Microfinance to support housing program for informal dwellers

Feb 2007
Philippines, February, 08 2007 - Microfinance will play a role in capturing the informal sector market in the housing industry, state-run Home Guaranty Corp. (HGC) President Gonzalo Benjamin A. Bongolan said last week.

During the first Philippine housing finance forum, Mr. Bongolan noted thrift banks’ housing loan portfolio has been steadily increasing while universal and commercial banks’ have been seeing a decline.

"This is the new phenomenon for us. The housing loan portfolio of universal and commercial banks has been declining since 1999. Maybe it is because of financial crisis. The thrift banks are displaying growth. The new housing loans source are the thrift banks," he said.

Mr. Bongolan said overall housing portfolio has increased 26.9% in 2006 at P251.84 billion from P198.45 billion in 2001. The banking sector saw a decline at 51% from 55% amounting to P128.87 billion from P105.4 billion.

Home Development Mutual Fund, popularly known as Pag-IBIG Fund, hiked its housing loan portfolio at 38% equivalent to P94.59 billion, from 35% amounting to P66.44 billion. Government Service Insurance System (GSIS) increased to 9%, or P23.53 billion, from 6% or P10.66 billion.

Citing data from the Bangko Sentral ng Pilipinas, Mr. Bongolan said the housing loan portfolio of thrift banks reached P52.04 billion in 2005, 199.25% higher than P17.39 billion in 1999. However, universal and commercial banks’ housing loan portfolio declined by 28.46% to P64.55 billion from P90.23 billion.

Vice-President Noli de Castro said the most critical aspect of housing finance is not really looking for the money.

"Housing finance is all about making sure that funds are moving into the sector and within the different housing participants. Affordable credit should be available to the end-users. Developers should have access to construction financing. Even the banks themselves should be given enough incentives so that they will take a second look at housing," he said.

Mr. Bongolan noted that thrift banks are lending more since default rates have been declining. In 2005, their default rate stood at 11% against the commercial and universal banks’ 22%. Development of condominiums and subdivisions have a greater default rate at 34% as of the second quarter of 2006 compared with the 9% individual residential acquisition.

"Most of the default comes not from retail side, but the development of subdivision and condominiums," Mr. Bongolan said.

He said among the issues in Philippine housing are loan requirements of funding institutions, limited sources of funds for lower housing packages, funds locked in banks’ foreclosed assets — known in the industry as ROPOA or real and other properties owned or acquired — aside from uncertainties and bureaucracy in securing permits and licenses.

Supply constraints are also a concern given the unavailability of convertible lands for housing and high costs of development and transaction costs.

Total projected housing demand for 2006 to 2010 is seen at 3.76 million units. Of this, 1.17 million housing units will address the housing backlog and 2.59 million housing units will be for new households.

Declining interest rates, strong inflows of remittance and spending of overseas Filipino workers (OFWs) and increasing popularity of contracts to sell as an alternative financing scheme are among the factors boosting the real estate sector.

"Lending rates have been on a decline. This has been welcomed by borrowers and guarantors. On a declining rate, default rate is also going down," Mr. Bongolan told participants.

Mr. de Castro said the government has instilled credit discipline in housing, citing strict collection procedures were put in place and foreclosure proceedings were fast-tracked.

"We made our borrowers both from the informal and formal sectors realize that a housing loan is not a dole-out. It is an obligation that must be repaid," he said.

"The demand for housing is so great, particularly in the rapidly urbanizing areas of the country. In Metro Manila alone, we need to provide housing assistance to nearly half-a-million families. There are also a lot of developers willing to construct housing units. Yet, demand and supply will never meet unless a robust and viable system of housing finance is in place," he added.

Mr. de Castro said the government has tasked the HDMF to encourage informal settlers to become Pag-IBIG members.

"This is needed so that they can avail of housing loans with interest rates of as low as 6%," he said.

The government has also created the Social Housing Finance Corp., a government corporation catering primarily to the housing needs of the poor.

SHFC is focused on the implementation of the Community Mortgage Program to enable homeless families to acquire and develop residential lots and to construct their own houses through the community loan concept.

To leverage the funds of the local governments, the government will also pilot-test the localization of the Community Mortgage Program this year.

"This is consistent with my policy thrust to support the delivery of housing programs and services by the local government units. I have high hopes for the SHFC," Mr. De CAstro said.

"In the coming years, it will take a more significant role not just in program implementation but also in developing nontraditional approaches to collective housing finance," he added.

The housing czar encouraged the developers and financial institutions to take a close look at the housing sector.

"You will surely see a lot of opportunities — specifically in collection services, marketing of acquired assets, and provision of basic services and livelihood programs. The investment managers among you will perhaps realize that housing is now one of the more attractive assets for fund placement," he said.


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