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  • 1. Technical Brief to The Board Housing Finance in Emerging Economies World Bank Group Board Presentation - June 9, 2005
  • 2. Outline
    • 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: > $ 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)
  • 6. Improved Housing Affordability in India Mortgage Credit Interest Rates in India ♦ Property prices in suburban Mumbai by annual household income 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
  • 8.  
  • 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
    • 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
    • Choice of proper model (s)
    • Legal and regulatory framework
    • Access to longer-term matched funding
    • Take off funding or guarantee support
  • 10. Bank 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
  • 13. Evolution of IFC Housing Finance Activities
    • 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.
    … we have reorganized ourselves to optimize our role
  • 14. IFC Programmatic Approach Legal/Regulatory Property Rights/Foreclosure Building Viable Mortgage Markets in Emerging Market Economies Macroeconomic Stability local currency Role of Gov. Financial Sector Dev. Securities markets Pension Funds Investment Technical Assistance and Information Building
  • 15. IFC Investment Products CAPITAL MARKETS MORTGAGE FINANCE CONSTRUCTION FINANCE Debt: Credit Lines Warehouse Credit Lines Liquidity Facilities Equity: Conduits Mortgage Ins. Servicing Co. Originators Structured Finance: Credit En. Risk Sharing Capital Markets Mortgage Finance Construction Finance Land Finance In. Risks … investments at different levels in the value chain given the risks
  • 16. IFC: TA Products for Housing Finance … our regional facilities give us a comparative advantage to deliver focused TA INSTITUTION SECTORAL TA Products/Beneficiaries (in close coordination with project development facilities) Launch of MBS Market Feasibility Training (Colombia) MBS Laws Market Diagnostics (Romania, Russia, El Salvador) SECONDAR Y Standardization Servicing Training (Peru, Russia, Central America, Ghana) Registries Legal Drafting/ Implementation Market Diagnostics/Needs Assessment (Algeria, Pakistan, Guatemala, Nicaragua, Honduras, Egypt, India, Ukraine) PRIMARY MARKET
  • 17. IFC: Where Are We?
  • 18. Mortgage Warehouse Line (for a Developer cum Originator) IFC Developer-cum- mortgage originator Home Buyers Security Vehicle Securitization Phase II Phase I Credit Line Mortgages Collateral for IFC Local Mortgage Market International Finance Market Local Capital Market Institutional Investors Trustee
  • 19. IFC: 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 (NIPC program)
      • Islamic housing finance
      • Energy efficiency products
      • Mortgage finance provided by sub-sovereigns
  • 20. World 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
  • 21.