Tired of the rat race? Want a better life for your family? It’s time to stop working for money and start making your money work for you! Attend the Money Summit & Wealth  Expo,the BIGGEST wealth building and income opportunities conference and expo in the Philippines, featuring four proven ways to build wealth. This 2-day, whole day, super conference will happen on July 2-3, 2010 at the Carlos P. Romulo Auditorium, RCBC Plaza, Makati City.

Money Summit & Wealth  Expo will feature 16 successful entrepreneurs, real estate gurus, best-selling authors, sales superstars, and money experts, who will talk about the different ways to get rich and specific opportunities and strategies in investing, real estate, sales, and business.

Click here to learn more.

THE BOTTOM LINE>HOUSING LOANS

The Housing Loan Primer
This is a great time to get a mortgage. You have to look at three things: the institution, the requirements, and the numbers
By Rienzie P Biolena, RFP®

For the majority of Filipinos, the purchase of their homes is probably one of the most significant and biggest investments that they will make. Whether it’s a townhouse, condominium, or house and lot, the decision to buy or build a home where the family or individual shall reside takes up a lot of time, effort, energy, and consequently, money.

Given the considerable amount that purchasing real estate entails, almost all aspiring homeowners borrow money using a mortgage, or what we more commonly call a housing loan. A housing loan gives the advantage of more manageable payments –spreading the amount over a period of years – making them lighter in terms of cash outlay, at the purchaser’s chosen terms. This uplifts the burden of paying the huge amount of cash upfront, especially when buyers do not have the ready money. Moreover, cash freed up can be channeled to other investments that in time can be used to pay off the loan.

But a housing loan is not just for construction or acquisition of property only; it could also be used for refinancing an existing home loan, for home improvement, or for any other purpose.

In securing a housing loan, buyers should thus be aware of the factors to consider so that they can get the best and practical deal in building or buying their dream home.

The Institution. The popular choices for a mortgage are banks and government institutions like PAG-IBIG and SSS. Fees, loan term, and interest rates vary across them. Banks usually give a maximum of 20 to 25 years while PAG-IBIG offers a longer term at 30 years. The minimum amount for a loan can be as low as P400,000 with a maximum loanable amount of 80% of the appraised value of the property.

The Requirements. Though the particulars vary from institution to institution, requirements at the end of the day must establish the borrower’s identity and credit-worthiness in paying off the loan as well as the legality of the property to be loaned for. Requirements must often show the income of the borrower and the title of the property involved.
Some of the typical pre-processing requirements are as follows:
• Borrower should be of legal age but not more than 65 years old upon maturity of the loan
• Identification papers (TIN, Passport, Company ID, Driver’s License)
• Marriage contract (if married)
• Bio-data/Resume
• Deposit statements of accounts (last 6 months)
• For PAG-IBIG, applicant must be a member for at least 24 months as evidenced by the remittance of at least 24 monthly contributions at the time of loan application
• For SSS, applicant should be a member and has paid at least 12 months continuous contributions or at least 24 months total contributions
For Employed Individuals:
• Latest income tax return (ITR)/W-2 form
• Certificate of employment
For Self-Employed Individuals:
• Audited financial statements and ITR for the last 2-3 years (BIR stamped)
• DTI registration
• List of suppliers and customers
• Clinic addresses and schedules (for practicing doctors)
For OFWs:
• Certificate of employment stating length of service and monthly compensation package
• POEA contract
• ITR (if any)
• Pay slips (last 6 months)
• Special Power of Attorney (Bank Form)
* All documents have to be authenticated by the Philippine Embassy/Consul if issued abroad
Collateral Requirements:
• Clear copy of owner’s duplicate of TCT/CCT
• Location map certified by geodetic engineer
• Photocopy of tax declaration/tax receipts/tax clearance
• Endorsement letter/computation sheet/contract to sell from developer stating the contract price (for accredited developer project)
Bank Forms
• Loan application
• Mortgage Redemption Insurance (MRI) application (as applicable)
Upon the submission of complete documents, loan approval usually takes around five days upon which the submission of post-approval requirements are in order. Generally, requirements include:
• Original owner’s copy of TCT/CCT
• Certified true copy of the latest realty tax declaration on land and improvements under the name of the borrower/mortgagor
• Medical examination (as applicable)
• Fire/Lightning/Earthquake insurance coverage (as applicable)
• Four copies of Special Power of Attorney, if applicable
• Opening of deposit account with the bank or the accredited receiving bank, as applicable
Once approved, loan proceeds are usually credited to the borrower’s account, ether on a lump-sum or staggered basis depending upon the completion of the property.
The Numbers. Most important in considering loans are the interest rates offered by the financing institutions. As a general rule, the longer the loan’s term, the higher the interest rate given. For instance, a 1-year loan may have a fixed interest rate of 9.5% while a 16-20-year term loan can have an 11.5% fixed interest rate. Thus, though borrowers have a stretched number of years with which to pay their loan, oftentimes, they end up paying higher due to the higher rates.
Borrowers have the option to fix the interest rates of their loan from as short as one year to as long as 25 years. Or they can reprice or adjust the interest rate of their loans in which they can protect themselves from the sudden change of interest rates in the market. For instance, in a market with rising interest rates, it is better to have a fixed interest rate for the duration of the rise so that the borrower is spared from the additional cost of rising rates. Similarly, a borrower in a falling interest rate environment would want to reprice during this time to avail of the reduced rate cost.
Nowadays, Filipinos lives in a low interest rate environment such that the BSP has in fact encouraged borrowers take advantage of this and avail of loans. As such, borrowers should watch out for the interest rate trend with which they can adjust their loan rates and in the end, save in costs. Moreover, clients with a good relationship with their bank (perhaps they have significant deposits or are good regular borrowers) may actually avail a lower interest rate.
Aside from interest rates, borrowers should also consider the fees and charges of a loan. Most financing institutions charge a non-refundable filing and appraisal fee that ranging from P1,000 to P3,500 to cover the cost of ocular inspection as well as the processing of documents.

