Title: Technical Brief to The Board Housing Finance in Emerging Economies World Bank Group Board Presentation - June 9, 2005
1 Technical Brief to The Board Housing
Financein Emerging Economies World Bank Group
Board Presentation - June 9, 2005
2Outline
- Why Housing Finance ?
- How to Expand Housing Finance
- World Bank Strategy, Products
- IFC Strategy, Products
- Challenges for the World Bank Group
3- Why Housing Finance?
- Engine of equitable economic growth
- Key for investment, households wealth, savings,
consumption, labor markets, fiscal returns,
retirement system - Collateral to unlock capital (dead housing
assets, De Soto) - ECA housing stock privatization gt 1 trillion
(asset rich, cash poor) - Meet a growing housing demand (urbanization,
demographics) - Prevent slum proliferation (cities built the way
they are financed) - Reduce poverty (asset building, retirement,
empowerment, community strengthening, improved
living conditions) - Take part in the financial sector liberalization
(banks, non bank lenders, domestic bond markets,
pension funds, etc.)
4- How to build inclusive and sustainable HF system?
- Sizeable durable investment that needs debt
leverage - Required sound foundations
- Relative macroeconomic stability
- Workable legal system (titles, foreclosure)
- Risk management, funding tools regulations
- Competing private lenders
- Affordable housing (cf. supply constraints)
- Enabling role of the State
- Less of direct lender/builder, rather build
conducive market environment, catalyst role to
expand accessibility
5- How to Expand Housing Finance
- Products
- Credit products (term, rates, amortization)
- Broader distribution channels
- Mortgage credit insurance for lenders
- Micro finance applied to housing
- Housing saving schemes
- Construction, infrastructure and rental finance
- Policy
- Affordable land use urban development rules
- Efficient registration of property titles liens
- Smarter HF-related subsidies
- Instruments to reallocate part of the additional
risks - Framework for long-term mortgage securities
(different models)
6Improved Housing Affordability in India
?
Property prices in suburban Mumbai by annual
household income
Mortgage Credit Interest Rates in India
Source HDFC (2004)
7- Grounds for Cautious Optimism
- Still gap between advanced economies (large and
low-risk portfolios) and emerging economies - Yet promising portfolio growth affordability
(Chile, Malaysia, Baltic, Mexico, Jordan,
India...) - No optimal model customization sequencing,
menu of products for different target groups - Key to develop primary local-currency mortgage
markets before more sophisticated instruments - Caution needed to develop this sensitive sector
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9- Bank Project Opportunities (Loans, Guarantees, TA)
- Land use, urban development and housing policy
- Property title registration and effective
foreclosure - Construction quality, security and finance
- Land infrastructure
- Professional real estate intermediaries
- Effective rental markets
- Smarter subsidies
ENVIRONMENT/ INFRASTRUCTURE
PRIMARY MARKET
- Finance lower income housing
- Safe lending regulations standards
- Consumer information protection
- Risk management tools (insurance, guarantees)
- Micro finance, housing savings, Islamic finance
- Capacity building funding of lenders, insurers
SECONDARY MARKET
- Choice of proper model (s)
- Legal and regulatory framework
- Access to longer-term matched funding
- Take off funding or guarantee support
10Bank Organization and Operations
- What do we do ?
- Growing scope (up to 30 countries, ambitious
reforms) - Broader range of TA and loans
- Conferences training programs
- HF flagship book in FY06
- Limited anchor size
- Challenge to access grant funds
11- Example Colombia
- IBRD loans and TA
- Rebuild after crisis sound infrastructure of
primary and secondary mortgage markets - Increase the accessibility for lower-income
groups - IFC key support to a private securitization
company - Example Jordan
- Sustainable development in a small economy
- Support to a liquidity facility (issue bonds,
refinance lenders) - Reduce lending risks, catalyst of credit
affordability gains - Targeted program of interest buy down vouchers
12- WBG Loans
-
- From 1982 to 2003 WBG 5.1 billion of HF loans
- High 89 satisfaction rate (OED, Bank projects)
- Small part - 1.5 - of WBG loans
- Large part - 46 - of urban shelter loans
- Recent increase of HF activities
- Stronger presence in MENA, LAC, South Asia
- Business development stage in ECA, Africa
13Evolution of IFC Housing Finance Activities
we have reorganized ourselves to optimize our
role
- Key Elements of Current IFC HF Strategy
- Programmatic approach that blends TA with
investment to maximize impact - Wider regional representation requiring
innovation and tailored solutions - Expanded product menu
- Expanded and independent role of TA.
14IFC Programmatic Approach
Technical Assistance and Information Building
Investment
Building Viable Mortgage Markets in Emerging
Market Economies
Legal/Regulatory Property Rights/Foreclosure
Role of Gov.
Macroeconomic Stability local currency
Financial Sector Dev. Securities markets Pension
Funds
15IFC Investment Products
investments at different levels in the value
chain given the risks
Structured Finance Credit En. Risk Sharing
In. Risks
CAPITAL MARKETS
Capital Markets
Debt Credit Lines Warehouse Credit
Lines Liquidity Facilities
MORTGAGE FINANCE
Mortgage Finance
CONSTRUCTION FINANCE
Construction Finance
Equity Conduits Mortgage Ins. Servicing
Co. Originators
Land Finance
16IFC TA Products for Housing Finance
our regional facilities give us a comparative
advantage to deliver focused TA
MARKET TA Products/Beneficiaries (in close coordination with project development facilities) TA Products/Beneficiaries (in close coordination with project development facilities)
MARKET SECTORAL INSTITUTION
PRIMARY Registries Legal Drafting/ Implementation Market Diagnostics/Needs Assessment (Algeria, Pakistan, Guatemala, Nicaragua, Honduras, Egypt, India, Ukraine) Standardization Servicing Training (Peru, Russia, Central America, Ghana)
SECONDARY MBS Laws Market Diagnostics (Romania, Russia, El Salvador) Launch of MBS Market Feasibility Training (Colombia)
17IFC Where Are We?
18Mortgage Warehouse Line (for a Developer cum
Originator)
Phase I
IFC
International Finance Market
Mortgages
Developer-cum- mortgage originator
Home Buyers
Credit Line
Security Vehicle
Trustee
Collateral for IFC
Local Mortgage Market
Phase II
Institutional Investors
Securitization
Local Capital Market
19IFC the Challenges for the Future
- How to get to true poor? (The case of Mexico)
- Microfinance for housing and
- Remittance mortgages
- Impacting the supply side
- Increase house production via developer financing
- Ensure affordability
- Creating new products/relationships to expand
impact - Access to long term local currency (NCPIC
program) - Islamic housing finance
- Energy efficiency products
- Mortgage finance provided by sub-sovereigns
20World Bank Group Role
- Develop housing finance markets
- Set up infrastructure, legal and regulatory
framework for markets - Make housing markets more affordable secure
property rights - Develop framework for risk management and funding
tools - IFC to support private transactions
- WBG comparative advantages
- Honest broker role
- Long-term presence during a process of reforms
- World expertise knowledge transfer
- Integrated approach urban finance, public
private sectors
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