Research report on phil. housing finance sector of Philippines

Institute of Business Science andMedical Arts,Inc.
In Depth Study of Housing Finance Sector
(Philippines)
In Partial Completion of the Requirements in Financial Management 1
School Year 2012 - 2013
Sumitted by Group 3: Submitted to:
Nelsie Grace D. Pineda Mrs. Katherine Cindy Sajul
Honey Grace Mendoza Instructress
Marvin Mejico

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INTRODUCTION
Home is a dream of a person that shows the quantity of efforts, sacrifices, luxuries
and above all gathering funds little by little to afford one’s dream. Home is one of the
things that everyone wants to own. Home is a shelter to, person where he rests and feels
comfortable. And in every nation, every family dream of having their own house. The
prevailing public viewpoint is that every household must own a house, no matter how
humble it may be. Its opposite, renting a house is a less preferred, second best situation.
Home ownership is preferred because of the assurance of a place to live in, its
investment value, the status given by society to home ownership and the uncertainties
of its opposite - renting.
As in other Asian countries, housing situation in the Philippines is characterized
by the emergence of continuing demand for affordable housing units in response of the
increasing population and household size, both in urban and rural areas. Affordability
poses a challenge due to such factors as low income levels, inadequate supply of
desired units and limited accessibility to housing finance packages.
Housing need for the period of 2007-2016 is estimated at 7,552,409 units, which
is admittedly huge and far greater than what the government can respond to by itself.
This total consist of 3.9 million units comprising of future housing needs resulting from

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population growth; plus some 1.3 million in housing backlog, consisting of housing
needs for the homeless (e.g. living in caves, under the bridge, in agricultural/industrial/
commercial buildings, push carts, and streets) dilapidated or condemned housing units,
marginal housing and double-up households in acceptable housing units; and some
estimated allowances for inventory losses.
The rapid formation of new households, especially in urban areas, has
contributed to an acute demand for housing that has not been adequately met by the
supply side of the market. Over the last decade, the private sector provided an annual
average of 50,000 housing units, mostly for non-poor families. The government-led
shelter program provided on average only about 277,404 “units of housing assistance”,
from July 2010 to December 2011, many of which went to employed members of
pension funds. The demand-supply gap is mostly noticeable at the lower end of the
housing market as the poorer households failed to get access to decent housing. In
turn, the government has intervened in the housing market to make it more responsive
to demand, especially of the poor households. Government intervention consists of
regulatory, production and financing measures. To provide shelter for the poor, the
government has set aside P7 billion for the housing sector, 23 percent higher than the
2011 appropriation of P5.7 billion. In particular, the National Housing Authority will have
P5.6 billion to resettle families affected by calamities and living along high-risk, and to
support medium-rise housing and slum upgrading programs.

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The housing situation in the Philippines faces new issues and challenges. This
paper will discuss the improvements made in the housing finance sector, the expected
trends, and the areas of needed reform; the housing needs of the public and the efforts
of government in satisfying these needs; resource mobilization and budgetary
appropriations on housing programs; as well as home lending programs of private and
public agencies. Furthermore, strategies on home development and urbanization are
discussed for effective implementation of housing programs as means of poverty
reduction and people empowerment.
The paper will briefly outline the context in which the housing finance sector
operates – the macro-economic environment, the overall financial system and the
housing market – before detailing the development, structure, products and extend of
both the mortgage and microfinance sector for housing and the subsidies that apply to
housing finance. It concludes with a summary of main recommendations.

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REVIEW OF RELATED LITERATURE
Based on the study conducted by the World Bank on Housing Finance of the
Philippines on 1982, residential construction in the urban Philippines is dominated by a
few big developers who acquire land and prepare serviced lots. Some have their own
building contractors associated with them, but nearly all will sell serviced lots to
households for them to contract (eventually) on their own for a home or sell to
contractors for home building. Consequently this industry has emerged into the most
popular means of providing affordable housing to Filipinos through real estate
businesses.
Year before that, the government adopted a total system approach in housing
finance production and regulation. An interacting network of Housing agencies with
specific functions, namely funds generation, mortgage purchase, mortgage guarantee,
regulation and socialized housing production was established and maintained. A
housing finance system, with the long term, objective of integrating savings
mobilization, secondary trading and credit insurance, was put into place. Unfortunately,
the system failed to take off beyond the primary mortgage market, and even the
mortgage origination set up with a single mortgage lending institution was sub-optimal.

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Subsequent shifts in housing policies and programs were undertaken in line with
the United Nations Global Shelter Strategy. In 1986, a Revised National Shelter Program
was implemented with the primary object of developing a self- sustaining and equitable
housing delivery system through increased private sector participation in both housing
finance and production. In addition to the set- up established in 1991, Executive Order
No. 90 provided a source of funds for housing finance through the country’s social
insurance and provident institutions: the Social Security System (SSS), the Government
Service Insurance System (GSIS) and the Home Development Mutual Fund (HDMF).
Housing finance in the Philippines has been characterized by both development
period and mortgage financing being focused essentially on two segments of the
market, luxury housing and “mass housing “in the P 80,000 to P150, 000 ranges. This
harmony of supplier and household financing has made these the vibrant sectors of the
housing market, but at the cost of undernourishment elsewhere.
According to the study on the Dynamics on Housing Demand in the Philippines:
Income and lifecycle effects by Marife Ballesteros (2002), the root of the housing
shortage is the fact that the majority of households are unable to pay for the cost of
housing and land. The minimum housing cost of P150 thousand per unit is 3.8 times the
yearly wages of an unskilled laborer in 1997. Likewise, a P250 thousand unit housing is
3.1 times the annual income of an employee earning a median income of P6, 700 per
month. This ratio is expected to be on the rise given the high rate of increase of housing

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prices in the country. Average annual housing price appreciation in the Philippines (i.e.
Manila) is 32 percent per year, the highest among other major cities in Asia (HABITAT
and World Bank 1993). The table below summarizes the results of the aforementioned
study.
Table 1. Key Features of the Housing Market in the Philippines
Feature Underlying Causes
High unit housing cost relative to income
Low wages, high unemployment,
Construction cost rising faster than wages,
high rate of increase in urban land prices
high rate of increase in urban land prices
Scarcity due to limited infrastructure
developments, scarcity due to institutional
problems (e.g. property rights and
bureaucratic bottlenecks), holding of lands
due to low land and property tax
Lack of long term financing and
unsustainable housing finance
Undeveloped secondary markets, graft and
corruption, poor subsidy transfer
mechanism
Undeveloped rental housing market for
low income households
Government bias on home ownership, rent
control law
Gilberto M. Llanto emphasizes two housing finance projects of the government in
his “Environment and Urbanization; Shelter finance strategies for the poor:
Philippines,2007”. First, The Community Mortgage Program, which is designed to meet
the need for shelter financing for the poor, is a low-income home financing program
that allows informal settlers to acquire an undivided tract of land through a community
mortgage. The CMP has two kinds of project: on-site and off-site. On-site projects allow
illegal settlers to formalize claim to the land they occupy by buying it from the owner