Moreover, borrower can also avail of product bundles with their loans such as the mortgage redemption insurance as well as fire insurance, the premium payment of which depends on amount and appraisal of property.

So as in all types of loans, it is best to compare across the various housing loans available in the market. Check out the interest rates available in their Web sites (or call their hotline) as well as the documentary requirements, fees, and charges. You can also drop by the nearest office or branch of the bank and ask for more information.

EXPERT ADVICE>RFP MONEY MAKEOVER

The Billion Peso Couple

The high-earning, high-living couple does not have problems with accumulating wealth. Their problem is how to protect it

By Hazel Ann Acuña

Ernesto Gotanchan, 58, is a businessman and owner of many commercial and residential real estate properties while his wife Elizabeth, 40, works in an offshore bank as head of the corporate loans department. Ernesto has five children, the eldest—his 24 years old daughter—with his first wife, who passed away, and four sons with Elizabeth, with ages ranging from four to 13.

The couple has gross earnings of P5,000,000 a month, mostly from rentals of the commercial and residential properties of Ernesto. His total collections every month is a minimum of P4,500,000 from his properties in Makati, Mandaluyong, Quezon City, Laguna, Cavite, Tacloban and Cebu. Elizabeth earns a monthly salary of P500,000.

The Gotanchan family is living the good life, with a residence in Forbes Park in Makati, membership in the Yacht Club, and an almost unlimited budget for cars, clothes, and casinos.

They have a net worth of more than half a billion (see Table 1: Net Worth Statement).

Table 1: Net Worth Statement

Ernest’s income-generating real estate holdings include commercial buildings, apartments, condominium units, house and lots, warehouses, boarding houses, and vacation houses, constituting the bulk of their assets. Nevertheless, the couple own deposits, stocks, offshore investments, etc., managed by top private banks, which provide diversification across asset classes.

However, their non-real estate assets show that their risk tolerance is conservative. The couple mentioned that the types of investments they are comfortable with are low-risk investments because of their upbringing and fear of getting into scams.

They don’t have a problem with debt, since their debt-income ratio is manageable: 18.68 for Ernesto and 3.06 for Elizabeth.

Their idle funds are intended for their retirement. Ernesto wants to retire when he turns 65, preferably in Europe to enjoy the museums and art galleries in his old age. He also wants to transfer and donate a portion of his investments, particularly his properties that generate rental collections, to his only daughter who will be 31 by then. Elizabeth on the other hand wants to retire at 60 and spend her golden years donating to foundations and charities.

The high life

Ernesto’s eldest daughter, who lives on her own, gets an allowance of at least P50,000 a month and capital for her three businesses. His first wife died from heart disease. His younger children study in exclusive schools and are expected to take advanced degrees in London.

Indeed, they are living a charmed life. With their current monthly income of P3,400,000 net of taxes, they spend as much as P2,860,000, for an expense-income ratio of 0.90 (meaning they only save 10% of their income). While it’s a positive cash flow of P540,000, they obviously are living in the here and now (see Table 2: Cash Flow Analysis).

The rental income is substantial, but there’s always a risk of collection problems and bad debts, which is in fact something that is already happening at some their properties. This can affect their cash flow, and may even force them to dip into their savings.

One way to mitigate this risk is to set up an emergency fund equivalent to at least two months of expenses, which is around P68,640,000. The other thing they need to do is decrease their discretionary expenses, which is already 45% of their income after tax. Specifically, they should cut down on their casino spending and gift giving, which comprise 70% of the total discretionary expenses. Doing these will not affect their lifestyle at all and should bring down their discretionary expenses by 20%.

TABLE 2: CASH FLOW ANALYSIS

SUMMARY

If there’s a will

Cutting down on discretionary expenses and boosting their investments should generate a higher net cash flow and help achieve Ernesto’s goal to have a billion peso net worth when they retire. What they haven’t planned enough for what will happen to their wealth when they’re gone.

The couple has no will. They plan to establish one right away with the help of their lawyers. Ernesto wants to copy what her mother did, which was to donate her properties to him while she was still alive. Because of that she was able to guide and help manage the properties well.

