One of the most pressing issues in the Philippines’ construction sector is a chronic housing shortage. Figures from the Subdivision and Housing Developers Association (SHDA) put the current national housing backlog at 4m. Based on a study by the University of Asia and the Pacific (UA&P), that could rise to 6.5m by 2030 if the situation is not addressed. At present, according to Habitat for Humanity Philippines, yearly new housing stock averages less than 200,000, while in excess of 300,000 units are needed each year to eliminate the deficit by 2030.
According to the SHDA, most of the shortfall applies to socialised housing, categorised as units selling for under P450,000 ($10,125). It appears that private developers are not keeping pace with pent-up demand for the lowest-priced properties, with Housing and Land Use Regulatory Board figures revealing that only 27% of the 1.88m housing units that the industry produced from 2003 to 2012 were classified as socialised housing. Real estate services provider Colliers, meanwhile, reported that total residential licences issued by the Housing and Land Use Regulatory Board fell by 4% over the course of 2014, with licences issued for socialised housing down the most of any grouping, at 16%.
SEEKING ENCOURAGEMENT: The results of a UA&P survey show that over 800,000 families in the Philippines would be unable to afford a house priced above P365,000 ($8200). The SHDA has said that without government intervention and financial support, its members will be unable to meet the goals of its proposed Housing Road Map, which targets 1m houses to be built between 2014 and 2016, another 2m by 2020 and a further 7m by 2030.
Accordingly, the association has called on the Board of Investment to continue offering incentives for socialised housing projects until the long-standing backlog is ultimately resolved. The Bureau of Internal Revenue offers tax relief for socialised housing projects that, to qualify, must demonstrate that the houses have specifically been developed for the underprivileged or the homeless.
According to Habitat for Humanity, government financial support towards socialised housing provides both economic and social uplift, with the charity citing studies indicating that for every P1m ($22,500) invested in housing, five jobs are created. For every peso paid in housing tax, the government collects P3.39 ($0.08) in indirect taxes.
For Jesus Atencio, the president and CEO of mass housing developer 8990 Holdings, while property firms are able to tap into corporate tax exemptions, over and above direct subsidies, the industry needs a level and consistent playing field. “We need clear long-term rules so that we can properly plan for capacity and financial requirements,” he told OBG.
PLOTTING DEVELOPMENT: The Urban Development and Housing Programme, enacted in 1992, stipulates that condominium developments must allocate at least 5% of the total project cost for socialised housing, while subdivision developments are required to allot 20%. Those failing to meet the obligation face a penalty of P10m ($225,000) for the first offence, and have their business licence removed following a second violation. The umbrella body, the Chamber of Real Estate and Builders’ Association (CREBA), argues, however, that the quota for subdivisions is not realistic, advocating that it should be reduced to a cap of 5% of the net saleable residential area instead of 20% of the total project area or cost.
Another bill recently passed into law that should help drive conversion of land into socialised housing is the Idle Government-Owned Lands Disposition Act. The act requires that any government-owned land that has not been used for its originally licensed purpose within a 10-year period be provisioned to the National Housing Authority (NHA). From there, the NHA, along with the local government unit, will build socialised housing on their own or in partnership with private developers. In December 2014 the Department of Interior and Local Government announced that it was providing a seed fund of P335m ($7.53m) to six city governments in Manila for socialised housing projects relocating informal settler families living in high-risk areas.
LENDING MECHANISMS: CREBA contends that setting aside government-backed funds to guarantee fixed interest rates for socialised housing mortgages is essential to helping first-time buyers enter the market. It has proposed that 25-year fixed rates of 4.5% be applied to properties that sell for between P450,000 ($10,125) and P1.25m ($28,125), and that 6.5% be charged on those priced between P1.25m ($28,125) and P3.199m ($71,978).
Housing for Humanity suggests that the Philippines should mimic a scheme that has proved successful in a number of South American markets, especially Ecuador, under which families that borrow money for socialised housing put 10% of their income towards the property, which the government matches with a 20% grant, and the remaining 70% is paid for via a loan from a partner bank.
The next grouping up after socialised housing is the “low-income” market, at P450,000 ($10,125) to P600,000 ($13,500). This is followed by the “economic sector” – P600,000 ($13,500) to P900,000 ($20,250) – and the “mid segment”, at up to P1.5m ($33,750). Atencio groups all of these categories together as the affordable housing segment, and deems it a lucrative market for developers to pursue so long as costs can be kept down to ensure affordability. “Our GNP has been steadily rising for the past 10 years at 7%, generating enough of a trickle-down effect to benefit most levels of the socio-economic pyramid. As GNP trickles down to the middle class, affordable housing becomes a beneficiary too, with prices for middle-class housing increasing far less than for primary subdivisions or condominiums,” Atencio told OBG.
According to Colliers, the only segment to witness an increase in residential licences issued by the Housing and Land Use Regulatory Board in 2014 was low-cost (+6.6%), with the firm attributing the rise to more local developers venturing into affordable housing to meet the huge supply backlog. “While margins are tight and it is risky to maintain profitability, developers are increasingly looking at the lower-income market instead of the top-tier market, as it offers far larger volumes and far greater growth potential,” Anthony L Fernandez, the president and COO of construction firm First Balfour, told OBG.
MANAGING MARGINS: For a country that has suffered recurring natural disasters, enforcing minimum safety and design standards is critical, and developers must adopt technology that enables reliable construction. Atencio also told OBG that affordable housing need not be high-risk, and that the banking sector needs to serve the segment better.
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