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through a community mortgage loan. Off-site projects entail relocation to another area.
The main source of funding is government budgetary appropriation, which is given to
the Social Housing Finance Corporation (SHFC) to manage. The loan packages are not
only for lot acquisition but also for home improvements and construction. The loan is
amortized monthly over a 25-year period. It is primarily informal settlers wanting to
access lots and legal titles who have used the CMP. During the period 1993–1998, the
CMP accounted for an estimated 60 per cent of “completed units of assistance” targeted
by the NSP. The CMP seems to be a successful housing program for urban poor
households in terms of reach and affordability. However, despite its better than average
collection rates, the CMP faces a sustainability problem. Loan repayment rates are highly
variable across community associations. The government, which has problems with its
huge fiscal deficit, would be hard pressed to continue allocating a huge budgetary
appropriation annually to the CMP. Reasons for low repayment rates are as follows:
1. In off-site projects, it was difficult to organize heterogeneous households. In
on-site projects, problems were related to group size and maintenance of
cohesion and cooperation among group members;
2. weak monitoring systems;
3. cases where community association officers “temporarily borrowed” the loan
collections and these were never repaid;
4. weak enforcement of the community associations’ internal rules;

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5. the suitability of the location of CMP projects for human habitation
6. Recalcitrant households are bound to emerge who refuse to repay the loans
on various pretexts or excuses.
Next is the The Development of Poor Urban Communities Sector Project
(DPUCSP). DPUCSP is a decentralized shelter finance strategy for the urban poor jointly
developed by the government, the Development Bank of the Philippines (DBP) and the
Asian Development Bank. Intended for implementation during the period 2003–2009,
the project has three components: site development, shelter finance and capability
building of agencies involved in the project. The main channels for retail loans to urban
poor households will be microfinance institutions such as microfinance rural banks,
NGOs and cooperatives, which will get funding from the DBP. There is private sector
participation in shelter financing, a decentralized shelter delivery framework with the
help of local government units, NGOs and other community-based organizations and a
break away from ill-targeted credit subsidies. Research shows the positive effect of a
community-based perspective in World Bank-supported projects. The participation of
microfinance institutions enables the DPUCSP to draw on their strengths in reaching the
intended beneficiaries and efficiently collecting loan repayments.
Llanto and Orbeta (“The State of Philippine Housing Programmes: A Critical
Look at How Philippine Housing Subsidies Work - 2001”) observed that of the
government’s housing programs, it is only with the CMP and the resettlement of

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informal settlers that there is a matching of intended and actual beneficiaries of the
subsidy. The Philippine experience with housing subsidies showed that credit subsidies
were captured by unintended beneficiaries and caused distortions in the credit markets.
The transfer of credit subsidies takes place through banks or lending institutions that
may have biases against the intended beneficiaries, i.e. poor households. High
transaction costs, information asymmetry and a perception of high credit risks prevent
the poor from accessing the formal credit markets. Thus, the non-poor tend to capture
the subsidies.
The recent studies showed the efforts made by the government to meet the
inflated housing demands but such efforts are hampered by the inaccessibility and non
suitability for habitation of the programs, delinquent payments and increasing urban
prices. The existence of informal settlers in Metro Manila proves the scenario. More
programs are now being implemented so as to reduce the housing gap of the country
which will be discussed later in this paper.
METHODOLOGY
Data Collection

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Informations on housing finance system of the Philippines were collected
through recent studies conducted by the World Bank, the PIDS and other relevant
researchers. The housing demand facts and figures were gathered from the estimation
of The Development of Shelter Monitoring and Information System for year 2007-2016.
Population figures and distribution were extracted from the National Statistics Office
online portal inclusive of current and projected population. Cost of living and economic
indicators were collected through reliable online websites. Details on housing programs
and performance reports were obtained from different national agencies such as
HUDCC, NHA, HUGC, HGC NHMFC and Pag-ibig.
Statistical Treatment
After collecting the necessary data, a comparison of the past figures with the
current statistics were made to distinguish the boom in population and the degree of
developments on housing finance of the Philippines. The differences between figures
are determined and the rates of increase or decrease are finally obtained.
In determining the housing need the following computation was used:
Housing need = Housing needs (HN) for the Homeless
+ HN for HHs in dilapidated/condemned HUs
+ HN for HHs in marginal HUs
+ HN for Doubled-up HHs in acceptable Hus
+ Allowance for inventory losses
+ Projected increase in household population
Allowance for inventory losses

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• computed by multiplying the derived replacement
rate (1.33%) to the number of households living in other acceptable HUs (O*)
Definition of Terms
Other acceptable HUs (O*) = [HHs in HUs – (Homeless + HHs in
Dilapidated/Condemned Units + Doubled-up
HHs + HHs in HUs made up of predominantly or entirely makeshift/salvaged materials]
Discussion Procedure
The discussion of the topics are divided into chapters namely, the
macroeconomy, the housing sector, finance sector and government subsidy. Each
chapter is comprehensively discussed to fully illustrate the housing situation in the
Philippines. Statistical data which includes graphic representation from relevant sources
are provided therein. Furthermore, a more comprehensive illustration of data is provided
in the appendices for additional reference.
I. The Macroeconomy

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Under this chapter, the economic situation of the Philippines is presented, its
economic growth, private consumption rate, labor force and economic inflows brought
about by OFW remittances and new investment. The said economic indicators are linked
to housing and its future implications.
Economic Growth
In the second quarter of 2013, Philippines’ GDP expanded an annual 7.5 percent,
from 7.7 percent in the previous quarter and 6.3 percent a year earlier. Strong consumer
and public spending, together with increasing investment were enough to offset a drop
in the external sector. As in previous years, private consumption would provide the basis
for growth. Sustained increase in investment, particularly in construction, and higher
public spending, would provide an extra boost. Growth in exports would hinge on the
recovery of electronics exports and higher growth of non-electronics. The economic
growth projection of 6.4 percent in 2014 would depend on the ability of the government
to further increase infrastructure spending and the private sector to increase investment
spending.
Private Consumption
Private consumption grew by 6.1 percent and contributed 4.3 percentage points
(ppt) to overall growth. Private construction also performed well, growing by 8.6
percent. It contributed 0.5 ppt to GDP growth as demand for residential and office space
accelerated. Overseas workers’ remittances remained an important driver of private

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consumption, and lately, private investment in housing and real estate. According to the
Consumer Expectations Survey of the Bangko Sentral ng Pilipinas, around 12 percent of
surveyed households in 2012 used remittances to buy real estate properties.
Labor Force
The latest round of the Labor Force Survey (LFS) in January 2013 estimated that
net job generation declined to 606,000 from 1.1 million a year ago, or almost 50 percent
lower. Agriculture actually shed 637,000 jobs, while manufacturing, other industries, and
services recorded net job creation of 125,000, 268,000, and 851,000, respectively (Figure
1). Most workers in the services sector are informally employed. In recent years, net job
creation has fallen short of the increase in the working age population (i.e., the potential
labor force) indicating that the economy remains hard pressed to provide good jobs to
majority of Filipinos (Figure 2).
Remittance growth of at least 5 percent will sustain the growth of private
consumption and to some extent household investment in housing and real estate.
However, there is growing concern about the effects of the rapid capital inflow, which is
fuelling the high growth of the asset and credit markets (Table 2).
Fig. 1 Only about 600,000 jobs (on a net basis)
were created in January 2013.
Figure 2. Net job creation in January 2013 was
significantly lower than the change in the
potential labor force.

