually
unable to purchase a home because they fail to qualify for a mortgage. Most
families choose to rent based on their income and family situation; unfortunately,
there may not be enough rental housing or enough good-quality rental housing
for low-income families.
3. HOUSING FINANCE INSTITUTIONAL FRAMEWORK 5:
A. THE HOUSING FINANCE INSTITUTIONS:
a. Following agencies comprise the institutional framework of the Philippine housing
sector:
1) Housing and Urban Development Coordinating Council (HUDCC);
2) National Housing Authority (NHA)’
3) National Home Mortgage Finance Corporation (NHMFC);
4) Home Guarantee Corporation (HGC);
4
5
Definition of Low Income Housing-‘ehow.com’
Overview of the Philippine Housing Sector-UN Habitat
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5) Home Development Mutual Fund (HDMF);’
6) Housing and Land Use Regulatory Board (HLURB); and
7) Social Housing Finance Corporation (SHFC)
8) Home Development Mutual Fund (HDMF)
9) Housing Finance Corporation (HFC) .
b. The Housing and Urban Development Coordinating Council is responsible for
coordinating the activities of the different government housing agencies to ensure the
accomplishment of the National Shelter Program. For its part, the National Housing
Authority is mandated to provide housing assistance to the lowest 30 percent of urban
income-earners through slum upgrading, squatter relocation, development of sites and
services and construction of core housing units.
c. The National Home Mortgage Finance Corporation is responsible for operating a
viable home mortgage market through the purchase of mortgages originated by both
private and public institutions and developing a system that will attract private
institutional funds into long term housing mortgages. The primary duty of the Social
Housing Finance Corporation is to develop and operate a socialized housing finance
programme that will address the needs of households belonging in the low-income
sectors.
d. Meanwhile, the Home Development Mutual Fund, which is more commonly known
as the Pag-IBIG Fund (Pagtutulungan sa Kinabukasan: Ikaw, Bangko, Industriya at
Gobyerno – Cooperation for the Future: You, the Banks, Industries and the
Government), was created to provide public and private employees with decent
housing and address the difficulties of housing finance with the establishment of a
system of voluntary contributions by government and private employees.
e. The Pag-IBIG Fund is administered by two agencies: i) the Government Service
Insurance System, which manages the funds of government workers ii) the Social
Security System which handles the funds for private employees. The Home Guaranty
Corporation guarantees the payment of any and all forms of mortgages, loans and other
forms of credit facilities and receivables arising from financial contracts exclusively for
residential purposes and the necessary support facilities (provided that they have been
issued Home Guaranty Corporation). Moreover, the Home Guaranty Corporation
assists private developers undertake socialized, low and medium-cost mass housing
projects by encouraging private funds to finance housing projects through a viable
system of long-term mortgages, guarantees and other incentives.
f. The Housing and Land Use Regulatory Board regulate housing and land development
plans and zoning ordinances of national, regional and local governments.
B. THE STATE OF HOUSING FINANCE IN THE PHILIPPINES 6:
a. At the Housing Forum held in December 7, 2011 at the Asian Institute of
Management (AIM), it was highlighted that looking at one the comparative
assessment of housing finance around the world, suggested to the forum to rethink
housing policy, reshape the housing and urban landscape, and reinvigorate
communities. The cross-country study conclusion indicates that countries with
stronger legal rights, better provision of credit information, and a less volatile
6
The State of Housing Finance in Philippines: ‘http://www.rbapmabs.org/blog/2010/12’
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macroeconomic environment have larger housing finance system. Based on these
variables, according to the study, the “Philippines lags behind other countries in the
provision of housing finance because its bankruptcy and collateral laws are not
conducive to the provision of housing finance, and its credit information systems are
not strong enough to allow lenders to easily assess the riskiness of prospective
borrowers.” The forum, held on December 7 at the Asian Institute of Management
(AIM), was attended by senior executives and leading representatives of the
government, banking sector, private business developers, non-profits, and academic
community.
b. The forum was intended as the first of a series of conversation about housing issues
in the country with the intention of finding out what strategies work and how every
sector can contribute to addressing the demand and supply constraints in the
Philippines where the population is quickly urbanizing. In 2005, the country’s urban
population comprised 62.7%; by 2030 urban population is projected to comprise
77% of the Philippine population. As a consequence, the urban population slum is
expected to increase in number (close to 23 million) and will make up more than
43% of the urban population. Providing decent and affordable housing for them as
well as others at the bottom of the economic pyramid becomes a major challenge.
