Only a few markets in the MENA region are addressing their housing issues. A mix of delivery models from traditional design and build to the development of Public Private Partnerships are being used while the definition of Affordable / Social Housing varies significantly among markets within the MENA region. This paper establishes that widespread home ownership & development cannot be achieved without a robust financial system achieved by effective link between residential mortgages and the long term financial markets. The paper also addresses Governments long term and short to medium term policies optimal goals to provide affordable and comfortable housing for all that needs it.

1. Diversifying Affordable
Encouraging Housing Financing
Development of
Public Private
Partnerships
in Affordable
Housing
Loay Ghazaleh – Advisor - B. Sc. Civil Eng. , MBA 1

2. Presentation Index
MENA Social / Affordable Housing
Global Affordable Housing Sources
Concepts In Affordable Housing
SOCIAL RENTAL HOUSING IN EUROPE
Housing Mortgages , Securitization
PPP’s As Sustainable Housing Solution
Adpoted PPP Model for Housing
2

3. MENA Affordable Housing Market
Lebanon
JLL 2011 Report Syria
West Bank & Gaza Iraq
Jordan
Only a few markets in the MENA Kuwait
region are addressing their housing
issues. A mix of delivery models from Egypt Bahrain
traditional design and build to the Qatar
development of Public Private UAE
Partnerships are being used. Saudi Arabia
Oman
Roughly 50% of the population in MENA region can fit in
Yemen
one form or another of the social / Affordable Housing
Unmet Housing Additional Housing
Households - 4-6 /
Country Population Units Demand Units Demand
Family Assumed
2011 Per Annum
Egypt 84,000,000 20,220,499 1,500,000 370,000
Morocco 32,000,000 6,229,348 600,000 60,000
Iraq 32,000,000 4,754,505 1,000,000 63,000
KSA 26,000,000 4,723,683 400,000 100,000
Oman 3,000,000 472,531 15,000 9,000
UAE 6,000,000 1,097,880 20,000 14,000
Bahrain 1,200,000 274,959 40,000 16,000
Total 184,200,000 37,773,405 3,575,000 632,000

4. Affordable Housing Demand Forecasts,….
JLL did not split the demographics, so there are Questions on the final numbers,…
% of
% of urban
Urban households
x In low
Population
Country income
Population bracket No. of
------------------ x = potential
Average % of Homes
household rural needed
size % of
households
rural x In low
population
income
bracket
JLL noted that there is no commonly agreed definition of what comprises Affordable or Social housing within the
MENA region. Definition varying significantly between markets
● Affordable is generally associated with Households with less than 60% of the median income…
● Social is generally associated with bottom 40% of the households on the income distribution…
● Defined cost wise based on income bracket, Housing that generally consumes 30% of net income 4

5. Media Opportunities in MENA Social Housing
• ? Iraq - The Iraqi government in June 2011 approved plans to build 3.5 million new homes
within the next ten years to meet the housing crisis that it is facing. A $70 billion
reconstruction package announced included the allocation of $25bn investment for housing.
• ?? Libya - The Libyan government was in the process of launching its first development
program to invest across the infrastructure of the Country including Housing. The housing
program was to develop over 300,000 new houses at a value of $35 billion.
• Kuwait-The Government is pushing ahead with a number of affordable housing schemes
using the Build Operate Transfer (PPP) procurement models.
• Bahrain - Bahrain Government signed in early 2012 a record BD208m ($550m) with a local
Developer to build more than 4,000 affordable homes. Bahrain forecasts the need for
about 350,000 new residential units to be added to existing stock by 2030 with $1.1bn to
be spent every year up to 2020, and then $242m annually up to 2030, (EDB report).
• Saudi Arabia needs 1.65 million new homes by 2015 .Total commitment is $130bn on social
projects with $67bn allocated for 500,000 new homes and $400 billion for infrastructure
projects. KSA Construction Housing Pipeline Projects valued at US$ 29 billion for 2012.
• Saudi Arabia nationwide accommodation needs have been estimated at more than five
million new housing units by 2020. The plan says Saudi Arabia will require SR 2.4 trillion
(US $640 billion) of investment in real estate over the next 20 years. 5

6. Top Trends for GCC Real Estate in 2012 - 2020
 An increased focus on realism is likely to be the trend influencing the GCC real estate
sector in 2012 and years ahead, resulting in more attention to the needs of the consumer
or customer, more emphasis on financial returns and bottom line performance and a
reduced future supply pipeline as more projects are cancelled or delayed.
 Also the affordable housing can be an enabler of social stability in the Middle East, and
green building can help give money back to communities, according to an executive of a
leading ecological project investor. Developers are turning to government-led housing
initiatives in order to compensate for a decline in public spending and a decrease in
demand for new projects.
Other key trends are expected to be:
 An increase in sales activity at the lower end of the market, although there will remain
limited interest from international institutional investors.
 More emphasis on estate management of the public realm within master planned
projects.
 More awareness of the commercial advantages associated with green buildings and
sustainable practices.
 More choice for tenants, particularly in the office markets.
 Greater variation in performance between winners and losers within each asset class.
6

7. Examples of the New GCC Real Estate Trends
• Diyar Al Muharraq, one of Bahrain's biggest mixed-use residential urban
developments, is launching what it terms a ‘crafted affordable housing
program’ to address the Kingdom’s growing need for social housing.
• Jeddah is scouring the world seeking most advanced technologies to
implement the need for affordable. The specifications call for service life span
of 100 years, concrete based products offering ductile properties (seismic
zones), 4 hour fire rating at 1200 degrees Celsius and highest thermal
properties
• Jeddah, KSA awarded an International real estate firm a SR1.1bn contract to
building affordable housing over 1million m2.
• Kuwait is to develop an expansion plan for Kuwait City in line with the
country’s Kuwait 2030 initiative. Also More than 350 housing plots will be
made available for new projects in Kuwait’s Al Qairawan with Kuwait Oil
Company
• Al Falah is a $2.5bn, 1,200ha housing development for UAE nationals near
Abu Dhabi, with 4,857 villas and an expected population of 60,000.
7

8. Jeddah Low-Cost Housing , One Million Units
• Jeddah needs almost one million housing units over the next 20
years, according to a strategic plan prepared by the Jeddah municipality
released at the Jeddah International Real Estate, Finance and Housing
Exhibition 2010 (JIREX 2010).
• The Jeddah municipality’s plan is based on present shortages and future
requirements. Currently there is a shortage of 283,000 housing
units, including 80,000 in the low-income group.
• The plan calls for immediately building 151,600 units for accommodating
people living in underdeveloped areas, and 51,500 units to meet the
demand of population growth.
• With regard to future requirement, the strategic plan foresees a need for
570,000 units in the next 20 years, adding that demand for housing was
increasing due to the presence of a large number of expatriate workers
and inflow of people from villages and cities, apart from population
growth.
8

9. Bahrain Affordable Housing Program
Bahrain Ministry of Housing Sources - 2011
9

10. The Housing Sector
in Saudi Arabia
– Population growth and lower family sizes push greater demand for housing.
– 40% of population is younger than 15.
– Only one third of Saudi nationals live in apartments,
– The preference for most Saudi’s is villa living rather than apartment living, however apartment living is
more affordable. The cost of villas in Urban major cities is out of reach for the common Saudi.
– Housing is considered a basic right to be provided by government to those citizens who cannot afford it.
– 80% of households cannot afford to own units of greater than 200 sqm. 60% of Saudi Families may
require assistance to own housing units up to 125 sqm.
– Affordability improves if traditional subsidies are available (zero interest loans, land grants, government
rent to buy, free infrastructure).
– REDF has provided 80% plus of home finance with loans being increased from SR 300,000 to SR
500,000 and SR 40 billion of additional capital injected.
– Estimated waiting time for Saudis who apply for REDF has been nearly 15 years with the aim to
reduce to 5 - 8 years.
– The government needs to take an active role in delivering affordable housing, the private sector cannot
be relied upon to perform this function as largest developers deliver roughly 1000 new units each year.
– Private sector see the mid to low housing sector as low margins business and as such some developers
show little interest in this sector with major costs to develop the primary infrastructure requirements
(waste water, water, electricity and district cooling) to enable the development of new communities.