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Table 2. Growth of Loans by Universal and Commercial Banks
2010 2011 2012
Total Loans
Gross of revenue repurchase(RRPs) arrangement 8.9 16.4 15.4
Net or RRPs arrangement 8.9 19.3 16.2
Real Estate Loans* 12.2 25.2 29.7
Credit card loans 4.2 9.0 13.4
Source: BSP
Note:* includes loans in renting and other business activities sector
Price Indices
The Philippines’ annual headline inflation accelerated to 2.7 percent in September
from 2.1 percent in August. A higher annual increment in the heavily-weighted food and
non-alcoholic beverages index primarily brought about the uptrend. Faster annual
increases in the indices of alcoholic beverages and tobacco; housing, water, electricity,
gas and other fuels; and health were also noticed during the month. Inflation a year ago
was 3.7 percent. Year-on-year inflation in the Philippines was higher in four commodity
groups namely: food and non-alcoholic beverages index (2.5% from 1.8%); alcoholic
beverages and tobacco index (31.2% from 31.0%); housing, water, electricity, gas and

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other fuels index (1.1% from -0.3%); and health index (2.7% from 2.6%). The rest of the
commodity groups have either slower annual increments or retained their previous
month’s annual rate. Source: NSO
Index
Consumer Price Index (Excl.Rent): 41.03
Rent Index: 8.57
Groceries Index: 42.95
Restaurants Index: 23.18
Consumer Price Plus Rent Index: 25.44
Local Purchasing Power: 29.48
Philippines Housing Index
Housing Index in Philippines decreased to 8839000 PHP THO in December of 2012
from 9315000 PHP THO in November of 2012. Housing Index in Philippines is reported
by the NSO, Philippines. Philippines Housing Index averaged 4746634.81 PHP THO from
1979 until 2012, reaching an all time high of 80880327 PHP THO in April of 2000 and a
record low of 22571 PHP THO in June of 1979. In Philippines, Housing Index is measured
by the value of real estate transactions.

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II. The Housing Sector
The subject of this study is housing finance in the Philippines; however, to
provide the essential background against which to view the functions to which the
housing finance must serve, this chapter describes the current housing finance situation
in the country. In addition to dwelling conditions, the extent of homeownership and the
demand for housing, the discussion also covers some selected features of the residential
construction industry. Finally, it should be noted that the focus of this chapter, and
indeed of the whole report, is on urban housing.
Population Boost
Between the years 1990 – 2000, population grew at a rate of 2.34%, which slightly
declined during 2000 – 2010 with a rate of 1.90%. Manila and Quezon City maintains to
be in the top for two decades. It is expected that this ratio will continue to increase for
the ensuing years. (Appendix A 1 and 2)
Informal Settlers
The housing problem is evident in the proliferation of slums and informal
settlements in the urban areas. Informal settlements have grown by leaps and bounds.
In Metro Manila, households in informal settlements increased by more than 81 percent
between 2000 and 2006. Recent estimates show that more than a third of urban
populations are slum dwellers. In Metro Manila there were about 581,059 informal

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settlers (data from HUDCC as of July 26, 2010). These communities are characterized by
unsanitary conditions, congestion, and limited access to basic urban services (e.g., health
centers, schools, waste disposal, safe water supply). With rural urban migration expected
to continue, and six out of ten Filipinos living in urban areas, addressing the housing
problem must be embedded within a larger urban development framework or
environmental sustainability. Resettlement and relocation programs have been
implemented but have attained limited success in providing employment, livelihood
opportunities, and adequate services to many of the relocates.
Table 3. Proportion of Households in Informal Settlements
2000 2006 Growth (%)
All households
Philippines 3.60 3.80 5.55
Urban 3.48 5.65 62.35
Metro Manila 5.30 9.60 81.13
Income Expenditure for Housing
Survey showed that each household spends Php 70,000 to 900,000 for housing
construction/rental, and maintenance and repair base on their income. The amount
spend on housing construction and rental of house and lot varies but at a very minimal
difference. This only suggests that the allowance for rental is almost equal with building
a house. Rationally, if chances are provided, it is more practical to build a house rather
than to rent. Appendix B shows figures of this.

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Housing Demand
The National Urban Development and Housing Framework (NUDHF) 2009-
2016 finds the housing problem to be serious and is a largely urban phenomenon. The
magnitude of housing need, defined as the housing backlog plus new households, is

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enormous and is estimated to reach about 5.8 million Housing units in 2016 In Metro
Manila; the total backlog has been projected to reach 496,928 housing units.
With an enormous total housing need of 3.7 million as of 2010, a total of
812,463 housing and shelter security units (i.e., house and/or lot) were provided from
2004 to 2010. The National Urban Development and Housing Framework (NUDHF) 2009
- 2016 indicate that Regions 3, 4B and NCR account for about half of the total housing
need.
Table 4. Total Housing Need by Region 2011 - 2016

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Estimate of Housing Needs 2007-2016
Accumulated Housing Needs (As of Jan 1, 2007) 1,273,395
ALLOWANCE FOR INVENTORY LOSSES (2007-2016) 2,369,025
NEW HOUSEHOLDS (2007-2016) 3,909,990
New HHs (likely to afford to own/rent acceptable HU) 3,624,999
New HHs (incremental to the accumulated needs) 284,991
TOTAL 7,552,409
Informal Residential Construction
Outside of Metro-Manila there are very few even middle-size contractors. Small
firms are the rule. "Foremen" who operate out of their homes account for two-thirds or
even more of the market. The small contractors and individual skilled craftsmen serve
the informal housing market needs for major improvements to existing, often low-
quality units. To reduce out-of-pocket expenditures, it is common for members of the
household to work with the hired craftsmen or additionally to assemble other family
members and friends as well. Furthermore, the information flow on locating and hiring
such craftsmen appears to be very good.