Discussions during the forum point to the need to scrutinize past government
policies and strategies on housing, and the imperative of using a different set of
lenses for crafting more effective policy and regulatory options that ensure the
poorer sector really benefit.
3.1. HOUSING FINANCE BY COMMERCIAL BANKS:
3.1.1. COMMERCIAL BANKS IN PHILIPPINES7:
The Philippines has a comprehensive banking system encompassing various
types of banks, from large universal banks to small rural banks and even nonbanks. At present, there are, among others, seventeen universal banks, 23
commercial banks, 84 thrift banks, 711 rural banks, 44 credit unions and twelve
non-banks with quasi-banking functions, all licensed with the Bangko Sentral ng
Pilipinas. The list of the main commercial bank is as under:
1. Asia United Bank
2. Bank of Commerce
3. East West Bank
4. Export and Industry Bank
5. International Exchange Bank
6. Philippine Bank of Communications
7. Philippine Veterans Bank
8. Philtrust Bank
3.1.2. HOUSING FINANCE BY COMMERCIAL BANKS IN PHILIPPINES8:
a. Commercial banks are the largest group of institutions and have the largest
investment in housing finance. However, this activity is predominantly for
construction and development lending. For example, of the total amount of
7
8
Banks in Philippine-‘listofbank.com/listofphilippinebank,htm’
The Philippine Housing Finance –April 12, 1982’
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housing loans granted by commercial banks in 1980, about 22% were
mortgage loans to individuals, with the remainder for development or
construction purposes. In other years the proportion of mortgage loans has
been even lower. This is consistent with the portfolio approach of most banks,
in that development or construction period loans are short term in nature and
roll over rapidly, ensuring the bank's liquidity. This aspect is corroborated by
the high ratio of loans granted to loans outstanding. In 1980, for example, this
ratio was 1.05 for the commercial banks, indicating that the average maturity
for a housing finance loan was less than one year.
3.2. SPECIALIZED HFIS-PUBLIC SECTOR:
3.2.1. PUBLIC SECTOR CORPORATION/BANKS:
The following are the main corporations/Banks which are connected to housing finance:
1. Bangko Sentral ng Pilipinas (Central bank) (BSP)
2. Development Bank of the Philippines (DBP)
3. Land Bank of the Philippines (LBP)
4. Philippine Postal Savings Bank (PPSB)
5. Rural Bank of Tanay (RBT);
6. Government Service Insurance System (GSIS),
7. Social Security System (SSS),
8. Home Development Mutual Fund (HDMF);
9. National Home Mortgage Finance Corporation (NHMFC).
3.2.2. GOVERNMENT HOUSING FINANCE ACTIVITIES:
a. There are currently several governmental entities involved in the housing
finance market. Government Service Insurance System (GSIS), Social
Security System (SSS) and Development Bank of the Philippines (DBP) are
direct lenders for mortgages; Home Development Mutual Fund (HDMF) is
projected as a major source of funds for housing; National Home Mortgage
Finance Corporation (NHMFC) is responsible for the secondary mortgage
market while HFC essentially provides a guarantee function. It is to be
expected that in view of the fact that the private sector finances the higher
income groups, the government sector would serve the lower income ranges.
This stems from three reasons:
i. First, entitlement to government lending is often restricted. This is most
clear in the case of GSIS which grants mortgage loans to its members and
development loans to firms building homes primarily for its members.
