Transcript Document

International & Country Perspectives
on
Financing , Upgrading
and
Affordable Housing
R. V. Verma
Executive Director
National Housing Bank
Impacts of
Landscape
Changing
Economic

As per the United Nations projections, if
urbanization continues at the present rate, then
46% of the total population will be in urban
regions of India by 2030 (United Nations, 1998).

It is expected that after about 25 years, a 8%
annual growth trajectory will take the country’s
GDP to $ 20 trillion

A lot lies between these two points

Mainly characterized by phenomenon related
to Urbanization
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Un Regulated Growth of Cities

Phenomenon related to urbanization

Job – seeking population migrating to growth
centres viz. cities. Also a by–product of economic
growth

There is convergence around the work place,
hence occupying any land in the vicinity

The formal framework of planning and
development is exclusive of slums and informal
settlements.

In the absence of formal sanction, they find their
own informal solution
3
Growth of Slums in India – Some
Telling Facts
• Between 1981-2001 there was a 45 percent
increases in the number of people living in the
urban slums
• In 1981, nearly 28 million persons lived in the
slums, in 1991 there were 45.7million slum
dwellers
• As per 2001 Census data, there are 40.6 million
persons living in slums
• The recent survey estimated the number of slums
to be 52,000 with fifty one percent of the slums
being notified slums
• It is estimated that every seventh person living in
the urban areas is a slum dweller (NSSO 2003) 4
Issues in Low Income Housing
 Rapid growth in housing sector has bypassed
Low-Income Households on both Demand and
Supply side
 Price Rise, Growth, Stability, Interest Rates -
Impact on Low Income Housing
 Risk Perception
 Market/Subsidy based Approach
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Issues in Financing – Demand Side

Limited Access to housing credits for Low –
Income Households

Cannot contract debts on terms of the financial
market

Unstable income and unstable cash flows

High risk & high cost - to - service customers

Need for long – term and low cost funds to
individuals

Construction Finance to Developers

Role of NGOs/ MFIs/HFCs/Public Agencies
6
Unlocking Land and Finance

Unlocking the Value of Land

Security of Tenure/property rights

State Financing through State Funds/Subsidies

Municipal Funding

Institutional Finance

Creation of Special Funds with fiscal support
7
Supply Constraints
 Competing Demand on Land and Finance
 Land supply is constrained
 Land availability
 Land use rules
 Title and Tenure
 Finance Flow is constrained
 Long term
 Stability factor
 Risk perception
Need for ‘Integrated Approach’
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Affordability Concerns
Demand Side
 Purchase Price
 Income Level
 Affordability
 Loan eligibility
 Demand Aggregation
 Role of NGOs/MFIs
 Borrowers’ equity
Supply Side
 Land Acquisition
 Infrastructure Provision
 Sale of Land
 Housing Construction
 Housing Sale
 Role of Public Agencies/
Developers
Credit Delivery and
Access to Housing at Affordable Prices
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Baan Mankong (Secure Housing) Program,
Thailand
Implemented
Development
Networks
by
the
Community
Organizations
Institute (CODI) through Community
Types of programs

On-site upgrading

On-site reblocking

On-site reconstruction

Land sharing

Relocation
Funding

Government subsidy per
family

Long term loan for housing
development by CODI

Savings by each household
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Illustration
Saving; at least 10%
of project cost
Members
Lend to members at 6-7%
Interest rate
Government
Subsidy
Cooperatives and
Savings Groups of
“Baan Mankong’’
Loan at 4%
interest rate
Members
Members
Loan
Payments
CODI’s fund
Payments to
CODI
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Community
Philippines
Mortgage
Program,
Implemented by Social Housing Finance Corporation
(SHFC) through Community Associations
Types of projects