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Dwelling Status
The 2010 Census of Population and Housing (2010 CPH), counted a total of
19,715,695 occupied housing units in the Philippines as of May 1, 2010. These are
housing units with households and persons
living in them at the time of census
enumeration. Between 2000 and 2010, the
number of occupied housing units increased
by 4,824,568 or 32.4 percent. Of the six
decennial censuses in the country, the
inventory of housing units between the 1980
CPH and 1990 CPH had the largest increase of
total occupied housing units at about
40.9 percent.
Among the 17 regions, Region IV-
A had the most number of occupied
housing units, making up 14.1 percent of
the total occupied housing units at the
national level. This was followed by the
National Capital Region with a 13.4

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percent share. Region VI had the most number of occupied housing units in the Visayas
while Region XI ranked first in Mindanao.
A total of 19,715,695 occupied housing units and 20,171,899 households in the
Philippines in 2010. These translate to a ratio of 102 households for every 100 occupied
housing units, with an average of 4.7 persons per occupied housing unit. In 2000, there
were 103 households per 100 occupied housing units and 5.1 persons per occupied
housing unit.
In 2010, single houses made up 86.5 percent of the total occupied housing units
in the country. About 4.5 percent were of duplex type while 8.5 percent were multi-unit
residential buildings/houses. By comparison, in 2000, single houses accounted for 87.7
percent of the total occupied housing units, 3.5 percent were duplex and 6.9 percent
were multi-unit residential buildings or houses.
In 2010, 45.7 percent of the occupied housing units in the country had outer walls
made of concrete/brick/stone, up from 30.8 percent in 2000. The proportion of
occupied housing units with outer walls made of wood, on the other hand, decreased
from 22.7 percent in 2000 to 18.1 percent in 2010. Similarly, those with outer walls
made of bamboo/sawali/cogon/nipa decreased from 22.8 percent in 2000 to 18.1
percent in 2010.
Meanwhile, majority (78.1 percent) of the occupied housing units in 2010 had
roofs made of galvanized iron/aluminum. This is higher than the proportion of 67.6

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percent recorded in 2000. The proportion of occupied housing units with roofs made of
cogon/nipa/anahaw, on the other hand, declined from 22.3 percent in 2000 to 15.0
percent in 2010.
By comparison, all regions in Luzon, except for Region IVB, were reported as
having the largest proportion of housing units with outer walls made of
concrete/brick/stone ranging from 40.2 percent to 70.8 percent. In contrast, four
regions reported to have the largest proportion of occupied housing units with outer
walls made of bamboo/sawali/cogon/nipa. These are Region IVB with 42.2 percent,
Region VI with 40.5, Region XII with 39.0 percent, and Region XI with 28.8 percent. On
the other hand, four regions were reported as having the largest proportion of occupied
housing units with outer walls made of wood, namely, CARAGA with 55.5 percent,
ARMM with 49.6 percent, Region X with 41.1 percent, and Region IX with 39.0 percent.
Across the country, a proportion of about 54.5 percent to 89.4 percent of the
occupied housing units in each region had roofs made of galvanized iron/aluminum.
Eight in every 10 occupied housing units (77.7 percent) in the country in 2010
either did not need repair or needed a minor repair. About 14.9 percent were reported
as needing a major repair. The rest of the occupied housing units were categorized as
follows: unfinished construction (3.4 percent), under construction (1.2 percent), under
renovation/being repaired (0.9 percent), and dilapidated/condemned (0.4 percent).

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Two fifths (40.1 percent) of the occupied housing units in the Philippines were
built within 10 years prior to the 2010 CPH, that is, in the period 2001 to 2010. Eleven
regions recorded proportion of occupied housing units built in the period 2001 to 2010
higher than the national figure of 40.1 percent. About 25.3 percent were built during the
period 1991 to 2000. The remaining 34.6 percent were built more than 20 years prior to
the 2010 CPH with 14.9 percent during the period 1981 to 1990, 7.4 percent during the
period 1971 to 1980, and 6.5 percent in 1970 or earlier.
In 2010, 61.7 percent of the total 20,171,899 households in the country owned or
amortized the lots that they occupied. The corresponding figure in 2000 was 52.6
percent of the total 15,278,808 households. Moreover, 22.2 percent of the households
occupied lots for free but with consent of the owner. On the other hand, about 12.1
percent rented the lots that they occupied. Only two regions had proportions higher
than the recorded national figure. These are NCR (33.4 percent) and Region IVA (15.0
percent). Meanwhile, 2.4 percent occupied lots for free without consent of the owner.
(See Appendix B)

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III. Financial Sector
This chapter discusses the current situation of the financial sector in the
Philippines paying particular attention with the real estate business funding. More
specifically, the focus is on the lending status of real estate firms and contributing
factors to its prices.
The construction and real estate sectors contributed significantly to the faster-than-
expected expansion of the Philippine economy in 2012. The central bank’s
accommodating monetary policy stance, which has resulted in the lowest interest rate
regime, has encouraged lending to construction and real estate activities. Construction
and real estate grew by 14.4 and 18.9 percent, respectively, in 2012. Their average
growth rates of 12.4 and 8.2 percent, respectively, from 2010 to 2012 were the highest
since 1995-1997. Bank lending to real estate grew by an average of 14 percent in the
last three years. Since 2010, strong capital inflows and domestic demand have fueled
the growth of the stock market. The main stock market index, along with the property
index, doubled in value in the last three years. And, since 2004, while real estate selling

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prices grew by up to 90 percent, rental values on the average rose by around 60
percent. Some observers argue that the current economic landscape exhibits some
similarities to the two years preceding the 1997 financial sector crisis. In the light of
these trends, a concern for the possible emergence of asset price bubbles is
understandable.
The surge in construction and real estate activities reflects higher demand for
office spaces and residential condominiums, and house and lots.
(Figure 2.1; refer to Box 2.1 for an overview of the Philippine real estate market).
Moreover, 2012 growth benefited from low base effect, because between 2009 and
2011, real estate companies put on hold major development projects in light of the
volatile growth outlook brought about by the European fiscal crisis and slowdown in
other advanced economies. By Q4 2011, many Philippine real estate companies,
encouraged by the positive prospects for the Philippines, resumed construction of
projects previously put on hold. The country’s fast-growing business process
outsourcing (BPO) industry and robust overseas Filipino workers' (OFW) remittances are
the main sources of demand for office and residential properties (Figure 2.2). For
example, the luxury residential segment, which largely caters to the expatriate market
(e.g., BPO expatriates), expects to see an additional 10,600 units in 2013 from an annual
average of 3,500 units in the last 5 years, while the Makati Central Business District (CBD)