11. Potential Solutions on Housing MENA
Housing
Solutions Construction
Technology
≠ Low Quality Social/
/Modular
Systems Land and
Cultural Infrastructure
Increase Access to Finance /
Acceptance Cost
Mortgage & Enact Securitization
Mass Building Systems Solutions
Environmental/ Developer
New PPP Arrangements w/ Subsidy
Sustainability – Affordable Business
and JV considerations
Eco Concept Housing Model
Reducing Land Cost, Land Tax Laws
Reducing Infrastructure Cost ;
Sharing / Cost Recovery Concepts Program Effective
Blocks Near Urban centers; Multi Management, Pr Planning /
Story Higher Density Solutions ice & Quality Mortgages & Budgeting
Control Long Term
Innovative Design Solutions for Finance
Privacy, Use, Common Areas
11

12. Housing Delivery – Supply Demand Factors
Demand Supply Side Barriers to Demand
Enablers Opportunities Entry Inhibitors
• Growing population • Large scale • Little experience • Off plan purchases not
• Generally house values development sites in among local desired
appreciate in MENA – a new suburban areas Developers in low • Cost / Affordability
strong security for • Opportunity for margin products Issues
future borrowing and securitization. • Few capable • uncertain employment
advances • Mortgage laws near contractors for large
• Diverse households
• Declining household enactment projects
• Cultural acceptance of
size • Political stability, with • Scarcity of long term
community
• Young population the exception of a few credit
developments
• Growing middle class / pockets • Escrow accounts laws
• Accommodation
Urbanization • Abundance of primary • Unclear Developer alternatives: rentals,
• Mature market raw materials default regulations parents
mortgage interest rates • New Real Estate • Owners default • Fear of home finance
in some countries Investment Funds foreclosure procedures covenants
• Despite global • GCC developers unclear
recession there is entering the affordable • Liberalization of
growth in housing market financial markets
economies, especially
in property markets
12

13. The Affordable Housing Perfect Supply Inputs
Policy , Regal &
Building Regulatory Framework
Material, S
ystem
Building Mortgage
Industry Finance
Affordable
Housing
Productive
Land
Labor
Infra-
structure

14. MENA SUPPLY GAP DEMAND GAPS
 Public sector funding is predominantly  Mortgage credit culture at best is poor
inadequate  Available mortgage alienates the poor & low
 Available private sector funding are shallow & income people
short term in nature  Microfinance Banks are still young and
FINANCE  Foreign capital not available currently focusing on working capital needs of
poor
 Existing funding pool not adequate for
mortgage
 Policies that incentivize private sector  Microfinance banks to be supported to offer
participation are largely absent – taxes, micro Mortgage credit. In many countries the
capital markets etc. Central Bank microfinance policy does not
 Public sector too predominant in the sector. cover housing microfinance
REGULATORY The public sector should rather be an enabler
 Strategy to attract foreign direct investment
or multi & bi-lateral support to the sector not
apparent
 Poor or lack of basic infrastructures to  Cost sharing infrastructure and proximity to
INFRASTRUCTURE support housing development adds to cost of urban centers are considered
housing 14

15. Investors , Borrowers & Financial Institutions Perspectives
Investors Borrowers Financial
• Require • Require fixed rates Institutions
reasonable return / installments • Balance risk/profit
• Aspire diversified contract • Assets recovery if
portfolios • Availability of full default
• Safety which amortization term • access to the bond
mortgages offers • Various refinancing market
options, no
foreclosure
15

16. MENA Affordable Housing – Owners - Developers
Owners Developers
•High mortgage interest rates •Limited long term funds
•Low levels of income •High Cost of building materials
•Lack of affordable housing supply •Planning/green regulations
/ limited availability in desired •Prohibitive cost of infrastructure
areas / Land
Lack of effective Lack of affordable
Housing demand Housing supply
WIDESPREAD HOME OWNERSHIP & DEVELOPMENT CANNOT BE ACHIEVED
WITHOUT A ROBUST FINANCIAL SYSTEM ACHIEVED BY EFFECTIVE LINK BETWEEN
16
RESIDENTIAL MORTGAGES AND THE LONG TERM FINANCIAL MARKETS

17. Government / Private Sector Roles
Government : Legislation on foreclosure / mortgage & securitization is key to jump start the market
Urban Issues: Relaxation of development green guidelines. Land designation for affordable housing
Tax and Fiscal policies: Reduce cost of mortgage and development borrowing, Micro financing need
Real Estate Funds : Setting up funds dedicated to the affordable housing market
Zoning : Increase the density of housing units in a given area along with the associated infrastructure
Land banking : Access to cheap land with basic infrastructure. Land appreciation tax (Zakat) needed
Delivery : New business models / JV’s between Government and Private sector, PPP’s, etc.

18. MENA Affordable Housing PESTEL Analysis
• Politicians – controlled by office tenure; short term Public policy / strategy
• Government institutions: can be a barrier to private sector growth and sustainability;
P • Financial markets liberalization; need structural unpopular foreclosure laws
• Lack of steady income › credit risk. Collaterals in question combined with lack of financial history
• Underdeveloped capital markets, savings commitment lacking, volatile interest and inflation rates.
E • Repeated housing demand due to labor mobility and migration at the lower strata.
• Rural-to-urban migration – leads to development of slums;
• A move from communal housing to the high-density housing not fully embraced
S • Cultural dread of indebtedness , large families with limited income
• High building green standards imposed by authorities – makes housing finance expensive and increase the premium.
• Modern standardized building materials not responsive to local conditions leads to resisting the use of new technology;
T • Due to advances in technology, what passed as a house not too long ago no longer qualifies to be called a house;
• Changing climatic conditions leading to high risk premium;
• Local and traditional housing materials challenged by unstable environmental conditions;
E • Expensive imported building materials.
• Security of tenure hampers development; Biased contracts drafted by financiers discourage borrowers;
• Bureaucratic /absence of foreclosure laws discourage lending;
L • Inefficiencies in registering mortgage and title transfers create bottlenecks.
18

19. HOUSING & FINANCE POLICIES / PROGRAMS
In setting policies & programs Governments target the stimulation for personal
construction thru the development of effective financing / credit of housing
development for individuals and companies. Among the measures;
• Formation of land concession policy for housing and commercial aims to individuals
and institutions while establishing an efficient housing supply chain which focuses on
removing obstacles to the release of land by government; providing / funding the
respective infrastructures and clearing construction bottlenecks
• Enactment of sophisticated title structures to allow variations in lease arrangements
• Enhancing mobilization, supply and growth of long-term funds and making loans
affordable to more borrowers for the purpose of building, purchasing and improvement
of residential houses. Establishment of Trust structures to allow for shared ownership
• Encourage commercial and merchant banks to allocate a stipulated minimum
proportion of their credit to the housing/construction sector
• Establish National Housing Fund as an investment vehicle for banks or as saving facility
or a contribution scheme (the number of participations / contributors need to be
benched with the national work force) in order to mobilize cheap and long term funds.
• Providing incentives for the capital market to invest in property
development, Encouraging a multiplication of housing finance institutions 19