SSS is also restrictive, but its membership covers a broader section of the
population than does GSIS. Since the members of the two funds tend to
be lower income households, their mortgage lending applies to a lower
income group than does private sector lending where entitlement is based
solely on the ability to meet the terms set forth by the lender.
ii. Second, government lenders enforce maximum loan limits. For SSS, the
maximum mortgage loan size is limited to P 50,000. This has become a
problem for SSS lending, as house prices have risen to levels where that
size mortgage covers only a small proportion of the house price. For DBP,
the limit is P 120,000, although an increase to P 250,000 is currently
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under consideration. The effect of these limits, however, is to restrict
government loans to a generally lower priced house and therefore a lower
income clientele.
iii. Related to these two is the final factor, that the Government has
consciously targeted these loans to the lower end of the economic housing
market. The terms on government loans are a great deal more liberal than
the terms available on private sector mortgages. Generally, the interest
rate is a concessionary one, with SSS charging as little as 6% on a portion
of its loans. The highest government rate, 14%, is that charged by DBP
for its "open housing" loans. Yet even that rate is only two-thirds of the
current market rate charged by banks. In addition, the other terms on
government loans are easier. Maturities range up to 30 years and down
payments go as low as 10%. This is to be contrasted with the shorter term
of private loans, which can require as much as 44% downpayment.
b. GSIS. The Government Service Insurance System (GSIS) exists primarily as
a social security agency for government employees, but also grants housing
loans to its members. The loans may be for terms up to 25 years and carry
interest rates that increase with loan size. For a member taking a loan of P
100,000, the effective interest rate is about 9%. For lower loan amounts the
interest rate is correspondingly less, with a minimum of 6% for loans below
P 30,000. Underwriting standards are more liberal than those in either the
private sector or in other government lending programs, as GSIS considers
total family income when judging an applicant. In addition, amortization
may be made on a fixed or a graduated basis in an attempt to assist as many
applicants as possible.
c. GSIS also makes project loans for development or construction under
different schemes. These loans may simply be interim financing for the
builder of housing designated for GSIS employees or may be a Mass
Housing loan which is, in effect, a blanket mortgage that the builder will
take out to provide financing for the eventual buyers. The rate of interest on
interim loans is a flat 12% compounded monthly, with terms ranging from
18 to 36 months; the loan-value ratio is 70% for collateral. Mass Housing
loans carry terms similar to the individual housing loans, with higher interest
rates to reflect the pre-commitment fee. For all these loans, GSIS derives its
funds from the contributions of government employees to the pension fund.
d. The government employees' social insurance program has been one of the
major participants in the primary housing finance market. Between 1972 and
1980, GSIS financed directly about 21,000 individual housing units. Tables
3.5 and 3.6 display summary statistics of GSIS housing finance activity over
the last decade. In 1980, the average mortgage amount for these loans was
about P 90,000, loaned for 15 years at an average interest rate of 7.35%.
Using the same assumptions employed above, these numbers imply that the
average income necessary to acquire mortgage funds from GSIS.
3.3. SPECIALIZED HFIS- PRIVATE SECTOR:
Government recognizes the importance of the private business community in housing
development in the country. In particular, government has employed “carrot and stick”
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to schemes to entice the business community (e.g. developers) to invest in low-income
housing.
3.3.1. JOINT VENTURE STRATEGY:
a. The initial effort by government to entice private developers into the
mainstream of low-income housing production was joint venture
arrangement. About 131 joint venture arrangements have been formed under
the NHA joint venture program for the period 1987 to 2001. In more than
fifty percent of these arrangements, the contribution of NHA is mainly
technical assistance. Technical assistance pertains to NHA providing project
packaging and engineering works (e.g. survey) and assisting in marketing.
The assistance also includes an extension of financial accommodation to the
partners of the program such as bridge financing, purchase commitment line
with the NHMFC on buyer’s financing and facilitation for developmental
financing.45 Moreover, NHA also facilitates transactions related to other
government agencies such as securing land conversion clearance, approval of
permits and licenses and the utilities companies.
b. It is noted that “technical assistance” has become a standard provision for all
types of venture arrangement.46 Given the highly bureaucratic permit system,
the delays in the release of payment from NHMFC and in finding the
beneficiary that will qualify for mortgage financing under NHMFC, this
technical assistance provided by the NHA significantly reduces the
transaction costs of the private sector. These costs are often not reflected in
the sharing of profits because such 45 NHA has mortgage commitment lines
under
3.4. HOUSING MICROFINANCE INSTITUTIONS:
3.4.1.
