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Expanding Housing Finance to the Underserved in South Asia Market Review and Forward Agenda


Expanding Housing Finance to the Underserved in South Asia Market Review and Forward Agenda South Asia Regional Housing Finance Conference January 27-29 2010, New ... – PowerPoint PPT presentation

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Title: Expanding Housing Finance to the Underserved in South Asia Market Review and Forward Agenda

Expanding Housing Finance to the Underserved in
South Asia Market Review and Forward Agenda
  • South Asia Regional Housing Finance Conference
  • January 27-29 2010, New Delhi, India

  • More than a billion people around the globe, and
    over 14 percent of South Asians, live in
    inadequate housing
  • South Asias housing and housing finance markets
    are dynamic and grew at a very high 30 in the
    past five years, but are limited in their
    outreach, catering to upper income groups.
  • Housing and housing finance services have the
    potential to be expanded to middle- and even
    lower- income families.
  • The challenge is that South Asia is home to about
    half of the worlds poor, who require more
    complex housing solutions as existing market
    terms are not directly affordable to them.

Importance of Housing
  • Contributes to overall economic growth, social
    uplift and employment.
  • Deepens, broadens and stabilizes the financial
  • Accounts for 75-90 of household wealth in
    emerging market countries.
  • In South Asia, 40-50 industries are directly
    linked with housing construction.
  • Construction and related sectors constitute 9
    percent of the labor force worldwide.
  • Housing investment accounts for 15-35 of
    aggregate investment.
  • Housing makes 15-40 of monthly household
    expenditure worldwide.
  • Mortgage debt constitutes about 30 of GDP
    worldwide, and only 3.42 in South Asia.
  • Increases national savings and investment, and
    contributes towards poverty reduction.

Housing Debt to GDP (percent)
Growth potential of Housing Finance
  • The world population is expected to reach 7.9 -
    10.9 billion by 2050. Within the next two
    decades, 60 of the worlds people will reside in
    urban areas.
  • Rapid economic growth in the South Asia region,
    coupled with significant population increases and
    growing urbanization trends makes for a
    considerable potential for housing and housing
    finance growth.
  • Household size is shrinking, and a significant
    middle class will be forming in the coming
    decades, mostly composed of young people who are
    eager to have their own, albeit modest, home.
  • The averse attitudes to debt are changing,
    particularly for home ownership.
  • These developments are propitious to a scaled-up
    outreach of housing and housing finance markets.
  • And private sector lending for housing would free
    scarce government resources for other social and
    economic needs.

GDP growth and urbanization
Estimates of the growth potential
  • Difficult to make precise estimates of the growth
    potential of the housing and housing finance
    sectors in South Asia. Some tentative
  • Afghanistan 2.5 billion investment (276
    million a year financing needs) in Kabuls
    informal housing sector alone.
  • Bangladesh 3.5 million new rural houses
    required, and about 1.9-3 million dwellings
    require incremental construction and repair.
  • India US 108 billion investment up to 2012.
  • Pakistan US5.6 billion investment for 2009
    alone (US2 billion or 1.26 of GDP financing
    need) for 470,000 housing units.
  • Sri Lanka up to US8.8 billion financing needs
    by 2020.

Expanding access to middle /lower-income groups
developing a sound and accessible market
  • The markets need balanced funding models,
    diversified instruments, sound housing prudential
    regulations, innovative products, and affordable
  • Complicating factors
  • Deficient financial systems.
  • Inefficient regulatory regimes foreclosure and
    land administration.
  • Other sluggish building supply poor low income
    housing policies and lack of commercially viable
    housing microfinance lending.
  • Promising aspects
  • Islamic finance could help access underserved
    market segments.
  • Secondary market finance is key to long-term
    funding and stabilization of mortgage markets.
  • Public-private partnerships and creative
    cooperative solutions are promising.

A shortage of over 38 million housing units in
the region
  • There are an estimated 212.5 million homeless
    people in South Asia, out of a total region
    population of 1.5 billion (14 percent).
  • Worse urban shortages are hiding behind squatter
    settlements and higher persons per room density.