20. Do List to Boost the Affordable Housing Sector – Government! • Recognize housing finance as an economic empowerment/activity that contributes to
economic development rather than a social engagement;
• Make more budgetary allocations to housing as a springboard to other social
promotions such as education, health etc.; land and housing policy essential.
• Have a stratified approach to housing finance thru the use of smart and targeted
subsidies for specific geographical/environmental domains to lower the credit risk to
the second tier households and employ conditional grants to the lower end of the
market (not linked to bailout packages);
• Play facilitation role to the bankable segment and give space to private sector
participation and diversify domestic funding models how to
• Resolve obstacles in areas of land titles, foreclosures, appraisals. Support for rental
market and other forms of ownership
• Lobby housing finance private institutions to consider incremental lending to housing
development; encourage housing microfinance, risk sharing through legislative
institutional framework development to finance low/informal income households thus
deepening banks penetration and sound lending.
• Educate borrowers on the workings of a mortgage and savings schemes and
information (data) access.
• Embrace “securitization framework” to deepen funding base thru simple , transparent
20
models and legal/regulatory framework. ; limit/identify property bubbles

21. Affordable Housing Government policies ,….
Government long term policies optimal goal is to provide
affordable and comfortable housing for all that needs it. In
the short to medium term Governments target to improve
the housing situation through the following strategies:
• National Land & Housing Development Schemes –Urban & Rural
• Government Affordable / Cooperative , etc. (Housing Direct
Delivery - 100% Gov. funds or PPP or mixed JV w/ private sector)
• Sale of Government Low Cost Houses
• Various Rental schemes of Government owned Houses
• Mortgage Guarantees / Mortgage Liquidity Facilities /
• National Housing Funds
• Home / Land Loan Banks
21

22. Stages In Housing Delivery
1
2
State
sponsored 3
Lowering
housing standards to 4
production Involving
reach lower future 5
& delivery income Intervention
beneficiaries in housing
segments in housing Enabling
input to policies, less
production facilitate Government
housing intervention
production
Gov. Market
Supply Supply

23. Global Affordable Housing Sources
WIDESPREAD PROPERTY OWNERSHIP IS A
DESIRABLE GOAL OF EVERY SOCIETY

24. US Resources
Affordable Housing Institute (AHI)
African Resources
The African Union for Housing Finance (AUHF)
An association of mortgage banks, building societies, housing corporations and other
organizations involved in the mobilization of funds for shelter and housing, on the
continent of Africa. Based in South Africa.
The Southern African Housing Foundation (SAHF)
A catalyst for networking, conferencing and workshops for Africa. Based in South Africa.
Centre for Affordable Housing Finance in Africa (CAHF), which is a division of the Fin
Mark Trust (a non-profit independent trust, funded by the UK's DFID
Asian Resources
Housing finance agencies in Asia
Paper by BIS, January 2008
European Resources
International Union for Housing Finance (IUHF)
Based in the UK
The European Liaison Committee for Social Housing (CECODHAS)
Brussels-based European Union network for the promotion of the right to decent
housing for all
Constructing Understanding of the Homeless Population (CUHP)
European Commission funded research network
24

25. Example , The African Union for Housing Finance (AUHF) - Statement by the
members of the AUHF at their annual general meeting in SA, on 8 September 2011.
We, the members of AUHF confirm our commitment to the development of
sustainable housing finance markets that address the broad spectrum of needs
throughout Africa, we are committed to:
• The development of appropriate housing and housing finance products, which are
affordable to our populations, and contribute effectively towards adequate housing
across our nations
• Promoting consumer education and financial literacy so that households can
participate effectively in their housing processes and training across the spectrum
of the housing value chain
• An integrated delivery approach in which the development of housing occurs
within a sound planning framework that includes the delivery of infrastructure
services, and social and economic amenities
• Professional development Working in collaboration with each other, and other
stakeholders, whether in the public or private sectors, to promote the realization of
sustainable human settlements across Africa.
25

26. Good Book to Read
Housing Finance Policy in Emerging Markets
by Loic Chiquier and Michael Lea
(Paperback - Jun 19, 2009)"
$42
Fixing the Housing Market: Financial Innovations for the Future
by Franklin Allen, James R. Barth and Glenn Yago
(Hardcover - Feb 24, 2012)
$35
26

27. Other Sources
National Association of Housing Redevelopment
Officials - US
Chartered Institute of Housing - UK
Provincial Government of the Western Cape
Department of Human Settlements - SA
HOFINET- HOUSING FINANCE INFORMATION NETWORK
• A portal website for sharing information on housing finance, started a data
collection exercise
• Hosted and run by Wharton School, University of Pennsylvania with support from
World Bank, IFC, FMO
• Aim to have contributors/editors to the site from all over the world sharing
knowledge and best practice
27

28. World Bank - WHY HOUSING FINANCE
The World Bank is a vital source of financial and technical assistance to
developing countries. Its mission is to fight poverty for lasting results
and to help people help themselves and their environment by
providing resources, sharing knowledge, building capacity and forging
partnerships in the public and private sectors.
• Urban development strategy: cities are also built the way they are
financed (avoid slum proliferation)
•
• Poverty reduction & social stability: empowerment, retirement, asset
building, community strengthening
•
• Integral part of the global financial sector liberalization (banks, non -
banks, bond markets, pension funds, etc.)
•
• Housing is a sizeable and durable investment: needed market debt
leverage
28

29. WORLD BANK’S
MORTGAGE LIQUIDITY WB MORTGAGE
HOUSING FINANCE WB TARGET COUNTRIES
FACILITY - CHALLENGES LIQUIDITY FACILITIES
PROGRAM
• Growing scope 30+ • Has had stability in its • Further Urbanization to • Operating already in
countries & ambitious banking sector and adapt to city living, Egypt and Jordan
reforms macro economy smaller houses/multi-
family • Provides a solution to
• Broad range of policy • Undertaken legal maturity mismatch issue
reforms, new reforms with new • Offering solutions across and shortage of long
legislation, pilot mortgage the income spectrum term funds
programs, studies law, condominium • Developing rental
law, program to finance, housing • First step onto
• Financed using IBRD formalize land microfinance, developer secondary mortgage
loans, IDA credit or ownership finance market without the risks
grants and trust funds associated with
• World Bank providing • Integrating urban policy securitization
• Global, regional, country support thru: with financial sector
conferences & training reform
programs • Creation of a liquidity
facility, mortgage • Creating capital markets
• HF flagship book market development and a source of long
published • Housing Microfinance term funds
Fund , capacity
building • Making Progress on
• Collaboration with
Urban/Slum • Several steps to Land issues
upgrading/Land projects expand supply of
housing
29