MICRO-FINANCE AND POVERTY ALLEVIATION:
a. Most poor people manage to mobilize resources to develop their enterprises
and their dwellings slowly over time. Financial services could enable the poor
to leverage their initiative, accelerating the process of building incomes,
assets and economic security. However, conventional finance institutions
seldom lend down-market to serve the needs of low-income families and
women-headed households. They are very often denied access to credit for
any purpose, making the discussion of the level of interest rate and other
terms of finance irrelevant. Therefore the fundamental problem is not so
much of unaffordable terms of loan as the lack of access to credit itself (Kim
1995).
b. The lack of access to credit for the poor is attributable to practical difficulties
arising from the discrepancy between the mode of operation followed by
financial institutions and the economic characteristics and financing needs of
low-income households. For example, commercial lending institutions require
that borrowers have a stable source of income out of which principal and
interest can be paid back according to the agreed terms. However, the income
of many self employed households is not stable, regardless of its size.
c. A large number of small loans are needed to serve the poor, but lenders prefer
dealing with large loans in small numbers to minimize administration costs.
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They also look for collateral with a clear title - which many low-income
households do not have. In addition bankers tend to consider low income
households a bad risk imposing exceedingly high information monitoring
costs on operation.
d. Over the last ten years, however, successful experiences in providing
finance to small entrepreneur and producers demonstrate that poor people,
when given access to responsive and timely financial services at market
rates, repay their loans and use the proceeds to increase their income and
assets. This is not surprising since the only realistic alternative for them is to
borrow from informal market at an interest much higher than market rates.
Community banks, NGOs and grass root savings and credit groups around the
world have shown that these microenterprise loans can be profitable for
borrowers and for the lenders, making microfinance one of the most effective
poverty reducing strategies.
3.4.2. PRIMARILY, A PROVISION OF UNSECURED MICROCREDIT9:
Housing microfinance (HMF) is primarily the provision of unsecured
microcredit, but may include other related financial services—such as access to
savings, remittances, and micro-insurance—to meet the demand of low-income
households to repair or improve their existing homes or build their own homes
incrementally one loan at a time. These loans may also require mandatory savings
or serialized assets and other collaterals. Credit assessment is similar to the cash
flow analysis and character investigation processes applicable to unsecured small
business loans to individual entrepreneurs. The process often includes
documentation to verify residence, a list of building materials to be purchased or
that have already been saved by the borrower, and an estimate for specialized
labor. Character investigation may also include questions on the borrower’s
social capital to enhance the incremental building process: social networks,
contacts with NGOs or building materials suppliers, and free skills available to
the household that can support the self-builder.
3.4.3. HOUSING MICROFINANCE - PHILIPPINES:
The Central Bank’s (BSP) approval in early 2010 of a new housing microfinance
product as well as complementary generic policies and procedures has had a
catalytic effect on housing finance in the Philippines. This regulatory support
derived from market research, product development and generic policies and
procedures developed by the Rural Bankers Association with support from the
USAID-funded MABS program, Mercy Corps and Bankable Frontier Associates.
About 55 rural banks across the Philippines are now rolling out HMF loans in a
significant way, fueled in part by continued high levels of inflows of remittances
and improvement in the economy. The total loan portfolio of these private banks
is taking off and has already surpassed government’s own housing microloan
program initiated more than two years ago. At the moment, these rural banks
have sufficient liquidity and are better-positioned relative to other types of
microfinance institutions in the Philippines for issuing HMF loans to end-users.
9
Housing Microfinance-Pilippine-Hofinet
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A recent trend of consolidation in the rural banking sector may also enable more
rural banks to expand their HMF lending operations, as new equity and
subordinated debt bolsters the sector. Nevertheless, the rural banks’ housing
portfolios are growing very fast in value and they will be looking for new forms
of liquidity from both commercial and development sources.
