A survey titled Citi Fin-Q Report (warning: this report is a PDF file and I’m warned that it may contain a virus; kindly proceed with caution and read my note about PDF files at the bottom of this page) published by Citibank on September 2008 tried to determine the financial IQ (Intelligence Quotient) of respondents from Australia and ten Asian nations, including Filipinos, in terms of managing their personal finances.

This post will focus on a small but interesting portion of that study: home ownership, particularly in China and the Philippines.

A staggering 81% of Chinese respondents live in their own home that’s either already fully-paid for or mortgaged. Compare that with only 42% of Filipinos.

A related story from ABS-CBN News on July 14, 2009 reported that 1.6 million Filipino families are renters.

The Citibank survey cited three reasons for the wide disparity of home ownership in China and the Philippines.

• Government-based incentives for citizens to own their house
• Availability of affordable housing and house financing
• Culture

Government-based incentives for citizens to own their house

Chinese respondents have reached such a high level of home equity because of strong government initiatives.

As part of China’s economic reforms of the 1990’s, much of its government-owned housing units that were previously rented out were privatized. To push the people to buy these houses, Beijing established in 1992 the Housing Provident Fund, a compulsory savings scheme and started subsidizing construction of affordable housing.

In the Philippines, the Home Development Mutual Fund or Pag-ibig Fund (the equivalent of Beijing’s HPF) has been in place since June 1978. It has helped many since but it is only recently that Pag-ibig truly started to aggressively exercise its mandate.

In my opinion, Pag-ibig Fund today is one the most important government agencies that can truly empower the Filipinos; it’s rare in Philippine government (off-topic: TESDA is another).

The problem lies not in Pag-ibig’s programs but rather on the lack of awareness among many on how important and helpful this agency has become in the past few years and, therefore, how we can all benefit from it.

Don’t ask me now… GO! For the self-employed, become a member of Pag-ibig and pay your contributions regularly if you are planning to own your house. The same goes for Overseas Filipino Workers even if you have been naturalized as a citizen in your host country. For employers who regularly collect their employees’ Pag-ibig contributions thru automatic salary deduction, you’re committing a grave abuse if you do not remit them to Pag-ibig.

Availability of affordable housing and house financing

Availability of affordable housing is a problem in the National Capital Region, Metro Cebu and other highly urbanized areas (see my article Perfect type of housing, parts 1 and 2). Unfortunately, these are where many Filipinos want to live.

As mentioned, affordable house financing is available thru Pag-ibig. It’s not simply loan that Pag-ibig offers, it’s subsidized housing, i.e., it shoulders part of the cost of owning your house, ergo, the very low interest rates and long payment terms up to 30 years.

Now, tell me, which bank can offer such financing? What bank will subsidize part of the cost of your house?

A note on bank housing loans: Normally, banks charge 8.5% to 12% fixed mortgage rates payable in 1 to 5 years. However, a study provided by a friend, John Jeremiah Rimando, an Economic Researcher for Global Property Guide, noted that banks often follow the lead of Pag-ibig. As such, banks have been giving low mortgage rates and longer payment terms, up to 25 years.

Culture

The Citibank study noted that there’s great desire among Filipinos to own their house, but the lack of affordable housing in the Metropolis and a culture of strong family ties means that many, 27%, choose to live rent-free in the family home.

Not mentioned by the study on the wide disparity of home ownership between China and the Philippines is the obvious difference in their economic performance.

This is just the tip of the Citibank’s report. See for yourselves how we, Filipinos, compare with other nationals in terms of managing our personal finances… it’s ugly!

Thank you so much.

P.S. Note about PDF files: PDF files are some of the most common sources of computer viruses or malwares. It is highly recommended that you always update to the latest version of your PDF reader to avoid catching viruses when opening PDF files.

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