30. Concepts In Affordable Housing Ownership Forms
The gap from pure rental to homeownership is large: down payment, financial literacy, mortgage
ability, and family situation/ stability all can represent obstacles to households seeking to move up
the ladder. Intermediate forms frequently involving government incentives, regulatory schemes, or
subsidies. The following ownership forms have been successfully used throughout the world
arranged in descending order by capacity required of the householder;
No. Householder Capacity to Own Suitability – MENA Region
1 Home Ownership – Villa Type High end MENA market and GCC in particular
2 Condominium/ Sectional Title First home - urban professionals
Independent organized professions – Eng. Doctors,
3 Co-Operative
Lawyers Housing Associations.
4 Limited-Equity Co-Operative Gov. Employees like Teachers , Public Servants Housing.
5 Rent to Own Became popular in GCC to dispose Hi end Housing stock
Shared Ownership Trusts Similar to Islamic Musharaka, like 50% equity ( mortgage
6
(stair-casing) payments) & 50% lease with options to buy more equity
7 Rental Conventional open market.
Resident Controlled Non- Charity organizations housings offerings for followers
8
Profit Rental including Islamic endowment and Churches.
Delivery by either Gov. or Private. Rent is controlled by
9 Affordable Rental
Gov. or pre-agreements with private. Minimum quality
10 Informal Rental More like bed space rents. Undersized, undesired units. 30

31. Target Housing Issue Program Goal MENA
Increase The market lacks enough Create more new houses and
1 Phenomena across MENA region.
Supply affordable housing. consider regeneration projects.
Regeneration / Housing exists but is
Renovate existing housing stock Jordan , Egypt, Yemen, Iraq ,
2 Improve uninhabitable, or located in
and revitalize neighborhoods. Jeddah (KSA)
Communities declining neighborhoods.
Migrate people permanently,
Job / Housing Jobs and housing exist in increase commutability, or
3 GCC in general, UAE in particular
Disconnection separate places. produce new homes in job growth
centers.
Lock in rent levels or subsidy UAE - in the context of strong
Ample housing exists but at
Non streams to assure that target economies, continuing
4 prices far above the target
Affordability population residents have access immigration or population
population's ability to pay.
to quality housing. attraction.
Housing exists with intangible Improve market fluidity and break
Barriers / barriers like unawareness, lack down intangible barriers through
5 Jordan – Weak mortgage markets
Limited Access of creditworthiness, or landlord education, and equitable
prejudice. remedies.
Poverty Target households cannot Raise the segment rent-paying Egypt , Morocco and in high
6
Alleviation afford a reasonable rent ability. density countries
Target households have Use housing within an arrays of
Social Welfare Homeless, Palestinian & Other
7 personal / imposed issues that social services to work with target
/ UN Refugees Refugee camps in MENA. 31
impair their ability to rent. households.

32. HOUSING EDUCATION
WHY IS IT IMPORTANT? EDUCATION PROGRAMS
• Facilitates consumer protection • Borrower education for :
• Promotes the benefit of home ownership - First time buyers
• Fosters responsibility - Mortgage and non-mortgage
• Minimizes default risk • Home ownership education :
• Provides understanding of the housing - Current and potential home owners
finance options - New and potential tenants
EDUCATION AREAS OWNING HOUSING EDUCATION
• Tenure options ( Owning - building or • Deed of Sale, Title Deed
buying - , Renting, Social housing) • Purchase price , transfer costs
• Affordability and Savings • Bond registration costs
• Housing Finance ( Mortgage, Non- • Service connection fees, water, electricity
mortgage, Micro loans) • Monthly municipal charges
WHO SHOULD BE EDUCATED? • Home loan installments
• Maintenance and repairs
• Aspiring home owners • Monthly insurance premium (home owner
• First time home owners cover)
• Tenants • Learn the Advantages of owning
32
• Train-the-trainers programs (appreciation, business from house, etc.)

33. EXAMPLES ON HOME LOAN EDUCATION NEEDS
Housing tends to be a long-term financial commitment with
associated advantages and disadvantages e.g. :
• Some employers in an attempt to assist employees to acquire housing, will
encourage the use of Pension/Provident Funds as collateral, but when the
employees default on the loans, they could lose both property and pension
• Some people, in desperation to acquire housing will do so through micro-
loans, which could be costly and short-term to finance a long-term
commitment
• Others, still will purchase property when all they need is accommodation and
in most cases they are not yet ready to own property
In order to mitigate against all the above issues, people need
to be educated, even before they consider any
housing/accommodation option.
33

34. ADVANTAGES OF OWNING DISADVANTAGES OF OWNING
Long-term financial commitment
Asset grows in value Monthly installment, services and taxes
Can run business from your house Costly to maintain the property
Can rent out room and get extra income Insurance costs
Can sell the house at a profit May take long to sell
ADVANTAGES OF RENTING DISADVANTAGES OF RENTING
Easier to exit the rented property No financial benefit from monthly lease
Not responsible for major maintenance No accumulation of wealth in the form of asset value
May run a business from rented premises (subject to appreciation
prior approval from landlord) Rent will usually escalate (10%?)
Not responsible for services and taxes Bound by the terms of the lease, i.e. cannot vacate the
No insurance costs on the rented property property before expiry of the lease
ADVANTAGES OF SOCIAL HOUSING DISADVANTAGES OF SOCIAL HOUSING
Living in affordable, good quality housing
Be part of a close community
Have to live according to the House Rules
Have security of tenure, subject to adhering to terms
Monthly lease rental/use fee will increase each year
of agreement
No title to the property, except in rent-to-buy, where
In a co-operative, contribute towards the financial
title is only registered after full payment of property
growth of the co-operative
value
May be entitled to financial growth in value of
property in a co-operative
34

35. Affordable Housing Communities – Eco Cities Concept
Housing is like an evolving ecosystem - healthy and self-sustaining, or diseased and
inherently unstable – AHI first core principle
Creating a sense of well-being, comfort and 'quiet
Healthy Community
enjoyment' for adults, children, and the elderly.
The property must provide a safe, clean,
Physical Appearance habitable, defensible physical environment. It
must be well cared for and look well cared for.
Failure to comply must inevitably trigger
Compliance Mechanisms
appropriate enforcement.
The property's ongoing income sources must
Financing & Funded
exceed its ongoing recurring operating costs,
Operations
including intermittent costs like capital
Downstream The property must be owned and regulated by
Responsiveness / Flexibility people capable of adopting to change.
35

36. 36

37. SOCIAL RENTAL HOUSING IN EUROPE
FACTORS INFLUENCING GOVERNMENT CHOICE IN SOCIAL RENTAL HOUSING
Many countries in Europe and North America have experienced a wide range of
solutions, at different times in their history. The main factors influencing their choice
are:
Importance of Housing Needs: State involvement and emphasis on object or subject
subsidies are not the same when the volume of new construction is large or small
compared to the stock.
Availability of Long-Term Private Finance to The Housing Sector: This depends greatly
on the degree of development of national financial markets. A fundamental issue is
whether social housing finance should separate system by itself or be a part of the
financial system. Most West European countries have been striving to integrate
housing finance more and more into their financial markets; social housing is
sometimes the only sector remaining off-market.
Availability of Public Funds for Social Housing: This is both a technical (tightening of
budgets) and a political problem, at national and local levels. The political aspects
include national trends such as emphasis on home ownership and local issues such as
not in my backyard syndrome.
37