4. HOUSING FINANCE OPTIONS FOR LIG:
a) More than subsidies poor need access to credit. Absence of formal employment make
them non `bankable'. This forces them to borrow from local moneylenders at exorbitant
interest rates. Many innovative institutional mechanisms have been developed across
the world to enhance credit to poor even in the absence of formal mortgage.10
b) Recognizing that the low-income housing finance market is highly segmented and
must be met with a variety of generally unsecured product solutions, housing
microfinance is increasingly recognized as a way to reach low-income individuals
typically excluded from housing finance markets. While micro-mortgages are
important product considerations in countries such as India, Peru, Mexico, Kenya and
the Philippines, unsecured housing micro loans appeal to a wider potential market
further down the economic pyramid, even when households have secure access to land
but do not want to use it (if formal title is available) as collateral because for fear of
losing a family asset. Housing microfinance does not include construction finance or
project finance, or multi-purpose consumer loans. Housing microfinance is a dedicated,
conscious form of unsecured end-user finance that leverages the savings and the “sweat
equity” of the borrower often working through a mutual self-help partnership with a
master builder or a building materials supplier.
5. REGULATORY FRAMEWORK11:
A. EFFECTIVE LEGISLATION TO RESOLVE PERSISTENT HOUSING
PROBLEMS:
Apart from considering housing needs to be a political priority due to the scale of the
present problems and the social and economic significance of the housing sector’
problems within the sector therefore need to be addressed in an integrated and allencompassing way, by taking into account socio-economic considerations as well as
legal, institutional and financial framework conditions. Good Governments in all
countries strengthen their political support to resolving persistent housing problems.
They also focus on more strategic interventions, streamline housing priorities,
rationalize the legal framework and reinforce implementation in order to promote a
more sustainable housing policy that facilitates investment and improvements in
housing quality and ensures access to lower income groups.
B. STRENGTHENING OF THE CONSISTENCY AND COHERENCE OF
SUPPORTING LEGISLATION:
The focus of legal reforms needs to shift towards the strengthening of the consistency
and coherence of supporting legislation and towards establishment of adequate
10
11
CONCEPT PAPER Microfinance Institutions in India
Housing Reforms –UN Economic Commission for Europe
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capacity for implementation and enforcement, particularly in areas of condominium
management, mortgage lending and property rights.
5.1. BY CENTRAL BANK AND/OR A SEPARATE ENTITY:
A. DEVOLUTION RELATED LAWS15:
It is difficult to recommend specific measures that need to be implemented across
different countries with distinct legal traditions, A solid legal basis is an essential part
of such an approach and a precondition for addressing the current problems in the
housing sector. It is important to address inconsistencies in different legal acts and to
provide a solid and comprehensive legal basis for all housing policies and programs
as well as a transparent legal framework for market-based institutions. This includes
specialized legislation on maintenance and management of multi-family housing, on
mortgage lending and on eligibility for supply- and demand-side assistance in
housing. Housing policies cannot, however, stop with the development of the legal
framework but, have to be effectively and efficiently implemented. A functioning
institutional framework needs to be in place to facilitate implementation and to
resolve the uncertainties regarding institutional responsibilities. In the
implementation of housing legislation, priority should be given to enforcement of
legal frameworks that:
a. Allow effective mobilization of necessary public financing;
b. Facilitate the establishment of functioning management and maintenance
systems;
c. Develop a system of housing support for low-income households; and
d. Support well functioning housing finance.
B. DEVOLUTION RELATED LAWS15:
Two major laws support the greater role given to the local governments. One is the
Local Government Code of 1991 that laid the groundwork for a decentralized regime
in the country and the devolution of housing and urban development functions to
local governments. This law mandated local governments to undertake housing
developments and take the lead in land use planning in their respective jurisdictions.
Permits and licensing of land developments in the local area, which was a task
assigned to the HLURB has
5.2. PRUDENTIAL REGULATIONS12:
Key Prudential Regulations:
1. Chartering/Licensing of Banks
2. Capital Adequacy Framework
3. Ownership Ceilings
4. Lending and Investment Activities
5. Deposit Taking Operations
6. Mergers and Consolidation
7. Disclosure Requirements
8. External Auditors
12
Bangko Sentral ng Pilipinas (Central bank) (BSP):http://www.bsp.gov.ph/regulations/reg_key.asp
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9. Anti-Money Laundering
10. Electronic Banking (E-Banking) Operations
11. Rules on Foreign Investments
5.3. MORTGAGE LAW13:
1-Act No. 3952 :
"The Bulk Sales Law":
An act to regulate the sale, transfer, mortgage or assignment of goods, wares,
merchandise, provisions or materials, in bulk, and prescribing penalties for the
violation of the provisions thereof.