Ernesto has a pre-nuptial agreement with Elizabeth, in order to protect the interest of his only daughter. He also mentioned that his Cebu and Tacloban properties are assets of her first wife and must be given to his daughter. Aside from that he wants 50% of all his properties in Luzon to be given to his daughter. The other 50% will be divided to Elizabeth and their four sons. Two thirds of his other investments will also go to his daughter and only 25% will be given to Elizabeth and his sons.

To prepare their estate plan, the various tasks were assigned to their accountant, lawyer, and financial advisor, who will coordinate with the property appraisals, make the computations, and file the required documents.

There are three options available to the couple: pass on their properties upon death, in which case they pay a hefty estate tax; donate their properties while they’re living, which is Ernesto’s preferred route; or transfer their properties to a family corporation.

The first step is to compute their net estate (see Table 3: Net Taxable Estate) and resulting estate tax. Assuming that they use up all their savings and investments for retirement, that leaves only their real estate properties worth P361,000,000 that their children can inherit. The estate tax due after allowable deductions amounts to P69,665,000.

TABLE 3: NET TAXABLE ESTATE

ESTATE TAX DUE

The second option is to transfer their properties via donation, since the tax rates are lower (15% versus 20% for estate tax). They call also transfer over a number of years so that they can relinquish legal ownership gradually. Using a 10-year schedule of donations, based on P378,000,000 worth of properties, the couple will be able to save P17,925,000 in taxes, since they will pay a lower P51,740,000 in donor’s tax.

TABLE 4: DONORS TAX COMPUTATION

The third option is through incorporation of assets. If Ernesto converts all his real estate properties worth P378,000,000 into shares of stocks with par value of P500,000, he will receive 756 shares. Transferring his assets into a corporation is tax-free at the time of transfer. However, it only delays the payment of taxes since his resulting shares of stocks will still have to be part of his net taxable estate.

So the best strategy is through donation since it will save the couple P17,925,000 in taxes. Since the donation will be spread over 10 years, they will be able to schedule the tax payments for minimal impact to their cash flow.

Please check this very interesting forum from Philamlife.

By Elena Torrijos

The Asian financial crisis in 1997 acted as a rude awakening to Filipinos who thought that property investments were very safe. Certainly, many speculators saw the value of their land, residential condominiums, or even commercial space halved.
In the past few years, however, property values have firmed up again and experts say that there is still some significant upside to investing in property. But, of course, there are many factors to consider when buying a property, whether to live in it, rent it out, or develop it and sell it.

“If you bought a property 3 years ago, you’d probably have made better returns than you would if you bought now. But people then were wary about buying property because things were still shaky. If you buy it now, we’re nearly at the 1996 levels, so the upside would be 10% over a 12 month period,” says Richard Raymundo, research director of real estate services firm Colliers International Phils. Inc.
Looking at what stage the market is in at the property cycle, he says every segment is already up except for industrial and golf/country club shares. “I really wouldn’t advise going into golf or country club shares unless you have a passion for golf,” he adds.

In absolute peso terms, property prices are back to where they were in the 1996 and 1997 peak levels. “Like, for office, the peak price of office space was about P1,100 per sq. m. per month. We’re now already P850 per sq. m. It would only take about 12 months before you reach that P1,000 level per month again. On dollar terms you’re still 40-50% off from your 1996 peak, even if you’ve reached that on a peso level. A P1,000 per sq. m. price at P26 to the dollar versus P1,000 at P50 is still cheap in terms of dollars.

At present, residential condominiums are going for a low of P60,000 to P65,000 per sq. m. or even a high of P100,000 per sq. m, depending on the location, according to Raymundo. The developments in Rockwell are now back at near the P100,000 mark because the demand has been very strong, he notes.

If an individual is looking at a piece of property for investment, he says, he or she should have to be more careful in picking them for their potential yield based on a variety of factors. According to Raymundo, some questions to ask are: “Who’s the developer? Can it be turned over? What’s the track record? If you’re looking at it as an investment, you also look at ‘saleability’ or, if there is a term, ‘rentability.’ Can it be leased out easily? Is the location very good? Is it modern enough? Does it fit your budget?”Also, the investor also has to consider: “If I get stuck with this, can I live with it?” Raymundo says.

For investors looking specifically at investing in residential condominiums, a bigger unit may potentially offer higher returns in terms of rentals but will cost more and just may be harder to sell.

“You’d have a harder time leasing out a smaller unit right now because everyone is going into the studio or one-bedroom. With the bigger unit…it’s more expensive so the investment is bigger, but if you look at the last three-bedroom [development] which is the Shang Grand [in Makati], it’s doing very well in terms of rental. Everyone is surprised that it’s achieving a very high rental rate,” he says.

Anton Periquet, chief strategist of Deutsche Regis Partners, says: “If I were an investor outside the stock market, say a personal investor, I would still buy property… and you know the rule in property is always is to buy prime. Don’t waste your time on the periphery.”

If he had the money, he would buy specifically land in exclusive villages. “That is what is scarce. You cannot create new supply in Bel-Air, Dasmarinas Village, Forbes. You can always create condo units but you can’t create more of these villages.”