Techn

Housing Financein 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• 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

6

Bank Project Opportunities (Loans, Guarantees, TA)

ENVIRONMENT/INFRASTRUCTURE

PRIMARYMARKET

SECONDARYMARKET

•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

7

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

8

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. R

isks

… investments at different levels in the value chain given the risks

IFC

Developer-cum-mortgage originator Home Buyers

Security Vehicle

Securitization

Phase II

Phase I

Credit Line

Mortgages

Collateral for IFC

Mortgage Warehouse Line (for a Developer cum Originator)

Local Mortgage Market

International Finance Market

Local Capital Market

Institutional Investors

Trustee

10

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 (NCPIC program)• Islamic housing finance• Energy efficiency products• Mortgage finance provided by sub-sovereigns

11

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

12