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expects to see an additional 336,000 square meters (m2
) of office spaces in 2013 from an
annual average of about 178,000 m2
in the last 5 years (Figures 2.3 and 2.4).
Real estate price inflation in recent years is much lower than in the pre-1997
period.
Though rising, capital and rental values are still below their 1997 peaks, as supply
remains relatively strong. The average selling price for mid-range residential
condominiums grew by up to 90 percent since 2004 to around PHP100,000 per square
meter (sqm). High-end units now sell at prices up to PHP 200,000 per sqm, an increase
of 50 percent.1
In contrast, rental values have not increased by as much since 2005.
1
This refers to the average capital value for premium three-bedroom units in the Makati central business district.
Source: Colliers International Philippines Research (2012)
They are currently lower relative to 1992-97, which saw a tripling of rental rates. The
rental price of Grade A office space in Metro Manila CBDs ranges from about PHP 800

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to 1,000 per sqm, still below the 1997 peak of PHP 1,200. On housing rental, the official
statistics show that housing rental inflation hovered at around 3 percent from 2007
through early 2013 from a high of 18 percent in 1996 (Figure 2.5). Since 2008, the
divergence between rental and sale values is not growing as fast as one would expect if
there was a real estate bubble developing.2
The inflation outlook for rental values is expected to be moderate given the high
supply of pipeline residential condominiums and office spaces.

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At the same time, most banking sector indicators show significant improvements
from their levels in the 1990s, thanks to the prudent banking policies put in place after
the 1997 crisis. Lending to real estate is capped by prudential measures such as limits to
bank exposure to real estate to at most 20 percent of total loan portfolio (TLP).3
Bank
asset indicators have also improved remarkably. Non-performing loans as a share of
banks’ TLP have gone down to 2 percent from 14 percent in 1996. Bank lending to real
estate is still relatively modest considering that interest rates are at historically low levels
(e.g., bank lending rate of as low as 5 percent from over 15 percent in 1997).
Low interest rates are driving real estate lending but leverage is still low relative to
1997. In 2012, real estate loans (RELs) grew by around 30 percent and were equivalent
to 4 percent of GDP, lower than 1997’s 60 percent growth and RELs equivalent to 6
percent of GDP. Thus far, the balance sheets of top real estate companies remain
healthy. The average debt-to-equity ratio of the top six Philippine real estate companies
weighted by market capitalization was around 53 percent in 2012 (Table 2.1), lower than
the debt-to-equity ratios seen at the height of the Asian financial crisis (i.e., 66 percent
for the top real estate companies and 170 percent for the Philippines’ top 1,000 non-
financial corporations).4
3
Source: BSP Circular No. 600 on regulatory framework governing bank real estate loans.

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4
World Bank staff estimates. Source: SEC 17-A forms, Business World top 1,000 corporations.
Risks arising from bank lending to real estate firms are lower today.
This is because i) many weaker firms have been weeded out following the 1997
financial crisis, ii) the balance sheets of the remaining firms are stronger given lower
leverage, iii) there has been a shift from lending against specific projects to lending
against developers’ balance sheets, and iv) developers are making more prudent
decisions and are adapting better to difficult times by recalibrating the pace of real
estate development and postponing new project launches when the outlook turns
negative, among others. 5
Moreover, most real estate companies have adopted the practice of pre-selling
properties and starting construction only after reaching 60 percent in pre-sales to
further reduce risks.
Through pre-selling, firms are protected from over committing resources to a
project without adequate revenue cover.6
This practice, among others, is credited for
having averted a hard landing in 2009.7
In the case of office buildings, construction

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normally begins only after a portion of the leasable area has been pre-committed to
tenants. While the pre-commitment requirement used to be 60 percent for office
buildings, this has gone down to around 30 percent in recent years due to the high
demand and faster turn-over time required by expanding BPO companies.
5 See Le Borgne, et. al. (2009) for more discussion
6
However, through pre-selling, a substantial portion of the risk is transferred from developers to buyers
and not necessarily reduced
7
See Le Borgne, et. al. (2009) for more discussion

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Box 1.1Overview of the Philippine Real Estate Market
The Philippine real estate market comprises five main segments: i) residential (e.g.,
condominium units, and house and lots), ii) office spaces, iii) shopping malls, iv)
hotels, and v) industrial lots. The residential segment accounts for the biggest share of
total revenues at around 55 percent (equivalent to 6.4 percent of GDP).8
Leasing of
shopping malls and office spaces comprise another 40 percent of the property market
(Box Figure 1.1).
Real estate development has expanded geographically. Private building
construction has become more dispersed with the development of new projects outside
Metro Manila such as the Provinces of Cavite and Laguna, and Metro Cebu and Metro
Davao. The concentration of construction activity in Metro Manila has gone down to
40 percent from almost 80 percent in pre-1997 and 60 percent prior to 2009 (Box
Figure 1.2).
The demand for mid-range residential properties mostly comes from residents and
OFWs, and funded by savings, remittances, and stock market earnings. Buyers
comprise both local end-users and investors.
8
This is estimated as the weighted revenue shares per segment of the top five Philippine real estate
companies according to market capitalization. Source: SEC 17-A reports of real estate companies.

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End-users include residents and OFWs who buy condominium units for use as
“vacation houses” (i.e., the unit is used when OFWs return to the Philippines and are
largely left vacant for the rest of the year). High-end/luxury properties are largely
purchased for investment, with the purpose of renting out the unit to the expatriate
market.
Source: Real estate companies’ SEC 17-A reports and PEU Author’s interviews with Philippine
property management and research firms, and real estate companies in December 2011, and
February and April 2013.

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IV. Government Subsidy
Housing is households' largest and most widely owned asset. To substantially
improve the conditions of the targeted sectors, such as tl3e poor's access to housing,
the Philippine government has provided subsidies that are expected to bring down
housing costs. The subsidies in the housing markets are meant to enable the majority of
the population to afford housing units that are made available to them at a lower cost.
Brief overview
During the 1970s and up to the mid-1980s, the government was involved in the
direct production and provision of housing and related services and it imposed rent
control in an attempt to make housing more accessible to the low- and middle-income
groups. It also initiated the creation of a secondary mortgage system operated through
the National Home Mortgage Finance Corporation (NHMFC) that purchased the
mortgages of loan-originating financial institutions. The NHMFC drew funding from the
Home Development Mutual Fund (HDMF), paying 12.75 percent per annum. Those
funds were then lent to HDMF members at subsidized interest rates.
In 1987, to rationalize the housing sector, the Aquino government created,
through Executive Order No. 90, the Housing and Urban Development Coordinating
Council (HUDCC), the highest policymaking and coordinating body for urban and