The Glum Reality in the Slums
Country Slums Statistics
Afghanistan 80 percent of the Kabul population (2.44 million) live in slums
Bangladesh 2,100 slums more than 2 million people in Dhaka live either in slums or are without any proper shelter
India 52,000 slums holding 8 million urban households, representing about 14 percent of the total urban population.
Pakistan Karachi alone has between 600-800 slums, sheltering about 7.6 million (or 1 million households) out of the total city population of 15.1 million people
Sri Lanka A considerable share of the population of Sri Lanka lives in plantations, slums and shanties.
Housing Supply in South Asia
  • Purely government solutions at such scale are
    difficult - a large-scale market solution is
  • Success stories exist (e.g. India) - viable and
    profitable models to serve lower-income groups.
  • Developer finance and efficient land
    administration are required for low-cost
    development to be profitable.
  • Sound governance, professional standards and
    norms, transparency, and good consumer protection
    will help as well.
  • Construction quality and construction standards
    are important.

Prevalence of Temporary Housing in South Asia
Country Temporary Housing
Afghanistan No data
Bangladesh 50 percent of all housing
India 45 percent of all housing
Pakistan 39 percent of all housing
Sri Lanka 20 percent of housing units have mud floors
Real estate prices secondary markets
  • Unprecedented rise in South Asian property prices
    impairs affordability.
  • Driven by the cost of land and construction
    materials, rising demand, urbanization, high
    economic growth, increasing remittances, limited
    availability of land, speculative trade in real

Country Cost to construct low-income housing (per square foot)
Afghanistan 15 to 20
Bangladesh 27
India 20 to 22
Pakistan 9.6 to 12
Sri Lanka increased about threefold between 1990-2005
  • Sluggish and in transparent secondary markets for
  • Dual pricing system due to high property costs
    and taxes.
  • Lack of secondary housing market infrastructure.
  • Weak foreclosure enforcement.

Growth Rates of the South Asia Housing Finance
Industry 2007-2008
Housing finance markets
  • Generally dominated by the banking sector
  • Mortgage products inflexible, unaffordable,
    geared to high-income customers
  • Lower-income groups mostly serviced by
    state-owned banks.
  • Country-specific features
  • Afghanistan one of fastest growing and most
    limited outreach. Major laws being currently
    adopted, and remaining to be implemented.
  • Bangladesh nationalized commercial banks and
    private and foreign commercial banks hold 23.6
    percent and 35.7 percent market share,
  •  India a variety of financial institutions,
    including non-banking housing finance companies,
    but still a concentrated market, with four
    financial institutions controlling more than two
  • Pakistan the second fastest-growing and limited
    outreach country in the region.
  • Sri Lanka banks and state-owned specialized
    mortgage lenders are the sole players in the
    countrys market.

Typical Mortgage Terms in South Asia
Country Typical Mortgage Terms
Afghanistan 10,000-20,000, 12, 20 year maturity
Bangladesh 36,300-43,600, 14-15, 10-15 year maturity, restrictive loan-to-cost maximums (capped at 70 generally, but averaging 50 in practice). Interest rates mostly variable
India 30,000 on average, 12, 13 years maturity, plain vanilla home amortizing loans, on predominantly floating rates and with prepayment penalties, average loan to value ratio of 65 (maximum 85 at origination)
Pakistan 21,000-44,400 on average, 15-17, 12.5 years maturity on average
Sri Lanka 10,000-40,000, 15-17, 15-25 year maturity on average, generally fixed rates by state-owned banks and variable rates by private banks
Total Mortgage Balances Outstanding and Market
Shares, by country
Country Bank Mortgage Financing State Specialized Mortgage Financing Private Specialized Mortgage Financing Islamic Mortgage Financing
Afghanistan 100 (a) 0 0 included in (a)
Bangladesh (Tk. 142.4 bn) 64 17 12 7
India (IRs. 3,970 bn) 66 (b) 4 30 included in (b)
Pakistan (Rs. 89.9 bn) 76 13 0 11
Sri Lanka (Rs. 181 bn) 75 25 0 0
Housing Finance Market Players
  • In addition to the dominant banking sector and
    state-owned housing banks, there is a diverse
    team of housing finance players
  • Specialized housing finance companies (India,
    Bangladesh). Innovative, serve lower-income
    groups, but starved of long-term, low-cost
  • Islamic housing finance instruments (e.g.
    diminishing Musharakah, murabaha). Growing
    substantially, massive untapped potential, still
    not focused on lower-income home financing.
  • Informal housing finance - Low-income groups in
    South Asia, rural dwellers, and those with
    irregular or informal incomes fund their homes
    through savings and family / friends.
  • Microfinance housing lending for home
    improvement, not purchase. Diversified products,
    segmented clients, handle risk better, lack
  • Large-scale project finance lacking, developers
    fund out of equity.
  • Incipient experimentation with second-tier
    housing financing in Pakistan and India, where
    mortgage-backed securitization was explored.

