Tax incentive a good start for low-cost housing development

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THE Bureau of Internal Revenue (BIR) recently reached an agreement with the Housing and Urban Development Coordinating Council (HUDCC) and the National Housing Authority (NHA) to facilitate tax incentives for developers of socialized housing projects. This is a good first step toward encouraging the Philippines’ energetic real estate and construction industries to do their part in helping to relieve the country’s massive housing shortage.

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The particulars of the agreement are that the BIR will streamline the processing of certificates of tax exemption for raw land transferred to the NHA for socialized housing projects. The NHA, in turn, will screen and endorse developers eligible for the tax exemption for the housing projects to the BIR, while the HUDCC will maintain a master list of exemption-eligible projects.

The arrangement should greatly accelerate the exemption process, allowing socialized housing projects to be started more quickly. We hope this “streamlining” will also encourage more developers to take on socialized housing projects, and not devote all their efforts to strictly commercial endeavors.

The need for low-cost housing of all types in the Philippines, including socialized housing for the poorest people, is almost overwhelming. As of this year, the estimated shortage of affordable housing was estimated to be about 5.7 million units, with the gap growing by at least 100,000 units per year.

Additionally, nearly 35 percent of the population of the severely overcrowded National Capital Region – and a significant percentage of the populations of other urban areas around the country – are inhabitants of substandard and inadequate “informal settlements,” driven into living conditions that are often deplorable due to a lack of opportunities outside the cities.

Developers, however, have been reluctant to venture into the largely untapped market for economic or socialized housing, since the higher income level property market is so much more attractive. Prices for residential real estate in the Philippines, which are already considered high by regional standards, are increasing by more than nine percent per year, according to data from the Bangko Sentral ng Pilipinas (BSP). The real estate business happens to be very profitable, and as it is now, is an important part of the economy, providing jobs and a great deal of activity in related businesses. It is unfair to begrudge private enterprise from making the most of their opportunities; in an ideal world, perhaps, we would wish that developers voluntarily eschew some more profitable ventures to build for the greater good, but in the absence of a legal requirement that they do so, expectations that they would are vain.

But there are now growing signs that more developers may be encouraged to consider venturing into lower-cost housing projects. Although the statistics are somewhat conflicting – for example, real estate lending continues to grow, but so do vacancy rates of residential property – the indication is that developers may be close to saturating the market they have been targeting for a couple years, those buyers who can easily afford houses or condos worth P7 million to P10 million or more, a demographic that does not, unfortunately, describe the fastest-growing part of the Filipino workforce or overall population.

With proper incentives, which need not necessarily be financial, but can include practical guarantees that a socialized or other low-cost housing project will generate a reasonable and reliable return, developers could be attracted to these kinds of projects. Some of these incentives would entail exactly the sort of streamlining the BIR, NHA, and HUDCC just agreed to pursue, integrating regulation and processes across agencies to make doing business easier.

Further cooperation from other agencies or enterprises to ensure socialized housing residents have a fair chance to be productive is also needed.

These agencies must help to make sure there is sufficient power, water, transportation, schools, health services, and small business or employment opportunities in areas where socialized housing is located before it is even built.

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