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housing development. It formulates policies and guidelines to accomplish the National
Shelter Program, a scheme intended to deal with the housing backlog. HUDCC
coordinates, monitors and exercises oversight functions over the activities of
government agencies such as the National Housing Authority (NHA), NHMFC, Home
Insurance Guaranty Corporation (HIGC)*
, and the Housing and Land Use Regulatory
Board (HLRB). NHA is the sole government agency responsible for housing production.
The HDMF, Social Security System (SSS) and Government Service insurance System
(GSIS) provide funds to the NHMFC which is tasked to administer the government's
Unified Home Lending Program (UHLP). The UHLP distinguishes "socialized" housing
from "economic" housing and maintains different financing approaches and regulations
in each of these categories. EO 90 enlists the support and cooperation of the private
sector in the production and financing of low-cost or "socialized" housing. The
government encourages both private builders and financial institutions to cater to the
lower segment of the housing market by providing them a package of mostly financial
incentives and subsidies. Under the Urban Housing and Development Act of 1992 (RA
7279), a major piece of social legislation under the Aquino administration, the
government seeks to undertake the following objectives:
(1) provide decent shelter to the poor;
*HIGC is now called the Home Guaranty Corporation (HGC) by virtue of Republic Act 8763 (March 7, 2000) that
provided it a new mandate: to pursue the development
(2) develop a framework for the use of urban land;

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(3) involve the community in shelter development and construction;
(4) maximize local government participation in socialized housing; and
(5)employ the services of the private sector in socialized housing programs.
A companion piece of legislation, the Local Government Code of 1991 (RA 7160),
provides that local government units (LGUs) be jointly responsible over the provision of
socialized housing and regulation of shelter-related activities.
The National Shelter Program
The National Shelter Program (NSP) is the government's comprehensive strategy
to address the country's housing problem. It rests on three basic principles, namely:
(1) reliance on the initiative and capability of beneficiaries to solve their housing
problem with minimum assistance from the government;
(2) the private sector as the principal player in providing decent and affordable
housing; and (3) the government as enabler, facilitator and catalyst in the
housing market, while focusing assistance to families within the poverty line.
The NSP has four major programs:
(1) production of housing units,
(2) mortgage financing,
(3) developmental loans and
(4) community programs.

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These programs target either direct end-beneficiaries households or private
developers/private banks--the intermediary institutions used by the government to
direct assistance to beneficiaries.
Private homebuilders have reinforced the policy bias for homeownership by
declaring that the National Shelter Program (NSP) targets can be attained given
adequate funding from the government. This policy has led government to try to raise
as much funding as possible for home ownership by households, especially the low
income group and make it available as cheaply as can be provided. Making cheap funds

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available became synonymous to providing interest subsidies to prospective
homeowners, and other types of subsidies to the housing sector in general.
Housing Finance System of the Government
The agencies involved in housing finance are the NHMFC, SSS, GSIS and HDMF.
These agencies provide mortgage loans to low- and middle-income borrowers. The
NHMFC provides takeout funding to public and private institutions using funds
provided by GSIS, SSS and HDMF. The NHMFC uses those funds to take out mortgage
loans originated by private developers and private banks using the so called "formula
lending" approach. It is to be noted that funding doesn’t come from the General
Appropriation Act.
The government uses a combination of direct subsidies through concessional
interest rates, and indirect subsidies, e.g., tax breaks, guarantee schemes, etc. Indirect
subsidies also include periodic recapitalization to strengthen, insolvent housing
agencies.
Housing Subsidy Programs
The Home Development and Mutual Fund or Pag-IBIG Fund has several
programs to address the housing requirements not only of its members but of private
developers as well. These include:
A. Credit Facility for Individual Members

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This is a financing program for active Pag-IBIG members here and abroad who
have completed the necessary monthly contributions. The housing loan may be used to
purchase a fully developed lot or house and lot, purchase of lot and construction of a
residential unit thereon, construction or completion of a house on a lot owned by the
member, home improvement, and refinancing of an existing mortgage with an
institution acceptable to Pag-IBIG.
B. Facilities for Private Developers
The Pag-ibig Credit Facility for Developers aims to provide a liquidity mechanism
for private developers to enable them to continue developing housing projects pending
the take-out of delivered and complete housing loan applications. Under this facility are
several schemes which the developer may avail of such as:
 Pag-IBIG Developmental Loan Program, which seeks to create additional housing
inventories through the provision of developmental financing at easier terms and
lower rates to developers or proponents of housing projects.
Pag-IBIG City Program, which provides a ready inventory of completed housing
units in a project to be known as a Pag-IBIG City, which shall be available for sale at
more affordable prices to Pag-IBIG members.
This program also intends to lower the project financing costs for housing
development since HDMF shall provide a faster turnaround of the developer’s

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investment, thereby increasing his capacity for housing production. This shall redound
to the benefit of Pag-IBIG members in terms of lower priced housing packages.
 Takeout Mechanism under The Developers’ CTS/REM Scheme
In order to fast track the government’s housing program, Pag-IBIG opened the
takeout mechanism under the developers Contract To Sell/Real Estate Mortgage
(CTS/REM) mechanism by providing an express take-out window for accredited
developers who meet the standards set by Pag-IBIG Fund for project development and
house construction.
The program aims to enhance the asset quality of the Pag-IBIG mortgage loan
portfolio by instituting a credit risk-sharing mechanism with housing developers. It also
defines the parameters in the allocation and disbursement of funds allocated for
housing, specifically for developer-assisted member-loans.
 Development of Medium/High-Rise Condominium Building (MHRB) Projects in
Metro Manila and Highly Urbanized Cities
This program aims to provide a ready inventory of condominium units for sale at
more affordable prices to eligible Pag-IBIG members in the Metro Manila area and
highly urbanized cities. Through this program, Pag-IBIG members who are working in
the Metro Manila area and highly urbanized cities will have an opportunity to acquire
condominium units in the area, thereby reducing transportation costs to and from their
places of habitat.

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Through a faster turnaround of their investments in the construction and
development of medium/high-rise condominium buildings in the Metro Manila area
and highly urbanized cities, this program will provide developers with a liquidity
mechanism that will increase their capacity for housing production and reduce project
financing costs.
c. Developmental Housing Loan Program for Local Government Units
This program is geared towards sustaining the capabilities of LGUs to fast track
the development and implementation of housing projects in their respective localities,
and to make housing accessible and affordable for its employees and constituents.
d. Group Land Acquisition And Development (Glad) Program
The GLAD Program aims to provide financial assistance to organized groups of
formally employed Fund members for the acquisition and development of raw land or
partially developed land, which shall serve as the site of their housing units.
2. Abot-Kaya Pabahay Program
The Abot-Kaya Pabahay Fund was created pursuant to R.A. 6846 or the Social
Housing Support Fund Act, with the objectives of enhancing the affordability of low-cost
housing by low-income families and providing developmental financing for low-cost
housing projects thus eliminating risks for the funding agencies involved in housing.
The program was devoted to provide amortization support, expedite the
development of land into suitable sites for social housing by providing developmental