2-ACT NO. 1508:
Act no. 1508 - an act providing for the mortgaging of personal property and for
the registration of the mortgages so executed
3-ACT NO. 3135:
Act no. 3135 - an act to regulate the sale of property under special powers
inserted in or annexed to real-estate mortgages
4-REPUBLIC ACT NO. 7279:
An act to provide for a comprehensive and continuing urban development and housing
program, establish the mechanism for its implementation, and for other purposes.
5.4. MORTGAGE GUIDELINES:
6. CONSTRAINTS IN GROWTH OF HOUSING FINANCE FOR LIG:
General review
7. RENTAL HOUSING AND HOUSING FINANCE:
7.1. PRESENCE OF RENTAL HOUSING MARKET:
7.2. CONSTRAINTS IN DEVELOPMENT OF RENTAL HOUSING:
8. FISCAL SUPPORT AND SUBSIDY PROGRAMS:
A. FISCAL POLICY AND THE HOUSING INDUSTRY14:
13
14
Chanrobles virtual law library :http://www.chanrobles.com/acts/actsno1508.html
Fiscal Policy and the Housing Industry-‘ 'oppaper.com’
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Fiscal policy is, “decisions by the Government, usually relating to taxation and
government spending, with the goals of full employment, price stability, and economic
growth”. In order to give the economy more spending money, the government will
change the tax laws to give the consumers the incentive to spend. One of the biggest
tools the government can use is the first time tax rebate the people buy their first home.
B.
HOUSING SUBSIDIES:
a. Were markets are complete and perfectly competitive, subsidies, like taxes, would
only create distortions and lead to welfare loss for the society. However, markets
are, more often than not, incomplete and imperfect. Cases of externalities, public
goods, imperfect competition and increasing returns to scale in production
characterize market failure. Hence, subsidies are provided to correct these marketinduced inefficiencies.
b. The housing market is a case in point. Several situation have been described to
show how market failure arises in the housing sector, arguing for, among other
forms of government intervention, the provision of subsidies. The problem, then,
lies in the form of subsidy that should be given. Housing subsidies (explicit or
implicit are commonly of the following types:
1)
2)
3)
4)
5)
6)
public housing
rent controls
rent supplements
income tax benefits
loans at interest rates below-market
mortgage insurance and guarantees.
c. On the demand side, housing subsidies generally work by lowering the price of
housing services or by increasing households' disposable income. The standard
approach to analyzing the impact of a housing subsidy is to first measure its effect
on the price of housing. The magnitude of price reduction influences demand
which changes according to its price elasticity. Through this price reduction effect,
subsidies correct existing market failures in the housing market. However, to the
extent that subsidies are not well targeted or that an inappropriate subsidy is
provided, inefficiency or "deadweight loss" is introduced, aggravating the original
market condition.
C. INCIDENCE OF HOUSING SUBSIDIES:
a)
FORMS OF SUBSIDY15:
1. Following are four general types of subsidies in housing:
i.
ii.
iii.
iv.
interest rate subsidy,
land cost subsidy,
tax exemption; and
cash transfer.
2. The interest rate subsidy represents an implicit subsidy or income transfer
because the borrower pays a lower interest rate than what he would have paid
in the market. The same principle applies to a land cost subsidy and tax
exemption subsidy. In the former, the beneficiary pays a lower than market
price for the land while in the latter, income or profits of developers from low
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cost housing developments is not taxed. Cash transfer refers to actual transfer
of funds (e.g. grants).
3. Considering the above forms of subsidy, data shows that the bulk (90% of
subsidies to the housing sector for the period 1993-95 consist of interest
subsidies provided through end-user and development financing programs. In
particular, the United Home Lending Program (UHLP) carries the largest
subsidy. For development type loans, the CMP receives about 3.7 percent of
the interest subsidy for the same period. Next, to interest subsidies, land cost
subsidy constitutes 5.1 percent of total subsidy for 1993-95. This is followed
by tax-exempt subsidies obtained from HGC guarantees (4.5%) then cash
subsidies (0.4%).
