Consider the following:

• Is owning a house your ultimate objective or is it just a means towards a greater objective?
• Which would you rather have first, having your own house or financial freedom?
• If someone offers to buy your house at a price that will give you ample profit, will you sell it or will you keep it?
• If you’re renting a decent house and your money is invested in financial instruments that earn you enough to lead a modest lifestyle and will give you financial freedom when you retire, will you pull it out to buy a house or are you willing to rent for the rest of your life?

Two kinds of home buyers

Depending on how you answered the foregoing questions, you are either an investor or an end-user.

An investor buys a house in order to add value to his financial position; for him, it’s all business, a means to achieving financial freedom. Whether he’s buying his first house (where he and his family will live) or a second house, he always looks at the house as a form of investment. He is not emotionally attached to the house that he will readily move out, even rent if necessary, if he gets a good offer for it. He then rinses and repeats the process until he achieves his financial objective. And maybe, only then, will he settle in his permanent house.

I have a friend who does not actively sell any of his assets but says that all his properties are for sale… if the price is right.

End-users, on the other hand, are almost always motivated to build or buy a house by a mixture of rational and, sometimes, subjective reasons.

Rational reasons may include the following:

• Spending, say, 10 thousand pesos monthly on rent, by cutting back on some unnecessary expenses, I can save three thousand pesos monthly and use my savings plus the cost of renting to pay monthly amortization on a house.
• I have saved enough for a down payment; I and my wife have a 3-month emergency fund; we are in good health and we have saved for any medical emergencies and we have secure jobs.
• We don’t need an extravagant house; we just need something that is close to our kids’ school and to our work so we can save time and money in the process.
• We have saved, planned and plugged all holes to secure our retirement and we have enough money to buy or to finance our own house.

All these are valid reasons for buying a house. But they also imply that for most Filipinos, building or buying a house is as much a lifestyle decision as it is an economic one. It entails making sacrifices.

On the other hand, some people buy a house for subjective reasons:

• Owning a house is the cornerstone of the Filipino dream.
• All that I have worked hard for will be for nothing if I have no house of my own to show for it.
• The Joneses have one, we should have one ourselves.

Depending on your reasons, a personal investment on a house may be your best financial decision ever… or it can be your worst.

Some Filipinos are motivated by peer pressure or some personal beliefs to own a house. Worse, some end up buying houses they can’t afford. It is not always necessary to have your own home. Your decision to buy or rent should be based on needs and financial capacity and most importantly, on your long-term personal financial objective.

A house can only be an asset once you have fully paid for it. By regularly paying amortization on a loan or mortgage, you are simply building equity on that house, i.e., you’re increasing your ownership on the house while the bank or lender co-owns it. Forfeit payment and you’ll lose your house regardless of how long you have been paying for it.

Here’s the story of a woman (and her husband) who kept switching between being a house owner and a renter while focusing on her most important objective – personal financial freedom. It’s a five-part blog but is quite an interesting read.

Thank you so much.

It’s true that it’s every Filipino’s dream to own a house. But more than dreaming, it’s imperative that you make a thorough examination of your financial position before you take the plunge.

Last year, I came across a survey by Registered Financial Planners Institute Philippines (or RFP Philippines). It was designed to find out the Filipinos’ spending and saving habits. They used the survey as part of their free financial planning seminars to help employees of companies manage their personal finances at a time when the global financial crisis was at its worst.

Looking at the survey questions, I realized that they can also serve as a tool for Filipinos to assess their financial readiness to build or buy a house. Note that I am adapting this survey for something it was not originally intended for. Thus, take the survey as a mere approximation, not an absolute measure, of your readiness to own a house.

With permission from RFP Philippines, I am reprinting below their survey questions. I hope that by answering these question, you will be able to gauge how near, far or really far out you are from owning your house.

Age: _____ Gender: ___________

Monthly Gross Family Income:
P20,000 to P35,000
P36,000 to P50,000
P51,000 to P65,000
P66,000 to P80,000
P81,000 to P95,000
P96,000 – above

Home Ownership (choose one)
__Own, __ Rent, __ Living with parents/relatives

A) How would you describe your financial situation? Would you say you:
1. Live comfortably
2. Meet your expenses with a little left over for extras
3. Just meet basic living expenses
4. Don’t have enough to meet expenses
5. Don’t know

B) How often do you worry about money matters?
1. Often
2. Sometimes
3. Rarely
4. Never
5. Don’t know

C) How would you describe the extent of this crisis’ impact on your personal finances?
1. No impact
2. Some impact
3. Major impact, but I can handle it
4. Very high impact, I’m having difficulties
5. Wouldn’t say

D) How often would you say you spend money on things you can’t afford?
1. Often
2. Sometimes
3. Rarely
4. Never
5. Don’t know

E) Have you ever felt that your financial situation was out of control?
__Yes, __ No

F) How closely do you watch the amount of money you spend?
1. Very closely
2. Fairly closely
3. Not too closely
4. Not at all closely
5. Don’t want to say

