Promoting Access and Affordability
in Housing Finance
IFC‘s experience in supporting
better and safer housing
opportunities in Emerging Markets
Friedemann Roy
April 11, 2013
2
The conundrum: how to improve access to housing
finance for low income groups?
Mortgage debt to GDP and GDP per capita (2009)
Source: World Bank Database
• Evidence that economic
growth support housing
finance market
penetration (r = 0.82)
• In which direction are
markets in Asia
heading?
• Do low income groups
benefit from increased
access to housing |
finance with rising
GDP?
3
Higher incomes typically mean improved access to
financial services
High income groups
Mortgage
Middle income groups
Small housing loans
Low income groups
Informal financial
sources
4
A triangle diagram to depict perspectives of housing
finance markets
Housing
(= demand)
Supply
- Funding
- Housing units
Finance
- Microfinance institutions
- Banks
- Non-Bank financial institutions
5
What determines demand for housing? (I)
• Economic climate and quality of enabling environment:
Source: World Bank Database
- Asian countries are an important growth driver of World GDP
- Continued reforms of enabling environment but pace differs by
country
6
What determines the demand for housing (II)
• Rising population and increasing urbanization
▫ World Population is estimated to grow from 6.9 billion (2010) to 9.3
billion (2050)*
▫ In 2050, 6.2 billion will live in cities (today 3.5 billion)**
▫ Asian countries will experience a rise of their urban population by
1.4 billion and will have the highest number of megacities (>
10m)****
• Rising incomes
▫ Increasing disposable income and purchasing power
▫ (e.g. it took India 15 years to double its income per head –
compare: Britain 150 years after industrial revolution began)***
* Le Monde
** This is Africa
*** The Economist
**** United Nations
7
Responses to increasing demand for housing
Funds
Deposits
Capital market funds
Supply
Dwellings
Developers
Self-construction
• Global housing demand is projected to double over the next two
decades to about USD 5 trillion yearly (McKinsey Institute)
• Supply of funds
▫ Capital markets in most emerging Asian economies are
dominated by government bond issues
▫ Deposits remain most important funding instruments for housing
loans
• Supply of dwellings
▫ Not sufficient to cover demand, especially in affordable segment
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Prospects of housing finance markets in emerging Asia:
benefitting from improving regulatory environment and
continued economic growth
Heading
forward, but
from low
level
Stable and
upward
development
Price
pressures
and
uncertainties
Bangladesh,
Indonesia
Thailand,
China
Malaysia, India
1. Markets are advancing,
but overall market
penetration is still low
2. Markets are benefitting
from high demand and
rising interest of
investors
3. Can house price
inflation and/or rising
number of defaulting
borrowers be contained?
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Who offers finance to low income groups?
NGOs
NBFIs
Banks
Average
loan size
(USD)
315
670
2,202
Share of
institutions
targeting low
income
borrowers
76%
61%
49%
Share of
loan portfolio
in urban
areas
49%
51%
61%
NGOs
NBFIs
Banks
Coops
Rural banks
Many suppliers, but different
target markets
Structural Indicators of MFIs, 2010
Source: MIX Market, DB Research
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Microfinance – a panacea to offer housing finance to
low income groups?
• Over the last decade, Microfinance Institutions (MFIs) throughout
the world and Asia have experienced considerable growth of their
portfolios
• Ventured into new product offerings beyond traditional group lending
schemes
• But portfolio quality has deteriorated due to:
▫ Reaching out to riskier borrowers without lenders having
adequate risk management capacities
▫ Lack of adequate lending standards
▫ MFIs have become more commercial and subject to competition.
However, the instruments to monitor moral hazard/adverse
selection have not been updated
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IFC’s experience to support access of low income
groups to housing finance: understanding affordability
- two measures
Source: numbeo
Ratio of median house price to median
disposal family income (per year)
Ratio of actual monthly mortgage
rate in relation to monthly income
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Understanding affordability and preferences: depending on
income, it may differ
Mortgage-able
Small-scale
housing loans,
micro mortgages
Community
based shelter
funds, savings
Upper:
(Formal income, legal title)
Moderate to lower:
(Formal/informal income
Legal title/no legal title)
Low income group:
(informal income, no legal title)
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Project examples where IFC been involved to support
access to housing finance for low income groups
Haiti:
• Why?
▫ Country is prone to natural disasters
▫ High degree of informality and weak enabling environment
• What is IFC doing there?
▫ Redesign of lender’s existing housing micro finance product line
and incorporation of partnership(s) with building material
provider(s) combined with offering of technical assistance to
borrower
14
Haiti: partnership between lender and construction
technical provider and building material supplier
Sign-off on construction
progress and quality
Provides
construction
material
Customer
Loan
Agreement
15
Afghanistan: housing microfinance capacity building
• Why?
▫ No housing finance products for low income groups
▫ Significant demand for renovation and new construction
• What is IFC doing there?
▫ Development of appropriate housing microfinance products
▫ Support to establish required infrastructure within lender’s
organization (underwriting, servicing, risk management etc.)
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Afghanistan: IFC’s Housing Microfinance (HMF) Toolkit
• Toolkit = guide for product development and operations
• Describes recommended HMF products and parameters,
operational procedures, and set of tools and techniques for market
surveys
• Includes guidance on shariah-compliant HMF products
• Based on international best practices and on-the-ground feedback
• Two parts:
1. Product development
2. Loan processing (from loan application to delinquency
management)
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Kyrgyzstan: Lending for home improvements
• Why?
▫ Housing stock in need of improvement, temporary housing
(“novostroika” = marginal housing rings)
• What is IFC doing there?
▫ Support lenders to develop specific HMF product adapted to
Kyrgyz market
▫ Lenders offer to borrowers loans and technical construction
support
▫ Technical construction support comprises instructional videos,
brochures and software modules
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Summary and conclusions
• Two main trends:
▫ Rising population and increasing urbanization
▫ Not discussed today: green housing opportunities
• Outlook for investments in residential real estate markets in
emerging Asia is promising
• But risks need to be carefully managed (i.e. credit risk, interest rate
risk, liquidity risk, etc.)
• Design of right market entry strategy is key:
▫ With the right product and the right strategy, sustainable growth
can be achieved
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Dr. Friedemann Roy
Global Product Lead
IFC Housing Finance Advisory Services
IFC A2F
Tel. +1 202 473 9838
E-mail: froy@ifc.org