Ms. Christine Engstrom, Principal Investment Specialist, Asian

NHB-APUHF-APMCHUD International Conference on Housing: An Engine for Inclusive Growth

Session IV: Housing Challenges: International Financial Institutions’ Perspective

Christine Engstrom Private Sector Operations Department Asian Development Bank New Delhi, India April 11-12, 2013

Asia’s Acute Housing Shortages  Large housing shortages throughout Asia:

  

India: approximately 25 million for urban areas; Philippines: 3.75 million shortage from 2005-2010 (Source: HUDC); and Indonesia: approximately 3 million backlog with a need to add about 800,000 per annum (Source: Ministry of Housing).

 Nearly half of all slum dwellers live in Asia with South Asia having highest rates. Approximately 70% of Bangladesh’s population lives in slums.

 Continued pressure on housing. Asia is the fastest urbanizing region in the world.

 ADB estimates that 120,000 new residents will move to cities each day over the next 10 years.

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The Affordability Challenge  Affordability is increasingly a problem in Asia impacting lower and middle-income classes.

 Price-to-income ratios in Asia exceed those of developed countries:  Jakarta = 14.6x;  Dhaka = 16.7x; and  Lahore = 23x (Source: U.N. Habitat).

 Drivers of low affordability:  Escalation of property costs;  Increase in costs of building materials;  Slowing growth of wages in some markets; and  Underdeveloped housing finance markets

high interest rates

and down payments, and transaction costs.

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Initiatives to Address Affordability Issues India Mortgage Guarantee Corporation  First mortgage guarantee company in India. Funded in June 2012.  Provides guarantees against borrower default on interest and principal payments up to a specified amount.

 Public-Private Partnership. Benefits from strong shareholders: - National Housing Bank (38%) – Sponsor and government entity; - Genworth Financial (36%) – Strategic investor and technical partner; - Asian Development Bank (13%) – Investor; and - International Finance Corporation (13%) – Investor.

 Genworth Financial is providing transition services to IMGC in areas such as risk management, underwriting, and IT, amongst others.

 Ratings: CARE (AA+), ICRA (AA).

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Initiatives to Address Affordability Challenges India Mortgage Guarantee Corporation Long-term contributions to the market:

 Helping people access homes earlier.  Addressing gaps in the housing and housing finance markets.  Strengthening the financial sector:  Creating new products;

 Helping banks tap new markets;  Diversifying risk; and  Providing capital relief.  Supporting growth of capital markets.

 Providing data and feedback on the market to industry and regulators.

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Initiatives to Address Affordability Challenges Long-Term Funding and Technical Assistance

 Longer-term funding:  Fills funding gap for banks. Capital markets are typically underdeveloped;

 Helps banks to extend longer-tenor loans hence improving affordability; and

 Reduces asset liability mismatches.  Technical Assistance:  Strengthen mortgage underwriting and servicing;  Create new models for assessing risk from lower income/informal borrowers;

 Better portfolio management; and  Help banks to provide new products for broader customer segments.

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Initiatives to Address Affordability Challenges Microfinance

 Using microfinance institutions to help lower income borrowers:

 Incremental building or home improvement loans;

 Typically for existing customers with good repayment histories; and

 Improves affordability.  Potential to scale-up:  MFIs need training;  Funding sources for MFIs can often be limited.

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Initiatives to Address Affordability Challenges Focus on the Fundamentals

 To address affordability issues and to support inclusive growth in the housing markets, important to focus on the fundamentals:

 Foreclosure processes;  Access to land;  Efficient and effective titling and registration;

 Strong underwriting and servicing standards; and  Industry information and transparency.

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