38. SOCIAL RENTAL HOUSING POLICY ISSUES
• Social rental housing may be regarded as housing stock whose access is not based on
market rules whereas most often, a maximum rent is in use and but is defined by a
number of criteria like income, target groups and allocation procedures.
• There are a large variety of social landlords they may be public (state, local
authority, public company) or private (non-profit organizations; property companies).
• As with any long-term investment with public support, social housing finance is a mix
of loans or bonds, subsidies and own funds. Many combinations are possible to
achieve the best possible combination between private and public funds;
• Subsidies can be granted through tax relief or direct support from a national or local
budget in the forms of object subsidies (housing allowances) and subject subsidies
(construction materials & operations / investment)
• Those in charge of housing policy have to see that investment and operation costs
are under control, which refers to various aspects such as quality standards and rent
collection and management and also make the best choices concerning:
- Rent setting in the social housing sector;
- The most efficient ways of financing investment in this sector;
- The balance between housing allowances and object subsidies.
38

39. MARKET RENT AND A RENT AFFORDABLE GAP
Rent setting is a key element, as choices in this field heavily influenced by
the financial balance of the investment and operation accounts as follows;
Investment account
Investment costs Investment finance
Developers’ profit Direct subsidies
Loan takeout costs Loans
Construction costs Own funds
Land improvement costs
Land costs
Operation account
Expenses Revenue
Maintenance costs Chargeable rents
Management costs Billable charges
Utility costs Operating subsidies
Property tax
Loan repayment
Losses due to vacancy
Losses due to unpaid rents and charges
Equity rebuilding 39

40. INVESTMENT & OPERATION ACCOUNTS EFFECT ON RENT
 Heavy allocation of funds from the state budget, with very low rents resulted
in a draw back in East European countries before transition while fully private
rental housing, with rent controls eventually discourages investors.
 The balance of the operation account implies that lower rents should be
associated either with higher operating subsidies or with lower loan
repayments (or both). Lower repayments mean a smaller loan
 The balance of the investment account then requires that either investment
subsidies or own funds (or both) to be increased.
 Setting rents at the lowest possible level is a way to avoid paying housing
allowances, but investment and operation must then be highly subsidized.
 Generation of resources for investment and operation used by socialist
economies was very inefficient from an economic viewpoint as households
are not encouraged to adapt their housing consumption to their needs. Also,
some households that do not need subsidies will receive them.
40

41. AFFORDABLE RENT AND SUBSIDIES
Market Rent
Profit
Cross Cost Rent
Object Subsidy ( production + Investor)
Net Gross Rent
Residual Gap
Rent Affordable with Housing allowance
Subject subsidy (Housing Allowance)
Rent Affordable without Housing allowance
• Are a housing allowance or payment designed to increase the rent that a given
household is able to pay. “Rent affordable with a housing allowance” is the
Subject rent that target groups benefiting from this subsidy can afford.
Subsidies
• Aim at lowering the cost of supply on the rental market. They can intervene
through construction costs (production) or operating costs (investor subsidies)
that enable eligible landlords to offer a lower rent for a given housing unit.
Object Object subsidies are sometimes called “bricks-and-mortar subsidies” or
Subsidies supply-side subsidies
41

42. INVESTMENT & OPERATION ACCOUNTS EFFECT ON RENT
 The subsidies sometimes will increase the housing affordability beyond needed, by
lack of initial targeting or because target group income rising over time .
 In Western Europe, “equilibrium rent” are calculated according to cost rent
principles, the rent which balances the investors’ account over time. Drawback is
the subsidization may increase the estimated construction & administration costs.
 “Object subsidies” are used to reduce investment and operation costs, cost rent
before object subsidies is here called “gross cost rent”; cost rent including the
impact of object subsidies is called “net cost rent”. Rent levels depend on the
program finance and rents can be disconnected from local market levels.
 Almost all of the important subsidy policy aspects of social rental housing revolve
around balancing the gap between “affordable rent” (frequently set at 30 per cent
of net income) and the “gross cost rent”.
- Austria, Denmark, Finland, France, the Netherlands and Sweden use cost rent
- Germany sets initial rents according to tenants’ income
- Belgium, Luxembourg and Portugal calculate a cost rent then adjust to income.
- UK and Ireland ; Rent setting is decided by local authorities
- Italy sets rents according to local market rent levels.
42

43. SOCIAL RENTAL HOUSING FUNDING POLICES SHIFTS
 Many Countries developed off-market finance for social housing thru direct state loans
 In economies in transition, the state provided housing loans by establishing public
funds to promote housing construction and purchase. Examples;
- Housing Fund of Slovenia (1991),
- State Fund for Housing Development of Slovakia (1996)
- National Housing Fund in Poland (1995).
- Slovakia State guarantees on construction loans (1999)
 The shift from state or off-market loans towards market lending was possible by the
liberalization of the financial sector and the stability needed to enter the Eurozone.
- France and Austria are the two in the Eurozone that use state subsidiary to finance
the social rental sector.
- Austria has developed a mixed system of grants and low-interest state loans to
non-profit developers which results in revolving funds at the provincial level.
- Germany also uses public banks, but only partly and as secondary lenders.
- Outside the Eurozone, the Norwegian State Housing Bank provides loans, grants
and housing allowances funded by the treasury.
- Still specific intermediaries are needed in Finland, the Netherlands and the United
Kingdom to help smaller investors access capital markets.
43

44. MORTAGE LOANS ISSUES IN SOCIAL RENTAL HOUSING
 These loans are long-term, often more than 30 years, which makes it difficult to
raise matching funds in countries with high LTV (loan-to-value) ratio, thus
increasing the risk premium,
 On the other hand, As part of the rent is usually paid by the state through
housing allowances, the risk to the lender is reduced while Social landlords, face
increasing regional imbalances resulting in higher funding costs in the poorer
regions.
 Unlike for individual investor, Banks risk is spread over a number of properties.
Hence the risk of such loans is often overestimated; whereas the loss given
default (LGD) is high, the probability of default (PD) is low.
 Mortgage guarantees are often provided by public entities, often local
authorities, or by funds (when the landlord is public, repossession of a public
property is often impossible). Future rents can also be used as collateral.
 Recent loans to housing associations in UK were secured by legal mortgages over
social housing properties and cash reserves in favor of the issuer and bond
trustee; in the event of non-payment, the bond trustee will have the right to
collect the rents and manage the secured property.
44

45. FUNDING SOURCES IN SOCIAL RENTAL HOUSING
Due to the nature of the financial needs of the social sector (large volumes
and long-term Finance), institutional savings are favored as sources like
pension funds and insurance companies. In other words, “wholesale funding”
is preferred to “retail funding.” Three different wholesale funding models:
The Mortgage or • The interest rate risk is shifted to investors by the direct
Bank Bond issuance of bonds by the lender
Model. • Danish or German mortgage banks.
The Secondary
Mortgage • A separate agency provides liquidity for mortgage lenders
Facility, Or against collateral and issues uncollateralized bonds
Liquidity • CRH in France, FHL in the United States.
Facility, Model.
• The agency provides liquidity & buys the assets; the asset
The Secondary will be “securitized.” Used in USA by two Government-
Mortgage sponsored agencies (Fannie Mae and Freddy Mac).
Market Model.
• In Western Europe it has been unevenly successful
45

46. NOTES ON FUNDING SOURCES IN RENTAL HOUSING
 Countries in transition moved towards introducing wholesale funding
 In underdeveloped capital markets or regionally segregated banking system, a
central liquidity facility could serve as an interim wholesale funding source.
 Institutional investors, pension funds and insurance companies, usually finance
housing through lending, buying mortgage bonds, and mortgage-backed securities.
 Social landlords may also issue their own bonds on the capital market; however,
specific needs of social housing (low interest, equal access, specific guarantee)
impose constraints that may not easily match the demand of investors.
France’s funding system of Caisse des dépôts provides a rare
example of private savings being used to finance social housing.
Short-term deposits are used to fund loans of up to 50 years. The
interest rate of the loans fluctuates with the interest paid to the
savers (indexed on the average of the Euribor-1 year and annual
variation of consumer price index), which eliminates the interest
rate risk. Moreover, the deposits are guaranteed by the state.
46