On-site projects – illegal
settlers obtain legal and
secure
tenure
through
purchase from the land
owner.
Off-site projects –relocation
of household beneficiaries
to another site
Funding
Loan provided by SHFC
to
the
community
association for a period of
25 years at a fixed rate of
6%. The land which is
purchased
by
the
community
association
serves as the collateral.
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Illustration
Offers to buy
Landowner
Community Association
Intent to sell
Seeks legal and technical
assistance
for
its
application to the CMP
Pays off/amortizes
loan
Issues payment
for the land
Delivers the necessary
documents for
evaluation/assessment
Originators
SHFC
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LOW INCOME HOUSING –MEXICO
Virtually all of the funding for the construction of low-income
houses comes from a handful of sources:
SHF is a federal development bank that provides affordable
mortgages to households that earn between $3,600 to $72,000. SHF
does not have a retail operation and functions as a wholesale funds
provider. Origination, servicing, collection, and management are
contracted with banks and Sofols. SHF has two different programs:
Prosavi and Profivi — geared towards different income levels.
Infonavit is the administrator of a payroll deduction fund
introduced in 1972 as a joint venture between the government,
employees, and the labor force where 5% of gross wages are paid
directly by employers as a contribution to their employees
individual retirement account in the workers housing fund. Homes
are paid by applying the money already deposited into the
individual account towards the price of the house, and deducting
up to 25% of wages from the employers' pay check, plus the 5%
employer contribution. These loans are directed to private-sector
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employees.
FOVI, which was managed by the Central Bank until the
creation of SHF, started funding SOFOLES in 1995.
Collections on
outstanding
portfolio
Central Bank
loans
(guaranteed by
the Federal
Government)
World Bank
and IADB
Sofoles
Construction
loans for
homebuilders
and mortgages
for individuals
Fovi’s funding to Sofoles was long term,
fully matched and indexed to minimum
wage
inflation.
Under
the
macroeconomic environment after the
“Tequila Crisis” this was the only source
of long term funding for mortgages
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Source: SHF, Mexico
SHF started operations in 2002, overtaking the activities of FOVI
but with a new capacity to get funding from the capital markets.
Local capital
and
international
derivatives
markets
SHF hedges market and
prepayment risk through debt
and derivatives markets
Central Bank
loans
World Bank
& IADB
Source: SHF, Mexico
MI is offered to
prepare loans for
securitization
Mortgage Insurance
SOFOLES
MORTGAGE
LENDING
SHF funds SOFOLES on a matched funds basis,
absorbing market and prepayment risk
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SHF, in coordination with BANOBRAS and several Financial
Institutions, has defined and implemented different projects
known as “Macrodesarrollos”.
These “Macrodesarrollos” consider the creation of:
•
•
•
•
•
•
A self-sustainable city, adjacent and complementary to
the already existent one, that offer jobs and services to the
population –health, education, diversion, transport, etc.(avoiding to create dorm cities or isolate urban
developments).
Spaces that allow housing meant to all social classes
(providing urbanized and well located grounds).
Public spaces that allow to develop a communitarian life –
centers and sport areas, among others-.
Spaces for the environmental protection and
enhancement.
Open spaces for primary activities – agriculture and
farming.
Legal and political certainty that will allow to offer
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housing at lower costs.
BRAZILIAN SOCIAL HOUSING PROGRAMME
• Brazilian Government ‘s “My House, My Life “ Programme
• Designs to invest some 34 billion reais (about 15 billion U.S.
dollars) in the coming two years to build 1 million units of
houses for the country's poor people
• The programme operates through a system of subsidies
with Caixa Economica Federal, (Brazil’s government-owned
savings and mortgage bank) at the heart
• Developers of qualifying projects receive a subsidy and a
tax break. In return for this supply-side incentive, they
agree to offer units for sale at an agreed-upon and
competitive rate. The government subsidy varies according
to the applicant’s income.
• Under the programme, 400,000 units to be built for families
each with a monthly income of less than 622 dollars. As
long as these families pay 10 percent of their monthly
income, they can move into the new homes
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Contd./- …
• Families each with a monthly income between 622 dollars
to 2,075 dollars to receive subsidies from the government
and pay as much as 20 percent of their monthly income
for the access to the new homes
• Once receivers of the programme lose their jobs and thus
can not afford the monthly installment, they do not have
to worry about it as the Government has released a special
fund of 1 billion reais (about 440 million dollars) for
covering their defaults in case of unemployment
• If one proves that he or she cannot pay the installments
due to job loss, the payment of installment can be
suspended or reduced to up to 95 percent in a period of
time spanning from 12 months to 36 months
• Elders and disabled given priority in the programme
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Challenges – Indian Context

