Investor protection

We are in the midst of what is arguably the most massive housing boom ever. Everywhere, property development projects mushroom at a furious pace. A national housing backlog of over 3 million units drives all these.

This is a time of great opportunity for property developers. It is also a time of great challenge for regulators. Those who finally purchase the housing units are the investors in greatest need of competent regulation. The purchase they make is likely the biggest investment they make.

Frontline responsibility for investor protection is with the Housing Land Use Regulatory Board (HLURB). The agency is expected to exercise utmost vigilance at policing the property developers. The housing projects must not only meet stringent building codes to ensure consumers get what they pay for, these projects must likewise benefit from adept financial management. Property development is, after all, ultimately a financial proposition.

We heard all the horror stories: badly constructed housing units, failure of developers to hand over units on the appointed date, and complete abandonment of housing projects after most units were pre-sold. Those who purchase units way before the projects actually commence appear most vulnerable — and in greatest need of investor protection. Many have fallen victim to financial imprudence.

To address the problem, the Palace issued Administrative Order No. 185, creating the Investor Protection Task Force to properly monitor investment schemes in real estate projects.

The adequacy of AO 185 is immediately put to test in the case of Chelsea Residences in Alabang, Muntinlupa. This is a 696-unit housing project undertaken by Picar Development, Inc.

Recently, the HLURB ordered Picar to desist from pre-selling Chelsea Residences. In addition, the property developer was ordered to remove all advertisements for the project and immediately submit a sales status report.

The crackdown on Picar was prompted by the absence of any development on the project site a year after the company began pre-selling condominium units — and despite public announcements from the company that it was putting in P1.3 billion for the project. Notwithstanding the HLURB order, however, the developer’s website indicates the company continues its preselling activities.

This is not the first time Picar defied the regulatory authorities. When the local government of Mandaluyong refused to issue a building permit for its projected 37-floor AMA Tower residences at Wackwack because of ordinance violations, the company acquired an order from a Muntinlupa court to compel Mandaluyong to issue a permit.

Here we have a real test for AO 185. The credibility of the Investor Protection Task Force will be seriously undermined if its order regarding Chelsea Residences is ignored.

The effects will be wider ranging. If regulatory capacity is demonstrated to be weak, abuses by other property developers will continue unabated. In the end, this will extinguish consumer confidence in pre-sold housing units, undermining the vigor of the entire industry.

Contract

PCSO is fudging the issue regarding the rival service providers, says the lawyer for Philippine Gaming and Management Corporation (PGMC) replying to the discussion of the matter in this space last week.

PGMC maintains that the principal question concerns the propriety of the PCSO awarding its rival Pacific Online a contract extension without the benefit of a public bidding. Pacific Online’s contract expired earlier this year and was renewed after the PCSO amended the rate paid the service provider from 10% of gross sales to 7.7%.

PGMC believes it should have been able to compete for that contract in a public bidding, as the procurement of all goods and services by government requires. PCSO chair Margie Juico says that PGMC was not invited to bid because the company refused to budge on its 10% rate.

Here the versions diverge rather widely. PGMC insists the 10% rate is stipulated in the contract. It is not healthy that the PCSO feels it could so freely alter provisions of a live contract.

According to the PGMC lawyer, their company came under pressure from the PCSO to alter the service rates “or else.” He claims the PCSO asked his company to cut rates to only 5%. At that rate, PGMC would have been forced into bankruptcy. The company stood by the terms of the live contract won through open bidding.

While PGMC was asked to lower its rate to only 5%, the lawyer continues, Pacific Online reduced its rate to P9.85% in the second half of 2012. When the contract was extended this year, the rate was brought down to 7.7%.

The lawyer complains of prejudicial treatment by the PCSO, forcing his company to cut rates to an unrealistic level while allowing Pacific Online to continue on a substantially higher rate. At any rate, he says, the lower rate offered by Pacific Online is meaningless because that contract is void.

If the contract is not legitimate, all the projected savings being put forward by the PCSO is meaningless.

PGMC takes issue with the PCSO’s claim that the agency will gain P1.3 billion from Pacific Online’s rate reduction. That figure is just about the company’s total revenues. If it turns over that money to the PCSO, Pacific Online will earn nothing from its operation.

As far as PGMC is concerned, all these fabulous (and unrealistic) numbers being thrown out by the PCSO is meant to distract from the core concern: the extension of a service contract without public bidding. No amount of extrapolated savings will cure that.