47. MENA Housing Mortgages , Securitization The Classical Problem
• The structure of Bank Deposit Liabilities as Deposit money banks tend to avoid fund
mismatch i.e. borrowings short but lending long, which is required in mortgage
financing.
• How to ensure adequate long term lending by financial institutions rather than the
current short term lending practice. This requires significant intermediation
efforts, especially, since housing finance is very sensitive to inflationary environment.
• Absence of National Credit Data Base to discriminate on risk as the inadequate data
on credit history of households presents a challenge to mortgage. This results in
limited mortgage finance accessibility as it is usually computed as annual minimum
wage multiplied by a factor (usually four)
• Absence of ineffective foreclosure laws. A solution would be to;
- Remove the mortgagee obligation to take court proceedings and allow taking
possession peaceably.
- Where a mortgagee is unable to enforce a right of possession in a peaceable manner
the mortgagee may use the services of the police to evict the mortgagor or other
person in possession pursuant to a warrant issued by a court. 47

48. OTHER ISSUES WITH MORTGAGE & NATIONAL FUNDS
 The usual low interest rate level stipulated by law on investment on NHF makes
the banks and Insurance companies reluctant to invest in the Fund especially, as
there are some more profitable investment at the same time this law rate
discourages the development of a commercial mortgage sector.
 The high inflation rate negatively affected the macroeconomic environment
especially with low interest mortgage financing. There is need to continue to keep
the rate of inflation moderate to promote confidence in the value of a country’s
currency thus lowering interest rates
 The existence of a cumbersome process of title documentation of land ownership
which is reinforced by inadequate cadastral system makes mortgage financing
difficult. This has been seen as one of the factors responsible for slow
disbursement of NHF.
 A solution would be to develop a legal framework for property rights to include;
 The need for a clearly defined title, right to sell land / property to increase
the reliability of title deeds;
 developing property laws (e.g. condominium law) and developer finance; and
 developing efficient judicial processes to resolve disputes
48

49. Asset Liability Management
Deep long term pool of funds both domestic
and foreign that are cheaper & stable funds
Borrower Mortgage Credit Institution Bond
Loan Purchase
Real Estate Assets Liabilities Investor /
Developer Mortgage Mortgage Holder
Home Owner Installments Loans Bonds Dividends
Traditional Model Balancing Principle Subprime Model
- Bank grants mortgage - Interest Rate Matching - Bank sells mortgage bond
- Home buyer pays bank - Duration / Liquidity Matching - Bank grants mortgage
- Loans are on Banks - Currency Matching (FX risk) - Home buyer pays bank
balance sheets - Bank pays bondholder
Banks originate loans, hold them on their books and fund them through general liabilities
of a bank or by issuing long term deposits or bonds (Risk assessment of underlying
individual assets, bond rating , pricing & tenor are key issues). Government support for
bonds can be in the form of a guarantee on the bonds e.g. liquidity facility.

50. SUB PRIME EFFECTS ON MENA HOUSING FINANCE IN MENA REGION
Property is a bubble commodity it has and • Steady demand (urbanization)
will continue to boom and bust. The trick is • Access to finance remains a policy
to get the cycles right. priority
• Continuance of undeveloped
Limited sub-prime direct effects on MENA mortgage markets
markets due to; • Easy expansion is over for many
• Limited use of structured finance countries
• Markets remain “prime” (smaller, more • Vulnerable countries: liquidity, high
conservative) LTV ratio, variable loans, weak
Intensified indirect effects; lending standards, etc.
• Slowdown in growth (affects demand) • Liquidity crisis: securitization, roll-
• Return of inflation , increase cost of funds over refinancing
• Liquidity squeeze and market distrust • Cost of funds to increase
Credit contraction • Diversity tools: covered bonds,
• Additional credit risks (variable/adjustable liquidity facilities
rate loans) • Non-bank lenders require secure
• Bank de-capitalization , depressed capital access to bond markets
markets • State support: liquidity, systemic risk,
• Foreign banks withdraw/downsize. etc.
50

51. SPVS AND SECURITIZATION – BANKERS OPTIONS
• In SPV - Bank sets up a SPV and sells loans to the SPV (off balance sheet)
• In securitization - Bank sets up senior/subordinated structure (bank part), with
bond market buying the senior part
 Government support could guarantee a portion of the senior part, thus capping bond holder losses.
 Government role is to protect against systemic risk / promoting the credibility of the
SPV, However, guarantees can cause “moral hazard” (excessive risk taking, leading to taxpayer
bailouts) .
 Added advantage of securitization is that it guarantees the investors access to the mortgages where on
balance sheet collateralization might not
 Institution that originates and manages the loans takes on the initial credit risk and passes on the
interest rate risk to bond market investors.
 In both structures no need to guarantee individual loans and risk is controlled by capital / stress tests
Which structure to choose, depends on regulatory and tax issues , however, banks and bonds
are favored in emerging economies as it is less likely to require new laws, banks are best at
managing credit risk and so can manage the principle/agent problem better
Securitization improves market efficiencies, however, they require strong legal and regulatory
framework as secondary market is exposed to risks which the primary market doesn’t have 51
(secondary market is merely a vehicle for allocating capital)

52. In the past 20 years there has been the unbundling of the 4 major aspects of
mortgage lending: origination, servicing, funding and credit risk
 Depository based systems can do the same thing as secondary markets do (connect mortgage
borrowers with people with money) without having to sell mortgages, but require stable interest rates.
 Secondary market funding - securitization (package into pools), Debt or combination thereof.
Payments are made from pools to investors.
 Market evolved to include private market pools, derivative securities (CMOs with up to 50 payment
tranches, with a pool of 30 year callable securities being broken up into short, medium, long term
bonds), futures, hedges against interest/prepayment risk, mortgage insurers etc.
 Unbundling takes advantage of scale economics, division of labor, promotes competition among
suppliers of the various bundles BUT it comes at a cost: 1) Each player is dependent upon the other
players performing 2) Principal/agent problems 3)Transparency/moral hazard 4) Understanding of risk
by investors
 It is the function rather than institutional mechanism of connecting mortgage and capital markets that
is important (several models available)
 The “front end” creates a good mortgage market (proper registration, foreclosure and eviction
procedures) as opposed the “back end” - doing deals/getting mortgages off balance sheet etc.
 Controlling soundness and safety requires serious consideration of risk based capital (stress based
tests, regular audits, risk based standards etc.). 52

53. Home Loan Bank Model/Mortgage Liquidity Facilities
Long term fixed rate liabilities often not available in deposit markets; thus, Home Loan
Bank Model/Mortgage Liquidity Facilities pools the mortgage loan portfolios of
numerous banks and provides large scale financing to banks. Banks get attractive rates
and mortgages are pledged as collateral with wide collateral margins.
• Promotes product standardization/transparency. Can becomes more sophisticated over
time as market develops and can co-exist with other market instruments. The bank
issues simple, classical debentures (or bonds) with short to long term maturities at
favorable interest rates (AAA/Aaa) and may contain prepayment options
• Lenders adhere to best practice. Effective mortgage legislation, efficient mortgage/land
registration systems, efficient judiciary, appraisers, credit bureau, including
repossession upon default are a must
• Increases market information systems which in turn promotes better risk management.
Must adhere to market based pricing (market distortion issue)
• Deepens the financial and securities market. Can be viewed as an in-between leading
up to a full secondary market. Don’t need critical mass and can issue debentures
• Can be effectively used to promote delivery of policy objectives e.g. affordable housing
• Successful models Malaysia, France, Jordan, Algeria, and West Africa
53