Market’s limitations

Creation of security

Funding against security

Formal and informal
compartmentalized

Demand aggregation,
demand registration,
intermediation and risk mitigation
sectors
are
still
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Search for Synergies

Limitations of market
subsidized funding
based
funding
and

Need for Institutional Synergy

Guarantee Fund will leverage Market Fund

Incentives for Low Income Housing Credit

Incentives for Low Income Housing Construction

Scaling Up – Role of Public Agencies
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Sustainable and Inclusive Housing

Government Initiatives - Social & Financial Inclusion

Migrating to JNNURM – A Proactive Approach

Seeks to activate the supply chain

Connecting Land with infrastructure and housing

Ensuring sustainability through Reforms

Expanding capacity of the sector and

Leveraging institutional funds

Basic Services for the Urban Poor (BSUP) & Integrated
Housing and Slum Development Programme (IHSDP)
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Financial Instruments

Savings linked Housing schemes – Compulsory
and Contractual

Special Housing Funds

Housing Bonds

Housing Banks

Rent-to-Purchase Housing Schemes
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Financial Products
 Guarantee
 Partial Guarantee
 Guarantee Fund
 Risk Mitigation
 Securitisation – Government Support
24
Housing/Housing Finance Products Options

Social Rental Housing by Public Agencies – Slum
Dwellers/Migrant Workers

Shared Ownership Housing – transferring of Title
after 15 years

Rental Housing for Corporate/Industrial employees
as mandatory requirement

Corporate Employees Housing Schemes on Cluster
Approach basis – Employers to act as facilitator

Setting up of SPVs for Housing for different income
segments upto MIG

Continuing Role of public agencies in EWS/LIG
Housing
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Going Forward – Supply side Intervention
 Design different instruments & strategies for
different market segments
financial/housing products
-
to
include
 Risk Mitigation Products & Institutions
 Credit Supply vs. Land/Housing Supply
 Fiscal& Regulatory incentives
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Institutional Mechanism
 Land Issues
 Mass Construction
 Supportive Policies and Incentives
 Risk Mitigation – Role of Government
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Institutional Stakeholders
Individual Loans
Banks/ HFCs/ MFIs
Construction Finance
Specialized
Funding
Agency
Borrowers
Enabling
Fiscal
and
Credit Policy
Subsidy/
Guarantee Fund/
Credit Enhancement
SPV Project
State Govt./
Builders
Enabling
Land Policy
for
Construction
Land Tenure
First / Second Loss
Facility
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Risk Mitigants

Risk Perception – long term lending

Guarantees/Group Guarantee

Role of Self Help Groups

Special Guarantee Fund
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Summing Up

Identify land for construction

Regulatory relaxation for excess construction

Project approach and economies of scale

Price determination – a critical consideration

Linked to loan eligibility

Liberalize construction finance for low income
housing

Develop mechanism for Demand Registration

Tap Savings potential – building borrowers’
equity

Incentives for Savings and Payment
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Conclusion

Affordable House Price

Affordable Credit and Flexible mechanism

State Govt./Municipal Bodies to provide land and
infrastructure

Public/Private builders to construct

Pricing & Credit critical

Credit Risk Mitigation

Credit Guarantee Fund

Tripartite - Buyers/Builders/Lenders

Facilitated by NGOs and Government
To serve the Overarching Objective
INCLUSIVE HOUSING
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Thank You