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financing to developers of low-cost housing projects, and establishes a strong
guarantee system to ensure viable cash flow for the funding agencies involved in
housing.
The program is divided into three components namely:
 Amortization Support – A qualified borrower shall be eligible to apply for
administration support. Eligible borrowers with the appropriate family income
shall be entitled to a monthly amortization support for the first five years of the
loan amortization period.
 Developmental Financing – Under this component, proponents of low-cost
housing projects shall be entitled to a developmental financing loan not
exceeding 80% of the entire project cost
Both the Amortization support and Developmental financing components of the
Abot Kaya pabahay Fund are administered by the Socialized Housing Finance
Corporation (SHFC).
 Cash Flow Guarantee – This program, with Home Guarantee Corporation (HGC)
(www.hgc.gov.ph) as trustee and administrator, seeks to eliminate credit risk for
funders of socialized housing loans.
On December 1994, RA 6846 was amended by RA 7835 or the Comprehensive
Integrated Shelter Finance Act (CISFA), which increased the AKPF fund from P2,500
million to P5,500 million and provided specific annual allocations for 5 years. The law

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further states that allocation for the housing programs shall be appropriated annually
for a period of five (5) years or until such time the total fund requirement provided for in
this Act shall be been fully released specifically for the following programs:
Funding for Housing Programs. The total allocation for housing programs and
the funds released to date are as follows:
HOUSING PROGAM ALLOCATED
(In
Million P)
RELEASED
(In
Million P)
UNRELEASED
(In
Million P)
Resettlement Program 5,200.00 5,200.000 0.000
Medium Rise Public and
Private Housing Program,
subsidy for land acquisition,
construction
3,000.00 1,008.100 1,991.900
Community Mortgage
Program
12,780.00 6,575.940 6,204.060
Cost Recoverable Program 2,542.00 467.865 2,074.135
Local Housing Program 3,000.00 639.664 2,360.3
T O T A L
26,522.00 13,891.569 12,630.431
2. Increase in Capitalization of Housing Corporations
The law also increased the capitalization of NHMFC and HGC, with the
corresponding releases to date as shown below:
CORPORATION
AMENDED
CAPITALIZATION (P
M)
TOTAL
RELEASED (P M)
UNRELEASED
(P M)
NHMFC 5,500.00 3,870.51 1,629.49
HGC 2,500.00 2,500.00 0
T O T A L 8,000.00 6,370.51 1,629.49

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In addition to the original P500.00 M capital of NHMFC, the government released
P3,370.51 M in several tranches since 1995 for a total Paid In Capital of P3,870.51 M.
For HGC, its paid up capital prior to CISFA was only P622.35 M out of the
authorized P1,000 M. After enactment of CISFA, the government released a total of
P1,877.65 M to complete the P2,500 M Capitalization.
3. Increase in Abot-Kaya Pabahay Fund
The CISFA law increased the funding for the Abot Kaya Pabahay Program under
R.A. 6846. The table on the allocation and releases for AKPF is shown as follows:
ABOT-KAYA PABAHAY PROGRAM
ALLOCATION VERSUS RELEASES
(In Million Pesos)
PROGRAM
ORIGINAL
ALLOCATION
(R.A. 6846)
AMENDED ALLOCATION
(CISFA LAW) RELEASED
UNRELEASED
(BASED ON
TOTAL
ALLOCATION)
TOTAL
2,500.00 5,500.00 2,265.00 3,235.00
Abot Kaya Pabahay
(NHMFC)
1,500.00 1,500.00 1,140.00 360.00
Amortization Support 1,000.00 1,000.00 760.01 239.99
Development Loan 500.00 500.00 379.99 120.01
Cash Flow Guaranty
System (HGC)
1,000.00 1,500.00 1,035.00 465.00

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Interest Subsidy and
Liquidity Support
(NHMFC)
2,500.00 90.00 2,410.00
Housing Regulation
Housing and Land Use Regulatory Board
Compliance to 20% Balanced Housing Requirement
Section 18 of RA 7279 or the Urban Development and Housing Act of 1992
requires every developer of subdivision projects to develop an area for socialized
housing equivalent to at least twenty percent (20% of the total subdivision area within
the same city or municipality, whenever feasible or total subdivision project cost at the
option of the developer.
The Housing and Land Use Regulatory Board (HLURB) monitors the compliance
of the developers of subdivision projects to the twenty percent (20%) balanced housing
requirement under Republic Act 7279.
The required balanced housing development may also be complied with by the
developers in any of the following modes:
 Development of new settlement;

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 Slum upgrading or renewal of areas for priority development either through
zonal improvement programs and slum improvement and resettlement
programs;
 Joint venture projects with either the local government units or any of the
housing agencies;
 Participation in the Community Mortgage Program (CMP);
 Purchase of housing bonds;
 Accrediting housing projects engaged and developed by non-governmental and
non-profit organizations and foundations for the underprivileged and homeless
sector.
 Registration and accreditation of housing project in government
resettlement areas, as an additional mode of compliance to balanced housing.
In support to the increase of production of housing units for the underprivileged
and homeless sector the HLURB initiated and proved the following policy amendments:
a. Participation in any form in CMP projects as a mode of compliance to Section
18 of RA 7279;
b. Accreditation of Gawad Kalinga (GK) projects and Habitat for Humanity
Philippines (HHP) projects as compliance to Section 18 of RA 7279;

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c. Exemption of GK projects and HHP projects from securing Licenses to Sell
provided that they are not for sale to the general public but rather to be awarded to the
beneficiaries;
For the year 2008, HLURB issued licenses to sell to a total of 2,067 projects or
220,756 units. Of this, 56 projects or 32,503 units were the compliance of private
developers to balanced housing requirement.

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Flow of Funds for Government Housing Programs

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Housing Finance Issues
The lending activities of the insurance companies, like those of commercial banks
are confined to short end of the maturity spectrum and support industrial and
commercial activity. Lending to households is confined to policy loans to individual
customers and mortgage loans for very expensive dwelling units. There has been over
that period a gradual reorientation of insurance company assets away from mortgages,
real property and stocks towards bonds and other investments. These other investments
have been predominantly short term in nature, usually money market placements.
The loans and investments of the private non bank financial intermediaries are
however, dwarfed by those of SSS and GSIS. These two public agencies are major
institutional investors in intermediate-term government securities and play an important
role in housing finance system as well.
In case of SSS there has been a relative shift of the portfolio toward government
securities. The reason for this reversal is two-fold. On the one hand, rising interest rates
have induced SSS to switch to government securities; on the other hand, the mortgage
amount ceiling imposed by SSS has made these loans less useful as house prices have
escalated and the demand for mortgage loans has fallen off.
Notwithstanding the current strong underlying demand and improved
fundamentals of Philippine real estate companies, vulnerabilities in the sector
remain and may build up if key sources of risks are not managed.