54. Housing Fund is a public setup with juridical rights, administrative, financial and controlled
autonomy to execute government policy for social housing promotion.
The Role of the Funds for Housing usually;
• To promote construction of houses for social habitation
• To improve credit interest rates granted by banks for housing construction
• To grant credit for housing construction, repairing and extension for citizens whose their
household income is not over the minimum national salary
Advantages Disadvantages
SCENARIO I – CREATION OF A HOUSING CREDIT
 High specialization on credit for housing, for  Additional financial effort
acquiring construction material and other
 A Financial Society does not have the same
infrastructures
prestige as a Financial Bank
 Increasing of business volume due to other
areas incorporation
SCENARIO II – CREATION OF BANKING INSTITUTION
 High capacity to mobilize funds for credit  There are no remarkable disadvantages
grants
 It is possible to diversify activities without
harming the main housing objective 54

55. Housing Micro-Finance – Non Existing in Most MENA Region
FEATURE MICRO FINANCE DETAILS
Borrower Low income household
Purpose Improve, expand or build or land purchase
Loan Amount Ranges between $250 – $15,000, Capacity determined by income
Tenor Between 2 – 5 years
Repayment Regular installments (weekly/ monthly)
Delivery method Individual not group
Collateral Usually un-collateralized but guaranties can be obtain if available
Others Savings -driven
Housing Microfinance Mortgage Finance
often progressive lending one time lending
various housing needs buy or build
not secured by property secured by the
Multi purpose finance property financed
cash flow lending collateral lending
medium term long term
3-7 years over 10 years 55

56. Securitization Examples in Housing Microfinance
One of the 1st Microfinance Securitizations
Issuer : BRAC Microfinance, Issue date : July 2006
Amount raised: $180 million ; Tenor : 6 years
Covered by : receivables from loans securitized
Parties involved:
Lead Arranger - RSA Capital
Co-Arrangers and Funders - Citibank, FMO & KfW
FMO & KfW cover Fx risk for foreign investment
A pioneer Housing Microfinance Securitization
Issuer : Hipotecaria Su Casita (a housing finance company in Mexico); Issue
date: (1st) 2003, (latest) : April 2007
Amount raised (1st) : $50 million, (latest): $260 million; Tenor : 5 years
Issues done so far : 9
About 40% of total funds raised committed to low income people
56

57. KSA Mortgage Law – In the Pipeline
Expected to boost house sales by 50%
Saudi GDP growth in 2011 reached 6.8% , GDP expected to be 3.8% in 2012 and 4.4% in
2013 with inflation near 5% (World Bank predicts 2.5% average global growth rate)
Current population is 27.1 million with an annual growth rate of approx. 3.2%.
Ninth Development Plan announced in 2010 with spending of $385 billion in 2010-2014
The mortgage law has now been in the pipeline for almost a decade. A draft of the law
was approved in 2011, which paved the way for its approval by the government.
• Measures to guard the market from levels of speculation that artificially
inflated prices in other GCC states during the boom of 2004 - 2008 years
• The formation of private specialized mortgage companies to increase the availability
of funding. Restrictions on low loan-to-value ratio to relatively regulate the market.
• Rules that define the provider of a loan as the owner of a property rather than the
borrower to create a smoother foreclosure process and removes a legal ambiguity
that has deterred banks from lending (Islamic Ijara financing) . Regulation on
registering mortgages
• Facilitation of bank ownership and repossession of properties through a number of
steps including prosecuting police officers who refuse to carry out eviction orders.
• Resolving disputes on mortgage securitization and approved penalties for violations
of the rules. 57

58. Bahrain Affordable Housing Support System
Bahrain - Ministry of Housing & Economic Development Board Sources - 2011
58

59. Bahrain Mortgage Guarantee System (MGS)
59

60. Entities & Benefits
Government Borrowers
of the Mortgage
• Low income families’
Guarantee System • Switches roles from being benefits unchanged and
a provider to a facilitator. ability to access immediate
• Serving more People with liquidity
the same funds • Middle income families
Financial Institutions • Continues to supports its have access to funding with
citizens the guarantee
• Reduces inherent risk
(credit & liquidity)
making it more attractive
for banks to lend.
• Mortgage Guarantee
Fund Guarantee
mechanism provides a
clear exit for the lender
(in lieu of foreclosure)
• Access to liquidity via
securitization / the
eventual establishment
of a secondary market

61. Multi Mortgage Agencies Cooperation
61

62. PPP’s As Sustainable Housing Solution
The scale and nature of housing ecosystems are such that the public and private sectors
must act in concert if sustainable improvements are to be realized. Only solutions which
align public and private capital can reliably achieve system-wide outcomes. Ultimately,
this means that 'hard' (market rate and terms) capital must be strategically blended with
social needs. – AHI 3rd Core Principle
Needs for PPP
• Weak mortgage regulation & markets in the region – What to do in case of
Developers or Home Owner default? Laws are still in the making.
• Developers housing over stock from previous boom – Will they take the market risk
again in affordable housing ? Likely NO.
• Weak Financial markets in the region – Banks thrived thus far on retail personal
banking & credit cards. Will they transform to reasonable interest project finance?
Likely YES with Government off take agreements / mortgage guarantees.
• Weak Property Development Model in the region – With off plans sales and high
margins of the market ending, Can Regional Developers survive the open market
without Government back up – Likely NO.
• Loan Securitizations – Still a big unknown – Government Funds needed in the
absence of loan market funds. 62

63. PPP Program Integrated Approach
 No perfect design for regulation and
institutions
 Changing market condition needs to
be reflected in PPP framework by
modifying and updating regulatory
and institutional design Vision – Strong Political
Will Accepted By The Institutional Framework
 Competition & transparency Public / Users – Building
principles need to be kept Capacity, National Policy
(Empowered Public)
 Government’s proactive use of vision,
policy & sustainability in market
creation is important. Viable / VFM PPP
 Taxpayers / users engagement in PPP Projects Pipeline
dialogue
Legal & Regulatory
 Supporting local financing institutions / Funding – Priority Framework – Clear &
local development funds is key. Funding Strategies, Friendly Business
 In house skill within the government is Building Local Financial Environment To PPP’S .
of crucial importance to build capacity , Supply Side – Oversight Procedures -
to monitor and create PPP pipeline Infrastructure Funds Transparency,
projects Competition, Monitoring
63

64. PPP POLICY AND LEGAL FRAMEWORKS & SUPPORT
 Comprehensive PPP Law – Investment , Funding , Subsidies & Technical (PPP Contract Type/s)
Policy
 Legal Powers to contract out the services
 Dispute Resolution Mechanisms – Independent Chamber
 Open & Transparent Public Procurement / Tender Law
 Clearly Defined Gov. / PPP Unit Role in – Budgeting Allocation / Oversight , Progress Monitoring & PPP
Projects Approvals and Contract Management – performance-linked payments/penalties.
 Housing Sector & Land Titles / Title Transfer Law
Legal
 Private / Public Land Acquisition Law
 Easements / Way leaves / Permits for Infrastructure
 PPP Implementation Structures – Technical Public / Private Interface Offices.