4. Aside from these “programmed” subsidies, loan losses from the housing
programs also constitute another form of subsidy. The magnitude of subsidy
due to loan losses has yet to be fully measured. Considering the above forms
of subsidy, data shows that the bulk (90%) of subsidies to the housing sector
for the period 1993-95 consist of interest subsidies provided through end-user
and development financing programs. In particular, the United Home Lending
Program (UHLP) carries the largest subsidy. For development type loans, the
CMP receives about 3.7 percent of the interest subsidy for the same period.
Next, to interest subsidies, land cost subsidy constitutes 5.1 percent of total
subsidy for 1993-95. This is followed by tax-exempt subsidies obtained from
HGC guarantees (4.5%) then cash subsidies (0.4%).
5. This finding shows that it is difficult to target poor households through an
interest subsidy scheme. Loans are provided on the basis of capacity to pay,
which is computed as a fixed proportion of borrower’s income. By simply
looking at the loan amortization of HDMF, GSIS and SSS, majority of pension
fund members will not qualify for a loan even at subsidized rate. For instance,
HDMF monthly amortization schedule shows that at a minimum housing cost
of P150,000, only households with annual incomes of P150,000 or higher can
avail of a loan equal to P150,000 even at a subsidized interest rate of 9%. This
implies that 77% of households in the country are unable to avail of loan from
the formal sector. The proportion is lower for urban households (54.5% and
for households in NCR (34%).
8.1. FISCAL CONCESSIONS TO DEVELOPERS IN LIH:
8.2. STATE SUBSIDY PROGRAM FOR LIH FINANCE-INTEREST SUBSIDY:
Those who benefit from the subsidies are the individuals or households who are
beneficiaries of the housing programs as well as economic agents who benefit from the
tax exemption and other receipts related to housing. Analysis of the income profile of
the beneficiaries of housing programs specifically housing finance programs shows that
higher income households (or the non-poor) are the main beneficiaries of government
subsidies. This pattern is observed even in the case of community-based programs such
as the CMP. Compared to other programs, CMP has the most number of low-income
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beneficiaries but middle-income families comprise the bulk of households that benefit
from the subsidy.
8.3. STATE SUBSIDY PROGRAM FOR LIH FINANCE-CREDIT GUARANTEE:
8.4. TAX INCENTIVE ON MORTGAGE PAYMENTS:
9. LARGE SCALE DEVELOPERS IN LIH:
9.1. DEVELOPER FINANCE RULES:
9.2. CROSS SUBSIDIES IN CASE A PORTION OF THE PROJECT IS FOR LIH:
9.3. BUILDING CODES CONCESSION (FASR):
10. LAND BANKING FOR LIH:
10.1.
ANY LAND BANKING PROGRAM:
10.2.
PROVISION OF STATE LAND FOR LIH:
11. SLUMS REHABILITATION AND OR UP GRADATION PROGRAMS:
11.1.
REHABILITATION PROGRAMS:
11.2.
UPGRADATION PROGRAMS:
11.3.
INCREMENTAL HOUSING MODELS:
12. COMMUNITY BASED PROGRAMS FOR LIH:
A. GOVERNMENT HOUSING STRATEGIES15:
a) Towards the end of the 1980s, a rationalization of the shelter agencies was undertaken.
The Ministry of Human Settlements was dissolved and in its place, the Housing and
Urban Development Coordinating Council (HUDCC) was organized. Comparatively,
HUDCC has limited powers over the shelter agencies since its main task is to
coordinate the shelter agencies in the implementation of the National Shelter Program.
The reorganization also reduced the number of key shelter agencies from nine to five
agencies, to wit: NHA, NHMFC, HDMF, HSRC and HFC. The HSRC and HFC were
renamed as the Housing and Land Use Regulatory Board (HLURB) and the Housing
Guaranty Corporation (HGC), respectively.
15
Trend in Government Housing Strategies-Rethinking Institutional Reforms in the Philippine Housing Secor.