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First, as a substantial portion of residential buyers are OFWs, residential sales are
exposed to adverse shocks to the global economy. Industry anecdotes suggest a
significant number of defaults since 2009 by OFWs who are unable to pay their
mortgages.9
Second, the low interest rate environment may lead to moral hazards such as
relaxing credit standards and documentary requirements for household real estate
loans.
For instance, some banks have raised the loan-to-value ratio9
from 70 to 80
percent (and as high as 90 percent according to industry analysts) and have waived
several prudential requirements, such as proof of income, to generate more sales. This
latter practice appears to be more prominent among OFWs who are unable to show
proof of income, but are nevertheless granted loans if they are able to pay the 20
percent down payment. Moreover, anecdotal evidence suggests that some developers
have increasingly used their balance sheets to offer in-house financing (i.e., a form of
shadow banking), as opposed to bank financing.10
This added exposure of developers’
balance sheets has yet to be properly recorded and monitored. Overall, the unknown
magnitude of shadow banking by real estate developers with possibly weaker credit
standards is not reassuring and can be a significant source of risk.
9 Balloon paymentshave been attributed todefaults as some buyersare unaware oflarge lump-sumpayments requiredafter several
months of equal installment payment.
10 The loan-to-value ratiorefers tothe portion of the totalcontract price oftheproperty that can be financed by the bank. A very
high loan-to-value ratio has the effect of reducing buffers against declines in property prices in the event of defaults.

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Finally, the projected end-user demand for condominiums, especially at the mid-
range to high-end, may be overstated, especially since only about 10 percent of the
total population (20 percent in Metro Manila) is considered to be middle class and up.54
According to industry observers, some firms are reported to continue building projects
to preserve their market shares even if end-user demand is slowing down. If this is any
indicator, some investor-buyers are having a hard time renting-out their units at prices
commensurate to their investment. This is particularly true in areas with an oversupply
of projects. Lower rental turnout may adversely affect investor-buyers who availed of
bank or in-house financing.
To mitigate risks, the BSP has tightened the coverage of bank exposure to real
estate. In August 2012, BSP lifted all exemptions in the computation of bank exposure
to real estate and expanded them to cover funds channeled into securities of property
firms. The new BSP guidelines provide a more comprehensive measure of banks’ 20
percent cap on real estate exposure. Previously excluded items which are now included
in the computation are i) mortgage loans, ii) socialized and low cost housing loans, iii)
loans guaranteed by the Home Guarantee Corporation (HGC), and iv) investments in
debt and equity securities issued by real estate companies. Moreover, banks are now
also required to provide additional details on their exposure to the real estate sector
such as i) investments in debt and equity securities that will be used to fund property

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developments, as well as, loans extended to property developers, and ii) ancillary
services relating to the construction and development of real estate projects such as
buying, selling, renting, and managing real estate properties.
In conclusion, the Philippine real estate sector is currently enjoying high rates of
growth, driven by low interest rates, robust OFW remittances, and the fast-
growing BPO sector. It also benefits from improved bank and real estate sector
fundamentals as a result of past and ongoing reforms. The conservative and pre-
emptive stance of the BSP and major market players, which continues today, has helped
to put in place buffers against major shocks. Overall, the sector remains in good health,
thanks to measures initiated by both the private sector and the government to address
past issues.
However, the sources of growth can also become the sources of risk. A real estate
sector driven by OFW sales and BPO leasing is vulnerable to shocks in the global
economy. The low interest rate regime is also a source of risk. As lenders and developers
compete for higher yields, lending requirements may be relaxed beyond prudent levels.

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Concluding Statements
Housing demand in the Philippines has been mainly dictated by housing
affordability, which refers not only to a household’s ability to pay but also to the price of
housing in the market and the financing schemes available. Housing affordability is low
in the country. This is attributed to several factors: first, the ratio of unit housing cost to
income is rapidly rising. Housing price appreciation is highest in the Philippines among
countries in Asia and this is mainly due to rising land prices. Second, there are few low-
cost alternatives to homeownership in the formal market. Many households cannot
afford homeownership. Only about 50 percent of households in the country can afford
to buy a home in the formal market. The situation can be worse in some areas.
Moreover, the rental market, specifically low cost rental housing, is limited, thus,
households engage in various informal housing arrangements (e.g. rent-free occupation,
squatting) and multi-occupancy dwelling has become common. Third, innovative
housing finance is limited and the microfinance schemes available suffer from liquidity
problems and bureaucratic delays.
The above conditions are reflected in the consumption pattern of households.
The path toward acceptable housing has been very slow and housing adjustments have
been confined to home improvements with minimal changes on tenure. Government

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has to address the problems of housing in a broader context. The issues are not only
confined in providing households income transfers through subsidies or in giving access
to housing and security of tenure but also in looking at the larger issue of urban
development. Within the households’ microenvironment, government may consider the
development of the rental housing market, the provision of alternative financing
schemes that takes into account the households’ capacity to pay (e.g. rent to own
schemes, “balloon” payment on amortization, microfinance, etc.), or encourage the
development of “cheap” housing technologies. These actions should, however, be
supported by ways to effectively reduce the high cost of housing in the country. Such
move calls for institutional strengthening specifically in the areas of land management
and administration as well as in local governance.
Moreover, to substantially overcome the backlog on housing schemes, the
following recommendations are provided;
 carefully targeted to the most needy;
 transparent to the public and policy makers;
 funded from budgetary appropriation because the provision of low cost
housing is a public sector policy goal;
 avoiding as much as possible distortions in the credit markets;
 creating incentives for greater participation by the private sector, especially
the banks, and

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 encouraging risk sharing on the part of the borrower, government and the
private sector finance
A summary of comparison in mode of acquiring a house is also provided to give
guidance to individuals planning to build their houses. (See Appendix E)

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Referrences
 National Statistics Office
 Shelter finance strategies for the poor: Philippines Environment and
Urbanization 2007 19: 409, Gilberto M. Llanto, DOI:10.1177/0956247807082821
 http//: Cost of Living in Philippines. Prices in Philippines
 The Dynamics of Housing Demand in the Philippines: Income and Lifecycle
Effects, Marife M. Ballesteros, PIDS Research Paper Series No. 2002-01
 A Study of Housing Subsidies in the Philippines ;Gilberto M. Llanto, Aniceto C.
Orbeta Jr., Ma. Teresa C. Sanchez and Marie Christine G. Tang; PIDS DISCUSSION
PAPER SERIES NO. 98-42
 HOUSING & URBAN DEVELOPMENT COORDINATING COUNCIL
 PHILIPPINE ECONOMIC UPDATE :ACCELERATING REFORMS TO MEET THE
JOBS CHALLENGE; May 2013 ;Poverty Reduction and Economic Management
Unit East Asia and Pacific Region
 Housing Need; National Framework, Operationalization and
Estimation;Development of Information System
 Pampanga Real Estate TV | Pampanga Real Estate Trend, Guide and Review.All
Rights Reserved. CRB Benedict Baluyut, RMT

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