Interview: J J Atencio
Would proper segmentation of the real estate market help address home buyer needs?
J J ATENCIO: The housing market can be divided into three main categories: social housing, affordable housing and open market. In the social housing segment, products are P450,000 ($9990) or below, and developers are supported by many types of government subsidies or income tax breaks. To further encourage greater participation in the growth of the social housing sector, real estate developers are required by law to allocate 20% of their projects to providing social housing.
The open market segment is comprised of products anywhere from P1.7m ($37,400) and above, encompassing the mid-cost, upper mid-cost, high-end and ultra-high-end markets, with real estate products ranging up to P20m ($444,000).
Lastly, affordable housing caters to the middle economic segment with housing products ranging from P450,000 ($9990) to about P1.7m ($37,400). This segment represents a market of an estimated 4.5m people that is growing at 5% annually. The segment also experiences the greatest backlog across the country for two primary reasons: a fast-growing middle class and the lack of affordable products.
The Philippines’ gross national product (GNP) has been steadily rising for the past 10 years by an average of 5-7%, generating enough of a trickle-down effect to benefit most levels of the country’s socioeconomic pyramid. Higher-income households benefitted first from the GNP growth, which resulted in price escalations in the upper-residential housing subdivisions and ultra high-end condominiums. This is because real estate developers naturally tried to capitalise on this immediate growth of demand.
As GNP capital trickles down to the middle class, affordable housing becomes more accessible, with prices for middle-class housing increasing far less than those for primary subdivisions or condominiums.
How effective are incentives, and what innovations would encourage the private sector to develop affordable housing and grow the market?
ATENCIO: The primary motivation for a long-term housing finance system is to put a roof over one’s family. Innovation, financial creativity and planning can allow developers to situate affordable housing as near as possible to the city centre, without increasing the package price above what the pricing requirements of the target market are. Low-cost housing does not mean low-value projects, nor does it mean low margins or low-quality customers.
Additionally, the low-cost housing market is not risky, as it does not rely on the poorer segment, which is under the responsibility of the National Housing Authority and resettling authorities. In fact, the lower end of the middle class has significant disposable income; however, the mainstream banking and financial sectors have historically left it out. On top of this, we also have to put in place a comprehensive credit and evaluation platform that emphasises financial literacy education and behaviour modification.
For successful participation in the low-cost housing market one must adopt building technology that enables fast construction, primarily because the lower-middle-income market cannot wait two years after a down payment, and it would be far more efficient to transform rental budgets into monthly amortisations. To be successful, the existing affordable housing programme by the government must be centred on the realities of the lower-middle-income market: how it lives, works and budgets its money.
The banking sector has certain rules, like 20% down payments, which preclude those in the affordable housing segment, namely those who do not have savings but have cash-flow. A successful and accessible housing finance programme needs to complement the reality of its target market and not label it as a risk, or it will end up serving the wrong market.
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