Connecting Buyers and Sellers of Philippine Real Estate
Developer Extended Payment Terms are better and easier to get than Philippine Bank Loans
In our opinion, developer extended Payment Terms or 'In-House' financing for the purchase of subdivison lots, new ready occupancy housing and condo units and preselling projects are better, cheaper and easier to get than Philippine Bank Loans.
Most developers in the Philippines offer a wide range of extended payment terms and payment plans..... what is the best payment plan you have seen from a Philippine developer ?
Most developers in the Philippines offer a wide range of extended payment terms and payment plans..... what is the best payment plan you have seen from a Philippine developer ?
Replies to This Discussion
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Permalink Reply by Alvah Buckmore on
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Dear Beth:
With all sincerity, I don't think you can see the individual trees in the forest. You argue, "If the developer charges interest for this extended payment option and is getting its profit from a higher initial selling price there is nothing immoral or illegal about it. And there is definitely no greed attached."
Actually, such behavior, though not necessarily illegal or "immoral", per se, is un-ethical in the application of the process.
First, the developer realizes that most people of the Philippines can not afford to purchase a house and lot due to the high cost of money from a bank and the enormous difference between income and the cost living.
Secondly, he wants to support himself, to make money and has a product to offer.
However, he realizes his product is too expensive and hence puts it out of reach for most people.
Then he thinks about it for a moment or two. He realizes, due to the absurdly high interest rates of a bank mortgage and payment terms, instead of working out an honest study of the cause and effect relationships of this problem, he develops a scheme. He will get the loan from the bank, at a lower interest, and then forward the loan to the buyer -- with a little profit for himself.
Still, although houses and lots are out of reach for most people, it does significantly increase the number of people, living on the margin, who can now purchase a house and lot, or condotel. They just pay more.
I am not an economist, Beth, and I don't pretend to understand the economics of the Philippines; however, as the police around here say when something is suspicious, "SOMETHING STINKS!"
Bank interest rates are suspiciously too high. Payment terms are ridiculous. And the developers have worked out a criminal adaptation to the problem of selling their product.
Yet, you don't see anything wrong! The reason is obvious! You are too close to it.
While it is true the Philippines is a small country (so isn't Japan) with limited natural resources (so isn't Japan) and a large population in relation to size (so isn't Japan), there is absolutely no valid reason for this situation.
Did you ever consider the possibility of criminal predators bleeding the system dry?
In American history, going back more than 100 years, it was not uncommon for organized criminal elements in a large city, such as New York, to infiltrate into the city's infrastructure in order to extract a "percentage of the take" from businesses. It was called a "protection racket." In many places it still exists today. For a certain percentage of the profit these thugs would guarantee the safety of the business. Some of these thugs were actually powerful politicians in the government, a situation that led to gun-control in many cities when business owners attempted to protect themselves from the thugs with their private firearms. Unable to effectively enforce their criminal pursuits, they introduced and passed legislation to make it illegal for anyone to own a firearm without a license. Then they made it difficult for anyone to get a license except for themselves and their friends and friend's friends. See http://buckymore.blogspot.com I am a web-master and blogger and this site is one of my blogspots.
In the Philippines, I am sure you are aware, there is an overwhelming problem with corrupt politicians that were there in place long before the development of Democracy and the excellent Constitution of 1986.
Since they were there embedded long before Democracy and the Constitution, it would be very difficult to remove them without a lot of damage and, actually, a small law-enforcement revolution.
In some places of the United States, where casinos are legal, law-enforcement discovered from extensive experience it is absolutely essential to install the security system into the infrastructure before starting construction of the buildings and completing the contracts.
If they wait until everything is in place the security system may lack the power and objectivity to remove a criminal element in the infrastructure, perhaps the situation in the Philippines today.
Respectfully,
Alvah Buckmore, Jr.,
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Permalink Reply by Beth Collingz on -
I agree with the reality that "SOMETHING STINKS" in the system we are working within. The problem is, HOW TO CHANGE ? Basic is the fact that developers should construct and Banks should finance.... in the Philippines you have Banks developing and in the construction business and Developers financing...
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Permalink Reply by Mike on -
You mean Philippine banks are allowed to build and sell homes and at the same time finance them too for buyers requiring a large down payment?
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Permalink Reply by Beth Collingz on
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The Banks simply incorporate a separate development company.
Apart from Banks selling their acquired or foreclosed assets that is what is happening albeit indirectly through development companies owned, controlled and operated by the same stockholders/owners of the Banks and then finance them through DOSRI loans.
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Permalink Reply by Beth Collingz on
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DOSRI loans were one of the major causes of the 1998 Philippine Crisis a year after the Asian Crisis of ’97 that saw the collapse of several Banks heavily involved in construction and real estate through their own real estate ventures. Since then the Philippine central bank, Bangko Sentral ng Pilipinas (BSP) revised its guidelines on banks’ lending to their own directors, officers, stockholders and related interests (DOSRI) in an effort to free up more funds for banks’ subsidiaries and affiliates.
It has redefined “related interests” to mean related interests of the banks’ directors, officers and stockholders rather than of the banks themselves.
At the same time, it has introduced a specific ceiling on the amounts of loans that individual subsidiaries and affiliates can get from the parent bank
The limit is 10 percent of the net worth of the bank, of which up to five percent can be unsecured. Unsecured loans shall be deductible from the lenders’ capital.
Some banks complained that the definition of “related interests” in the DOSRI rules was “too stringent” and forced their good subsidiaries and affiliates to get financing from other banks.
However, Section 36 of the General Banking Law of 2000 limits banks’ DOSRI exposure to an amount equivalent to the borrower’s unencumbered deposits and book value of paid-in contribution in the bank. The unsecured loans and other DOSRI credit accommodations and guarantees must not exceed 30 percent of a bank’s overall exposure.
