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Autumn 2017
HOUSING FINANCE
INTERNATIONAL
The Quarterly Journal of the International Union for Housing Finance
rban housing system reform and real estate The public markets and European
U
market development in China residential real estate
ffordable Housing in Wales:
A ore expensive housing loans to be
M
Challenges underpinned by optimism expected from Basel revision; harmonisation
of international regulation leaves little room
The private rented sector in France for different business models
Autumn 2017 HOUSING FINANCE INTERNATIONAL 1
Autumn 2017
International Union for Housing Finance
Housing Finance International
Housing Finance International is published four times a year by the International Union for Housing Finance
(IUHF). The views expressed by authors are their own and do not necessarily represent those of the Editor or
of the International Union.
IUHF OFFICERS:
resident:
P
Contents:
ANDREAS J. ZEHNDER,
Germany
4. . . . . . . . . Editor’s introduction
F irst Deputy President:
CAS COOVADIA, 5. . . . . . . . . Contributors’ biographies
South Africa
E xecutive Committee Members: REGIONAL NEWS ROUND-UPS
JOHANN ERTL, Austria
RAMON SANTELICES, Chile 6. . . . . . . . . A
sia Pacific
JIRI SEDIVY, Czech Republic Zaigham Rizvi
PEKKA AVERIO, Finland 10. . . . . . . E urope
RENU SUD KARNAD, India Mark Weinrich
KAPIL WADHAWAN, India
EARL JARRETT, Jamaica 11. . . . . . . L atin America & the Caribbean
JORGE YARZA GARRIDO, Mexico Claudia Magalhães Eloy
HERBERT PFEIFFER, Slovakia 13. . . . . . . N
orth America
OSCAR MGAYA, Tanzania Alex Pollock
CHATCHAI SIRILAI, Thailand
LYNN FISHER, United States of America
ecretary General:
S ARTICLES
MARK WEINRICH 15. . . . . . . U
rban housing system reform and real estate market
E-mail: weinrich@housingfinance.org
development in China
ublisher:
P Yusong Deng
MARK WEINRICH 18. . . . . . . A
ffordable Housing in Wales:
Challenges underpinned by optimism
E ditor: Matt Kennedy
ANDREW HEYWOOD
24. . . . . . . T he public markets and European residential real estate
ISSN: 2078-6328 Shaun Stevens
Vol. XXXII No. 1
30. . . . . . . T he private rented sector in France
Claude Taffin
36. . . . . . . More expensive housing loans to be expected
from Basel revision; harmonisation of international regulation
leaves little room for different business models
Jakob Kongsgaard Olsson
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(weinrich@housingfinance.org) Copyright © 2015 International Union for Housing Finance
Autumn 2017 HOUSING FINANCE INTERNATIONAL 3
Editorial Autumn 2017
Editor’s introduction
By Andrew Heywood
The development of affordable housing by gov- This is not to suggest that the post-war provision and a generation of homeowners. However, since
ernments has been a barometer of the shifts of affordable housing was an unmitigated suc- 2007 China has recognised the need to make
in how government sees its responsibilities to cess story. The development of large unattractive housing provision for those priced out of the
provide for the needs of its citizens. Should mono-tenure estates often created their own set homeownership dream. In our first major article
government intervene to directly offer secure of social problems including worklessness and in this issue Yusong Deng traces the changes in
high-quality accommodation to those who cannot anti-social behaviour. Some academic studies Chinese housing policy relating to the reform of
access such accommodation via the market, or of the life chances of those brought up in social the urban housing system over the past three
should policy makers stand back in the belief that housing went as far as to suggest that such hous- decades. The article not only demonstrates the
the market will ultimately serve the needs of all, ing was itself responsible for limiting individual direct benefits of the reforms but links them to
if to varying degrees? Put another way, should opportunities and suppressing aspirations. strong economic growth in China.
