Compliance Alternatives: A Question of Legality

Sometime in 2011, we recommended three alternative modes of compliance with the Balanced Housing requirement under Section 18 of RA 7279.

Congress adopted two of those recommendations when it enacted RA 10884 which amended RA 7279. These were (1) development of socialized housing condominiums, and (2) development of socialized housing projects via joint venture with another developer.

Thus, under RA 10884, a developer may comply with the Balanced Housing requirement in any of the following manner:

1. Developing an area for socialized housing within  the main project, equivalent to at least fifteen percent (15%) of the total subdivision area or total subdivision project cost in case the main project is a subdivision, and at least five percent (5%) of condominium area or project cost if the main project is a condominium;
2. Development of socialized housing in a new settlement;
3. Joint-venture projects for socialized housing with an LGU, any of the housing agencies, another private developer, or an NGO; and
4. Participation in a new project under the community mortgage program.

On December 2017, the HUDCC promulgated Board Resolution No. 965 approving the revised rules and regulations (IRR) to govern the implementation of Sections 3, 18 and 20 of RA 7279, taking into account the amendments under RA 10884.

Surprisingly, the IRR offers two other alternative modes of compliance which are not in RA 10884:

1. Percentage of Investment Compliance (PIC), wherein the developer can indirectly participate in projects undertaken by third parties,  by contributing funds amounting to at least 25% of the required 15% of the main subdivision project cost or 5% of the main condominium project cost. The participation (or investment) is non-saleable and non-recoverable.
2. Incentivized Compliance (IC), wherein the developer can participate in projects of LGUs or the BALAI Program of the Key Shelter Agencies, by contributing funds amounting to at least 20% of the required 15% or 5% of the main project cost. The participation is also non-saleable and non-recoverable.

Under either scheme, once the developer’s manner of compliance is approved, he is required to execute an Escrow Agreement, and deposit the total amount of his participation in an escrow account. Upon his submission of proof of deposit issued by the escrow bank, he will be issued a Certificate of Provisional Compliance, which is a requirement for the issuance of the Certificate of Registration and License to Sell.

From our studies, it appears that the PIC/IC schemes have been designed not just as an alternative mode of compliance, but also as a form of incentive for developers, as well as a means of generating and pooling funds.

This Chamber is deeply concerned that this may be of doubtful legality or propriety.

FIRSTLY, the compliance percentages are substantially reduced under the PIC/IC schemes. Under RA 10884, the required compliance percentage is 15% in case of subdivision projects and 5% in case of condominium projects. With PIC and IC, it is only 25% of the required 15% or 5%, as the case may be.

Having been a partner in crafting the UDHA, CREBA is aware that the intent behind those required percentages is to accelerate the production of social housing stock – whether in terms of socialized house/lot packages developed, or sites developed or serviced – without unduly burdening the industry.

Contrarily, by reducing the compliance percentages, the PIC/IC schemes would considerably slow down the rate of social housing production, thus negating not only the letter but also the intent of the law.

SECONDLY, the PIC/IC schemes are not included in the enumerations under either Section 18 (Balanced Housing), Section 20 (Incentives), or Section 42 (Funding) of the UDHA as amended. The doctrinal rule expressio unius, exclusio alterius” thus bars their inclusion in the implementing rules.

THIRDLY, some of the third party projects for which the pooled escrow funds are to be channeled are not in the nature of socialized housing projects for the underprivileged as defined in the law.

Among these alternative projects are land acquisition for calamity-stricken areas; institutionalization of urban agriculture; strengthening livelihood projects; provision of wellness programs and amenities; installation of communication facilities; evacuation centers; multipurpose buildings; LGU housing projects for government employees and AFP/PNP personnel; and projects of Homeowners Associations in existing social housing sites.

In other words, the goal of accelerating the production of actual social housing units is being sacrificed in favor of these projects which, after all, may be funded by Congressionally approved budgetary appropriations or other legally sanctioned funding measures.

There is also a move to allocate 15% of the total escrow funds for the administrative expenses of the Department of Human Settlements and Urban Development (DHSUD). To our mind, this is questionable considering that under its charter, the DHSUD’s expenses – administrative or otherwise – are supposed to be funded out of budgetary appropriations under the General Appropriations Act.

FINALLY, without meaning to cast doubt on the integrity of the Department, we also fear the possibility of abuse of the PIC/IC schemes. Under the rules, participating developers are required to agree that they “may not necessarily be made a party and signatory to the MoA on the allotment and utilization of the escrow deposit”.

To our mind, such a provision impairs transparency and thus poses the danger of becoming a curtain behind which graft or misuse of funds may occur.

At first glance, the PIC/IC schemes may seem favorable to developers, as it appears to be a more convenient and less costly way of complying with the law.

However, CREBA – having been the original proponent of the Social Housing Law (BP 220) and continuing to be a staunch advocate of a higher level of social housing production – believes that its membership would rather pursue the long-term vision than what is expedient.

In all likelihood, DHSUD Secretary Eduardo del Rosario may not have been properly advised on the legal ramifications of the PIC/IC schemes. We would like to think that as man of conviction, now that he is aware of the issues, he would immediately take the necessary corrective steps.