G) To what extent is this increased watchfulness a result of the ongoing crisis?
1. Not at all connected to the crisis
2. To some extent a result of the crisis
3. A direct result of the crisis
4. Wouldn’t say

H) Are you always aware of how much money you are spending or you just have a general idea?
1. Always aware
2. Have a general idea
3. Neither
4. Both

I) Which expenses are you having most trouble budgeting for now but are still including in your expense list?
1. Entertainment and recreation
2. Food and dining out
3. Shopping and personal items
4. Bills and utilities
5. Car/cars
6. Home and housing
7. Luxury items
8. Children and schooling
9. Credit card payments
10. Medical
11. Taxes
12. Insurance
13. Regular savings for retirement
14. Investments
15. Health insurance
16. Debt payments
17. Others
18. Nothing

J) If you need to cut back on your expenses, which items would you need to remove from your list or have already scrimped on in recent months? (Choose up to three)
1. Entertainment and recreation
2. Food and dining out
3. Shopping and personal items
4. Bills and utilities
5. Car
6. Home and housing
7. Luxury items
8. Children and schooling
9. Credit card payments
10. Medical
11. Taxes
12. Insurance
13. Regular savings for retirement
14. Investments
15. Health insurance
16. Debt payments
17. Others
18. Nothing

K) Which items do you splurge on, even when you know you should not? (Choose up to three)
1. Food and dining out
2. Entertainment and recreation
3. Shopping and personal items
4. Home and housing
5. Children and schooling
6. Bills and utilities
7. Cars
8. Medical
9. Luxury items
10. Travel
11. Others
12. None of the above. I have everything under control

L) Do you or your spouse have a formal budget for your household?
__ Yes, __ No

M) Would you say you are saving and investing as much money as you should, or should be saving and investing more?
1. As much as I should
2. Should be saving and investing more
3. I don’t know

N) Do you have savings in the bank that you can count on when there’s an emergency?
__ Yes, __ No

O) How many weeks’ worth of living expenses can your savings cover?
1. One to two
2. Three to four
3. Five to six
4. Seven to eight
5. Nine to ten
6. More than ten

P) Have you resorted to borrowing money in the last six months to cope with financial needs?
__ Yes, __ No

Q) Do you foresee a need to borrow money in the next six months to cope with financial needs?
__ Yes, __ No

R) Have there been unexpected expenses over the past year that have severely set you back financially?
__ Yes, __ No

S) Which unexpected expenses have set you back financially?
1. Medical
2. Cars
3. Home and housing
4. Life events and children
5. Work-related
6. Travel/vacation
7. Taxes
8. Pets/veterinary bills
9. New baby
10. Need to take care of parents/relatives
11. Business-related expenses
12. Others

End of Survey

Simply reading all the questions will produce a feeling of anxiety among many of us. Suddenly, we are confronted with issues that many of us never thought of or, worse, denied. For most of us, we equate our readiness to own a house on just two factors: our monthly gross family income and savings.

If there are things the survey wanted to find out, I think they’re  the respondents’ prudence in spending only on what’s essential; their willingness to provide for unforeseen but necessary expenses and making sacrifices along the way.

Since I’m not qualified to interpret your answers, I will lead you to an article dated August 2008. It’s titled Pinoy Financial quotient, pass or fail? by Mr. Noriel Malacaman.

In this article, Mr. Malacaman concluded the following:

• Budgeting is not a habit for Filipinos
• We don’t have a monthly budget, and if we do, we do not stick to it.
• Insurance is not a priority, making us vulnerable to a much higher financial crisis.
• Saving is not automatic; we do not set aside money during salary day.
• Filipinos don’t have retirement plans, some have not started planning. It is either they don’t have an idea of how much they need for retirement, or they have some savings but don’t know if it is enough.
• Most of us also have savings that are not enough in cases of emergencies or retrenchment.

I decided to include Mr. Malacaman’s article in this post because by answering the survey questions, you will get an idea of where or how you stand given his conclusions. The more your answers confirm his conclusions, the farther you are from owning your house.

This post is not intended to dispel your dream, but to remind you that some hard choices will have to be made if you are serious about owning your dream house. Buying or building a house is one of life’s most exciting and important decisions. It’s always easy to lose focus between the house you dream about and what you can actually afford. It takes an honest assessment of your financial position, careful planning and willingness to make sacrifices to make the right decision.

What’s more tragic than living in your dream house and paying amortization for, say, five years and just see it foreclosed on the 6th because you ignored to carefully assess your financial situation and plan before building or buying your house and refused to make sacrifices along the way?

Owning your dream house is as much a lifestyle decision as it is a financial one.

It’s a fact that many Pinoys fail or refuse to acknowledge.

Thank you so much to RFP Philippines’ Program Coordinator, Ms. Paula Minerva and to Mr. Henry Ong, Program Director who allowed me to use their survey. You may also check out their Multiply site here.

Thank you also to Mr. Noriel Malacaman for his insightful article.

To everyone, thank you so much.

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.