Risk Management
  • Liquidity risk (due to term mismatch). NBFIs
    suffer more, commercial banks cope better. -gt
    Mortgage refinancing company, guarantee facility,
    capital markets could address the issue.
  •  Market risk (stemming from interest rate
    fluctuations) is passed on to the clients by
    offering adjustable rate mortgages. -gt interest
    rate guarantee mechanisms could address this
  •  Credit risk will become important as mortgage
    lending increases. -gt better client
    information, more efficient usage of credit
  •  Under-developed legal framework. Weak ownership
    and title, dysfunctional secured transactions
    laws, poor professional support for the real
    estate industry creates. -gt legal reform,
    enforcement strengthening, capacity building.

Low-income housing solutions
  • Expand market outreach through innovation and
    enabling regulation.
  • Affordability is stinted due to pervasive due to
    high interest rates, high real estate prices,
    high cost of building materials, few
    world-standard low-cost technologies, inflexible
    financing products, informality, and costly

Who can't afford low-cost housing?
  • Low-cost market solutions exist (e.g. Monitor
    and NHB). The model for housing provision of both
    formally and informally employed low-income
    groups can enable mortgage funding for a
    significant portion of low-income segments.

Regulatory Framework for Housing and Housing
  • Land Administration - establishing land
    ownership, land registration and titling. Speed,
    low cost, and simplicity are fundamental to an
    efficient system for registering property,
    mortgages and transferring titles, while security
    of land rights is the most important
    pre-requisite of robust housing markets.
  • Foreclosure - delays and uncertainty due to weak
    foreclosure increases lender costs. Dangers of
    foreclosure on the right to shelter can be
    addressed via functional rental markets.
  • Credit Information - Most countries in South Asia
    have a credit bureau collecting borrower
    information (Afghanistan is a notable exception).
    Most of the data is not computerized, has short
    historical horizon, covers only larger loans, and
    might not collect both positive and negative
    information about the borrowers.

Administrative Efficiency of Land Offices and
Cadastral Records
  • Number of days to register property
  • Cost of registering property ( of property value)

Time to Foreclose on Property in South Asia
Credit Bureaus in South Asia
Country Typical Credit Information Collected
Afghanistan None there is no credit bureau.
Bangladesh The public credit registry collects data on loans over 800, excluding MFI and utilities, retailers, and trade creditor data. The data is manual and extends only 2 years back.
India The private Credit Information Bureau of India Ltd. covers over 78 million individual borrowers (10.2 of adults) and over a million firms. Data collected is both positive and negative, without a loan or other size limit, excluding MFIs, utilities, retailers, and trade creditor data. The data is computerized and goes back several years.
Pakistan The public Credit Information Bureau collects data on both consumers (at most 12 of adults) and firms (up to 2 million by estimate), without a loan or other size limit, excluding MFIs, utilities, retailers, and trade creditor data. The data is computerized and goes back several years. Three private credit bureaus Datacheck Ltd, News-VIS Credit Information Systems, and ICIL/ PakBizInfo have recently opened, with narrower coverage than the public bureau.
Sri Lanka The public Credit Information Bureau covers 80 percent of all loans by value, on individuals and companies. Data collected is both positive and negative, on performing loans over SL Rs 500,000, 3-month-overdue loans over SL Rs 100,000, and 3-month-overdue credit card balances over SL Rs 5,000, excluding MFIs, utilities, retailers, and trade creditor data. The data is computerized though manual reports are used, and goes back several years.
Policy Options
  • Country-specific policy directions have been
    suggested in the report.
  • Four common themes emerge across the region
  • Efficient Land Administration - clear and
    consistent regulations, clear oversight
    authority, lower fees, streamlined procedures,
    transparency, computerization.
  • Housing and Housing Finance Information and
    Transparency - ready and easy-to-consult
    information on property prices and real estate
    data, housing supply and demand, construction,
    and various housing finance data and pricing,
    including credit records, is indispensible.
  • Long-term Funding Availability Secondary
    mortgage facilities can enhance long term
    lending, and can pave the way for securitization
    in the long term.
  • Expanding Housing Finance to Low-Income Groups -
    product innovation will bring down lending costs,
    customize loans to client needs, enable better
    risk management. Active capacity-building efforts
    are required.

Thank you!
  • Tatiana Nenova
  • World Bank
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