Framework
Integration of PPP into Public Procurement w/ Multi Stage Financial & Scio-economic Appraisal
Procedures (Rationale for use of PPP’s (Business Case) , Suitability & VFM Assessment) , Guidelines for
PPP’s Pre-qualification , Tender and Bidder Selection.
 Standardized PPP Bidding Documents
 Unsolicited Bids Procedures.
 Standardized PPP Contracts / Asset (Facility) Type or PPP Model / Structure
Support
 Information dissemination – data, networking, training
 Guidance – model contracts, tools, case studies
 Facilitating functions – political/advisory support, funding 64

65. Guidelines for Social PPP Projects
PPP Test
 Affordability for the Public Sector & desired gains
 Financially viable for the Private Sector
 Appropriate Risk and Reward Balance for Public and Private Sector
 Public Sector - value for money (VFM – True Cost) Verses traditional PSC
Public / Government / Affordable housing (usually BOOT)
 Private Partner to build, lease and maintain for a set period – e.g. Malaysia, GCC (
KSA, Oman, Bahrain)
 Government agrees to minimum lease for a set period / off take and / or allows co-
developments on site
Hospitals (usually DBOF) / Prisons (usually BOT)
• Government provides the doctors, nurse ,wardens etc and operates the core services – e.g. Lesotho, Australia
Schools/ Sports Venue / Shopping Malls (usually DBOF)
• Government runs core services of teaching / tutoring or agrees to use the facility for an agreed period
65

66. Typical PPP Model
Risk Transfer
Host Government / Public Authority
Legal /regulatory framework & support functions
Advisors – Legal Contracting PPP
, Technical & Authority (is)
Financial
Equity Investors
SPV / Project Company
Arranging Bank (Borrower) .Made up of
Banks Syndicate Project Sponsors -
Equity Investors.
Hedge Providers Input Contracts
Currency & Interest Guaranteed long
Rate, Multilaterals, P term supply
olitical Risk Insurers of inputs / feedstock Off Taker
Guaranteed revenue stream to project. Can
be the Public Contracting Authority or MoF
Equipment Supplier Contractor(s) ,EPC O&M Contractor(s)
Warranties & Supply - Risk transfer – Interface Pass down of penalties for
Agents Agreements. Can Turnkey Contract , Contract availability payments ,
be bundled in EPC penalties , bonds. performance, etc.
Risk Duration 3 – 5 Years 25 - 30 Years ( Risk by Project Company)
66

67. Steps in PPPs Procurement - PPP Project Life Cycle
What are the steps?
Project Preparation – Service Provider Selection Contract Management -
Funding Approval – Technical RFP & Bid Financial
1. Prioritise Key Project 4. Project Dev. 7. Final Negotiation
Objectives
2. Agree Project Concept Team, Governance, Signing contract, financial
close
3. Obtain Stakeholder Approval Timeline, execution plan
1. Service Need 5. Bid Preparation 8. Contract Mgmt.
Output specifications EOI/ Short listing, RFP Construction, monitoring,
Dispute settlement,
2. Option Appraisal Bid Doc communications and
Report on EPC / PPP Approval finally commissioning
options, VFM
6. Bid Evaluation 9. Renegotiations
3. Business Case
Preferred bidder selection Due to changing
Affordably/public interest conditions
Project/ Project 10. Turn Over
Funding Finalization
Upon expiry of the
Approval Review
concession agreement
67

68. Adpoted PPP Model for Housing – BOOT (or BOT) & BTO (or BT)
The Limitations of the PPP Model
for the Public Housing Sector
• Affordable Housing is intrinsically different from other types of PPP as mortgage laws
, government guarantees to developers and land ownership issues are still evolving in the
region and are subject to various considerations and are uncertain if clarity can be
established once the regulations are passed.
• The relatively weak financial and construction local markets to undertake such projects
whereas earlier lessons from the property development boom in the region demonstrated
structural problems in the approach that can not be entirely pinned on the market down
turn. It is therefore, unrealistic to assume that the regional Developers / Contractors can
bundle JV ‘s / long alliances in areas of financing, facility management and assume the
usual risks in PPP’s.
• Speedy delivery of Mega Projects are needed to accommodate the severe shortages in the
region that are linked to socioeconomic stability. The luxury of a long drawn PPP bidding
process simply is not there. Thus a need exists to explore other variations of PPP Models
that considers the time frame, the Developers / Contractors strengths in the region and
the local condition of the financial markets.
68

69. Tranches of Structured Finance & Subsidies for PPP Housing
• Capital market mortgage at affordable
Senior Loan terms
• Low interest loans of International
Loan of First Loss Financial Institutions
Low Interest Loan / • Public subsidy as compensation for service
Grant obligation of general economic interest
• Equity from shareholders or tenants, cross
Equity & Cross Subsidy subsidies.
• Free of charge, in concession or at low
Land / Infrastructure costs from Municipalities / Government

70. PPP Recommended Model for Social Housing
Public Sector
Public Sector
BT (O) German Forfeit Authority
Model, Contractor Released
Availability Payments
(Performance)
Project Developer /
Banks Operating / FM
Construction
(Loan)
Finance Company
Company
Mortgage
Payments
Home Owners Project Delivery
Private Sector
One model that can explored for the region in the Affordable Housing Sector is the German Forfeit
Model ( Build Transfer Model) in which the Developer / Contractor pre-agrees with the Government
Unit / Contracting Party to transfer / sell his rights in the Project once completed to the financing
institution, thus the relationship becomes between the Government Unit and the Financers and the
Developer / Contractor is released. Known also as the pre-agreed lock in period model. This model
guarantees that the Contractor performs for him to be released later on.
70

71. Reducing Transaction Costs & Securing Competitive Bids
 Planning Process
- Planning requires time and money - worth the
investment
- Fund supporting project development –
needed.
- Cross sector dialogue including Treasury -
required
- Check and balance – are key
 Market Testing
- Testing the interest of market is crucial
- The market condition can impact risk sharing
- Transparency should be kept
 Procurement Method – Prioritization
- Solicited or unsolicited proposal
- Prequalification, 2 envelope bidding
- Award criteria (VFM , PPP Versus PSC )
- Time management
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72. • Managing the capacity and supply chains of the local and regional house building
market to develop such a large scale developments.
• One delivery model cannot cope with the volume of housing. Multiple procurement
delivery model processes are needed to meet the supply / demand equation.
• Developing the housing requirement both on time and within budget while
Improving the quality of construction and in particular the professional
qualifications of contractors.
• Enactment & Implementation of mortgage laws to settle and an active lending
Conclusions
market.
• Mortgage law does not necessarily solve the issue of affordability for mid to low
incomes, thus alternative programs needed
• Real estate / Housing sector stakeholders must realize that until housing is made
available for the bottom masses housing crisis can’t abate.
• Designers / developers should design creative “economy” housing models
affordable and accessible to low income market.
• Government to enable private sector to lead rather than play direct in that sector.
• Government should encourage housing microfinance through legislative
institutional framework development.
• Banks, real estate players/ builders/ building materials suppliers should club/
syndicate to tackle both the Mortgage & Microfinance markets.

73. loayg@works.gov.bh; loay.ghz@gmail.com
00973-36711547 , Skype: loay.ghazaleh
http://bh.linkedin.com/in/loayghazaleh
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