The law also prescribes that a bank’s DOSRI exposure should not exceed 15 percent of its total loan portfolio or 100 percent of its net worth, whichever is lower, provided that the DOSRI lending will not exceed 30 percent of the aggregate ceiling or outstanding loans and other credit accommodations and guarantees, whichever is lower.
Under the old implementing guidelines, “related interests” were defined as any corporation, association or firm that controls directly or indirectly at least 20 percent of the subscribed capital base of a substantial stockholder of the lending bank.
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Dear Beth:
If I am correct in my theory there are criminal predators embedded in the infrastructure of the system, bleeding the system dry, then the solution is to begin the process of systematically identifying and removing them.
I have no where near the qualifications to do such a thing myself. It would take people with highly specialized legal law-enforcement skills and tools and an intimate knowledge of the Filipino system of government to carry out these objectives.
It is very dangerous and requires a strong and well-organized support system to protect each security officer, with the proper funds and the technical equipment, not excluding enormous patience, and has to be done without fanfare.
Respectfully,
Alvah Buckmore, Jr.,
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Permalink Reply by Purificacion T. delos Santos on -
Condotel units are not for average Filipinos, these are investment properties for moneyed Filipinos and those residing abroad. Average Filipinos purchase house and lots or regular condominium units through other financing institutions like Pag-Ibig Fund that offers lower interest rates and longer repayment period.
I fully agree with Beth. There are indeed developers that offer easier terms like no downpayment and without interest. I guess its part of their marketing strategy to attract buyers because real estate business in the Philippines is getting highly competitive.
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Dear Purificacion:
Forgive me if I address you incorrectly. I have never before seen such a first name and, therefore, was slow using it in my address to you. In the English language "Purificacion" has a bad connotation to it, leading me to the possible conclusion you were joking with us.
In respect to your argument "Condotel units are not for average Filipinos, these are investment properties for moneyed Filipinos and those residing abroad," I think you are making a serious mistake treating real-estate property as an investment just for wealthy people.
It has at least two dangerous side-effects:
(1) When people treat real-estate as an investment they will hold the property for awhile before getting rid of it for a profit. Usually, they don't do anything to it but hold onto it until they can sell it for a profit. This has the immediate effect of incrementally increasing the value of property until it reaches a value beyond the ability of most people to afford, as in the case of the Philippines.
(2) As more and more property turns into an "investment" for these people, in any given geographical area, the amount of affordable houses and lots get increasingly smaller and smaller until nothing is available for the average person.
Since property tax is based on the value of the property, determined by the amount of money the buyer paid for it, the property tax base becomes impossible for most people even if they can afford the property initially.
Subsequently, when anyone looks at a piece of property for purchase, not as an investment, even if he can afford the initial cost, he has to consider the property tax and other costs, such as water, rubbish pickup, sewage, etc., to ensure he has the income to afford these expenses. Otherwise, he has to look elsewhere. There are instances in which a person can afford to purchase the property but not afford to pay the property tax due to the effect of irresponsible real-estate investments in the recent past.
That is very true in the United States. We have hundreds of communities all over the United States so expensive, from the viewpoint of the value of the property and the property tax, they are completely unavailable for at least 99 percent of the population. Of course, some people don't mind. They like their unique financial status. It makes them feel superior and may compensate for an inferiority complex.
In my judgment, if a person has the resources for investment, then he ought to look elsewhere and stay away from real-estate property. It only causes a lot of harm to a lot of innocent people.
Respectfully,
Alvah Buckmore, Jr.,
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Permalink Reply by Benedict Baluyut on -
Still, Pag-Ibig (HMDF) Financing is the best and lowest if your client are on tight budget or looking for an affordable home or you as a broker is focusing on affordable housing segment.
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Permalink Reply by Mike on
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Here are some questions for everyone...
Now I understand that most banks require 30-50% down payment. This means less risks for them. Then why are mortgage rates in the Philippines still high?
How much do banks charge for closing costs and junk fees (origination fee, processing, application fee, appraisal, mortgage insurance, etc.)? Who pays what?
Since there are no upfront disclosures required, how can borrowers easily shop and compare loan terms and the "true" cost of the loan from different banks?
How about fiduciary duties to the buyer? Who protects them from bad loans especially if there are no disclosures? Is this part of the broker's duties?
Is there a recission period where the borrower can cancel the loan before funding without penalties if he or she finds a better loan somewhere else?
Lastly, is there a document presented before the transaction begins clearly outlining all parties' duties and responsibilities in detail (buyer, seller, broker)? Who does what?
Like many brokers here, I am all for "professionalizing" the industry and professionalism includes accountability. If we are all sincere, we should all work hard to put mechanisms in place to protect the consumers, not just our commissions. And this requires upfront disclosures, equal and fair housing rules.
The goal is to uplift the standards, right? Then be prepared and willing because this means you may lose a sale in order to protect your client.
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Dear Mike:
I have a theory in the form of a suggestion. If the banks require somewhere between 30 and 50 percent down payment, as you said, coupled with an high interest rate and ridiculous payment terms, then it may be more than their simply trying to keep the "risk" down to a minimum.
It may be more sinister than that. They may have to pay off embedded predators before they can complete the mortgage transaction. Charging less interest with a more realistic payment term for the buyer may not cover the cost of their doing business with embedded predators taking its bite from the top.
In this kind of problem we have to "think outside of the box." There is always a reason for everything. When there is no obvious or natural explanation for a problem then look for the criminal explanation.
Rspectfully,
Alvah Buckmore, Jr.,
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