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b) From a highly centralized scheme, government moved towards a participatory
approach in which the concepts of “tripartism”, self-help housing, and community
housing have become popular. The participatory approach also led to a prioritization of
programs. In the 1970s, completed and medium-rise housing were the major programs
adopted. These programs provided developed lots and fully built houses financed
through national government housing funds. In the case of squatters, the popular
scheme was relocation or resettlement. The participative approach formally started
around the 1980s with the adoption of joint venture schemes under the NSP. Under
this scheme, the government (represented by the NHA) tie-up with private
landowners, developers, contractors and other national and local government
agencies for low-income shelter production.
c) The arrangement involves the sharing of resources, expertise, risk and profits between
or among partners. Liabilities and exposure are also shared based on the extent of the
partner’s contribution in the venture. The types of partnership that have developed
through the years are the following:
12.1. STATE LEVEL PROGRAM:
a) Several community-based housing programs have been created, to wit: Community
Mortgage Program (CMP), Group Land Acquisition and Development (GLAD)
Program, Community Land Acquisition Support Program (CLASP) and the Land
Tenurial Assistance Program (LTAP). The programs are implemented by different
housing agencies and while the strategy is similar, loan features may differ. Except for
GLAD, which draws funds from contributions of HDMF members, funds for the other
programs are sourced from government coffers. In particular, the CMP enjoys the
biggest share in government funds and support from the urban poor.
b) The move towards privatization in the implementation of the NSP also led to increased
responsibility given to the local governments. Under the centralized regime, local
governments functioned largely as an administrative arm of the central government
housing offices. Although they are elected officials, they have limited accountabilities
even on squatter or informal settlements in their localities.
12.2. NGO INITIATIVES:
A. A NEW PARADIGM10:
A new paradigm that emerges is that it is very critical to link poor to formal
financial system, whatever the mechanism may be, if the goal of poverty alleviation
has to be achieved. NGOs have been involved in community development for long
and the experience shows that they have been able to improve the quality of life of
poor, if this is an indicator of development. The strengths and weaknesses of
existing NGOs and microfinance institutions indicate that despite their best of
efforts they have not been able to link themselves with formal systems. It is desired
that an intermediary institution is required between formal financial markets and
grass root. The intermediary should encompass the strengths of both formal
financial systems and NGOs and should be flexible to the needs of end users. There
are, however, certain unresolved dilemmas regarding the nature of the intermediary
institutions. There are arguments both for and against each structure. These
dilemmas are very contextual and only strengthen the argument that no unique
model is applicable for all situations.hey have to be context specific.
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OUTLINE
A comparative review will be made for the select countries under each section.
1. Socio-economic Snapshot:
1.1 Population:
1.2 Per Capita Income:
1.3 Affordability:
2. Measures of Affordability:
2.1 Income/Repayment/Cost of housing Units:
2.2 Definition of Low-Income Housing
3. Housing Finance Institutional Framework:
3.1 Housing Finance by Commercial Banks
3.2 Specialized HFIs-Public sector
3.3 Specialized HFIs- Private Sector
3.4 Housing Microfinance Institutions
4. Housing Finance Options for LIG
Commercial Banks, Specialized HFIs, HMFIs, and informal sources if any
5. Regulatory Framework
5.1 By Central Bank and/or a separate entity
5.2 Prudential regulations
5.3 Mortgage Law
5.4 Mortgage Guidelines
6. Constraints in Growth of Housing Finance for LIG
General review
7. Rental Housing and Housing Finance
7.1 Presence of Rental Housing Market
7.2 Constraints in development of rental Housing
8. Fiscal Support and Subsidy Programs
8.1 Fiscal concessions to Developers in LIH
8.2 State Subsidy Program for LIH Finance-Interest Subsidy
8.3 State Subsidy Program for LIH Finance-Credit Guarantee
8.4 Tax Incentive on Mortgage payments
9. Large Scale Developers in LIH
9.1 Developer Finance Rules
9.2 Cross Subsidies in case a portion of the project is for LIH
9.3 Building Codes Concession (FASR)
10. Land Banking for LIH
10.1
Any Land Banking Program
10.2
Provision of State Land for LIH
11. Slums Rehabilitation and or Up gradation Programs
11.1
Rehabilitation Programs
11.2
Up-gradation Programs
11.3
Incremental Housing Models
12. Community Based Programs for LIH
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12.1
12.2
State Level Program
NGO Initiatives
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