|What every investor ought to know about investing in Socialized or Low Cost Housing in Philippine Real Estate
NO EQUITY ! NOW DOWN PAYMENT ! JUST PAY 2,900 PER MONTH THRU PAG-IBIG OWN A HOUSE NOW!!!
In the view point of the low income families, why not? Especially if you like the location, why not invest in a house that you will own eventually than keep on renting for the rest of your life where you won't own anything. But on the viewpoint of investors who think of buying several units and have these units rented and eventually own all these units, would it be a good idea? What inspires me to write this article was my client who signified intention to reserve 4 units in a row for the purpose of availing her application for 2 million loan with Pag-ibig Fund. I presented to her 7 points of consideration before making the decision to invest:
1) PAG-IBIG LIMITS ONLY ONE UNIT OF HOUSE AND LOT FOR EVERY MEMBER. With this ruling, only one unit can be financed through Pag-ibig and the other three in the row will be thru bank financing? It will be a loss on the investor because other people are getting the house for only about 6% interest rate from Pag-ibig and as we know bank financing is about 10% interest rate, and besides, this development is not bankable yet because for now it is just even raw land. It is only through Pag-ibig because the developer has prior arrangement with Pag-ibig using the entire property as collateral.
2) PAG-IBIG NO LONGER ALLOWS ASSUMPTION OF MORTGAGE. Because of rampant re sale through assumption of mortgage, Pag-ibig does not allow anymore any assumption of mortgage if ever you want to sell the property. That's why we encounter the difficulty of selling low cost houses whose owner still has balance with Pag-ibig because of this ruling. We had a situation wherein the seller sells her property through a contract but when the new owner pays Pag-ibig, it will still be in the name of the old owner which carries itself a certain amount of risk on the part of the new owner. It's also disadvantageous on the part of the seller if the account cannot be paid because she will have a bad record with Pag-ibig and cannot be approved for any loan in the future.
3) RA 7279 or the Urban Development and Housing Act of 1992 requires housing and land ... to set aside 20 percent of their portfolio to low-cost and socialized housing.
This law requires all Real Estate Developers in the Philippines to build low cost and socialized housing at least 20% of their projects for the masses. This means if one developer plans to develop a high end project in a very attractive location, such developer is required to build 20% of the project for low cost and socialized housing somewhere else.
This law means one thing to investors: That there will always be ample supply of socialized housing (including low cost housing) for the masses. This is not ideal for the investor because of the assurance that there will be more supply of low cost and socialized housing and that if ever your unit is rented now, they can easily abandon it and avail loan with Pag-ibig on their own.
4) IT'S A FACT THAT THE MOST DELINQUENT RENTERS ARE THE LOW INCOME GROUP. With this fact, you will surely encounter problems of inability to pay the rent. A vast majority of these people do not have checking account so you cannot expect post dated checks from them nor for any comfortable form of collecting payment such as wire transfer or bank to bank. You really have to knock on their doors and collect the rent when it's due.
5) LOCATION: Most of the location of socialized and low cost housing are very far off the city or considerably far from schools, commercial centers, market, and Companies where low cost bread winnders report for work. Some prospect buyers are discouraged to invest in one unit for their family because if you compute the expenses on transportation over the years, it would come out to be more expensive than owning the low cost unit.
6) IF EVER YOU HAVE FULLY PAID THE HOUSE, IT WILL STILL BE DIFFICULT TO SELL IT IN THE FUTURE IF YOU WANT TO SELL IT. Simply because for this type of market, almost 100% do not have the cash to pay. Even the OFW who are usually the domestic helpers and laborers, still cannot pay in cash because they prefer to avail the overseas Pag-ibig loan Program. Moreover, for this type of market, bank financing is seldom an option, it's almost always Pag-ibig because of the very low rate for as we know Pag-ibig or HMDF is pro poor.
7) HOUSES ARE ORDERLY AT THE START BUT TOPSY TURVY IN THE FUTURE
It's the very nature of socialized and low cost housing that at the start, it appears clean and orderly (entire subdivision) but by experience, just a matter of few years, majority of the residents expand indiscriminately, some one-storey units are expanded to second floor, while the attached neighbor in a row remains one-storey unit. Others build garage and fence while others are not. Others repaint their houses yellow while others orange or white; and a lot of them just display their hanged clothes right in front of their houses. Such a scenario which is very common will surely make the entire property depreciate in value.
Be that as it may, I still believe it's good to own a socialized or low cost housing far better than renting for the rest of one's life. But let this investment be confined to actual users and developers of the property. Any investor who is not a user but decides to buy in the hope that rental income can make him own several homes, will surely get in to trouble with the 7 problems mentioned above. But if the investor thinks he can manage these 7 problems, who am I to stop him? I merely and gladly share my ideas based on actual experience and knowledge on real estate laws.
Author: Engr. Manuel Arengo Jr.
Real Estate License No. 1185