Pag-IBIG’s Tax-Free Government-Guaranteed High Dividend Rate

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With Philippine banks offering just 1.125% to 2.5% term deposit interests for certain lock-up periods (3 months to 12 months) and a stock market that is down 8.6% year-to-date, Pag-IBIG’s Modified Program 2 (MP2) claim of having provided an average 6.03% dividend rate in the past five years is certainly appealing to Filipino investors.

It is important to know that an MP2 fund is a form of long-term investment as investors who wish to realize the full gains of the dividend rate provided must keep their investment in the fund for a period of five years.

For an MP2 investor that invested 100,000 pesos in 2013, that amount should have compounded to 135,727 pesos come redemption day five years later, in 2018.

That made the investor beat the average inflation in the same period of time by nearly three percentage points.

In recent years, the government agency handed out 7.43% (in 2016) and 8.11% (in 2017) juicy dividend rate to its investors.

Nonetheless, investing in MP2 brings out one’s nationalism and willingness to invest in the future of his countrymen.

The Home Development Mutual Fund, also known as the Pag-IBIG Fund, was created on June 11, 1978, by virtue of a Presidential Decree to address two of the country’s basic needs: generation of savings and provision of shelter for the Filipino workers.

In 2009, a law was passed that allowed the mandatory coverage of the Pag-IBIG Fund to include all employees compulsorily covered by SSS and GSIS, as well as Filipinos employed by a foreign-based employer.

A Filipino worker above the age of 18 and his employer normally contributes no greater than 100 pesos each month to the fund. The accumulated money per Pag-IBIG member will be available for future use like for short-term loans (calamity/multi-purpose) and retirement purposes also known as Total Accumulated Savings.

Looking at the government agency’s recent audit report, the Pag-IBIG fund provides 90% of its annual adjusted net income to its fund holders as dividends.

Contrary to what usual stock investors are used to such as ex-dividend date and the like. The government agency announced its dividend rate for a given year months after the year has passed.

The agency’s board of trustees declared its 2017 payout on February 9, 2018.

In 2017, the government agency provided dividend payouts amounting to 27.29 billion pesos (compared to 22.3 billion in 2016) out of the agency’s 30.33 billion adjusted profits (compared to 24.78 billion in 2016).

In 2017, the government agency reported a book value of 431.5 billion pesos as of year-end with 84% of it to all of Pag-IBIG members’ equity (contributions). The book value increased by 47.6 billion pesos or 12.4% from 2016.

The agency also recorded an 8.8% rise in revenue to 54 billion pesos in 2017. The agency collected the bulk (73%) of its revenue from interest income or interest earned from housing loans, multi-purpose loans and investment in bonds.

The agency also added 8 billion pesos in revenue from its acquired/foreclosed assets in the same year.

“We, in Pag-IBIG, are delighted for having earned another unqualified opinion from COA. We concluded 2016 as a great year but our performance in 2017 was record-breaking, making it our best year ever!”

Pag-IBIG Fund CEO Acmad Rizaldy P. Moti (source)

Pag-IBIG has also set a Capital Management Policy. In short, the agency has to maintain a Capital Adequacy Ratio of at least 17.50%. This is quite high and healthy since Basel III requires banks to maintain 8%. Nonetheless, Pag-IBIG is a government agency and enough cushion must be available in terms of a crisis.

So far, it was not that hard to find these important financial numbers through the agency’s website.

Nonetheless, the recent Commission on Audit report also revealed that 22,123 Pag-IBIG members having a loan value of 14.4 billion are at risk of losing their homes.

As per the agency’s circular, housing developers must convert its Pag-IBIG members’ contracts-to-sell (CTS) to real estate mortgages (REM) agreements, therefore, transferring the land title to the Pag-IBIG members from the developers.

Failure to do so between 18-36 months will allow Pag-IBIG to cancel the agreement with the developer, therefore, making a Pag-IBIG member homeless possibly through eviction by the developer.

Pag-IBIG has this to say in return to these findings:

“It is unfortunate that COA’s report has been misread. Let me clear things by saying that borrowers do not risk losing their homes on account of the non-conversion from CTS to REM. Pag-IBIG has safeguards in place to ensure that the home loan borrower’s rights are always protected. For one, the CTS is assigned to Pag-IBIG Fund and annotated in the title as proof that the borrower purchased that property. Two, we can sanction developers who fail to meet the conversion timeline. Lastly and most importantly, Pag-IBIG itself can do the conversion by using the retention fee deducted from the developer to make sure that these titles will be transferred under the names of the borrowers.”

“Borrowers have no reason to worry because regardless of the conversion status of their properties, the only way they face the risk of losing their homes is if they are not paying their monthly obligations.”

Pag-IBIG Fund CEO Acmad Rizaldy P. Moti (source)

Other than these recent interesting events, investing in Pag-IBIG’s MP2 fund would probably require a lot more patience than how investors are very much used to investing in stocks.

A phone call to the agency confirmed that there is no way for an MP2 fund investor to track his investments online. Also, an interested investor must visit a Pag-IBIG branch every time to personally deposit his seed money.

As long as the agency, the overall Filipino workforce and the government do not go bankrupt, these dividend rates may be worth the patience and the risk.

Meanwhile, the inconsistent albeit high dividend rate and lack of internet access to monitor one’s investment do not appeal to this blog’s investment appetite.

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