government develop “affordable housing” as a
specific category of provision standing outside The last two decades of the twentieth century In terms of size Wales and China are at opposite
the market, or should the role of the state be to saw a shift in the emphasis of public policy in poles. Nevertheless, Wales too has an interest
create conditions in which housing is affordable? many countries. Governments reacted to the in affordable housing provision, in part because
perceived shortcomings of existing affordable 23% of Welsh households continue to live in
At times of crisis, whether natural or man-made, housing provision but also responded to the poverty. In an important article, Affordable
such dilemmas are often temporarily resolved broader neo-liberal political climate, which housing in Wales: Challenges underpinned by
by the responsibility to urgently provide shelter supported the withdrawal of the state from optimism, Matthew Kennedy provides a valuable
to those in need. Hurricane Irma has rampaged responsibilities that had previously been seen overview of affordable housing policy in Wales
across the Caribbean and Florida. The sight of as central. The emphasis of policy moved away in the context of the broader housing market
the widespread destruction of homes and the from traditional social housing provision towards and the economy.
mass dislocation of households on our television encouragement of homeownership. Social ten-
screens creates an immediate impetus towards ants were encouraged to buy their homes and The affordable housing sector has seen
rapid and decisive action. Yet even here difficult in many countries the new supply of affordable increased interest from private institutional
issues are raised. When providing help for the housing declined. investors in a number of countries includ-
longer term, should one aim to reproduce the ing Germany, the Netherlands and the UK.
sometimes-inadequate housing of the past or For a while, the change in approach appeared In his article, The public markets and European
to improve it? Should new housing be for rent to be working. Homeownership peaked at 80% residential real estate, Shaun Stevens examines
or for sale? How should it be funded? in Ireland in 1991 and at 70% in the UK early in the reasons for increased institutional invest-
the next decade. As mortgage finance became ment in the affordable sector in Europe in the
For much of the post-war period, the “Golden more widely available it appeared that the need period since the GFC.
Years” as the French describe them, the issue for affordable housing as a specific tenure would
of how to provide housing for all was resolved continue to reduce. Sadly, this did not last. The private rented sector is often seen as a
by a twin-track approach. Market recovery was In the wake of the Global Financial Crisis [GFC], tenure standing between homeownership and
encouraged after six years of conflict and home- it became increasingly clear that homeowner- social housing. In his article The Private rented
ownership levels rose over the following four ship levels were on the decline in many markets, sector in France, Claude Taffin provides an over-
decades. Yet this achievement was underpinned including the US. In addition, there remains view of the private rented sector in context and
by simultaneous provision of “affordable housing” a stubborn sector of households who cannot discusses its history as well as current trends.
which frequently had a dual purpose. Affordable sustainably be accommodated by the market This is a very helpful article for anyone wish-
(social) housing directly provided decent homes whether as owners or in the private rented sec- ing to better understand housing policy and
for those who could not access the homeown- tor. As this issue of HFI demonstrates, this has practice in France.
ership market and whose experience of private led to increased interest in affordable housing
renting had in many cases been negative. At the both by government but also by private inves- Our final article, by Jakob Kongsgaard Olsson,
same time, the development of large numbers of tors. It is unlikely that this interest will simply focusses on the preparations for the intro-
homes under the auspices of government con- reproduce the policies of the past. The trick, duction of the Basel III capital accords. New
tributed to overall new housing supply with the of course, is to learn the positive lessons while regulation almost always involves striking a
effect of making housing more affordable across avoiding the very real mistakes. balance between protection and growth. In his
tenures. In the UK for instance, social housing article Olsson argues that the new capital floors
made up 53% of all new housing built during the China, in many ways epitomises the story proposed by the Basel Committee will dampen
thirty years to 1980. The high levels of affordable sketched out above. From a position where the down economic growth and cause consumer
housing development were reproduced across State had the central role in the direct provision of detriment without providing effective additional
much of Europe, notably in the Netherlands and housing, China began to move decisively towards protection from the effects of high risk lending.
France. It is ironic that the post-war boom in market provision of housing with an emphasis The article makes some telling points about the
home ownership owed much to the provision of on homeownership. This policy has been highly relationship between an unaccountable Basel
affordable housing in many countries. successful in promoting a private housing market Committee and the EU.
4 HOUSING FINANCE INTERNATIONAL Autumn 2017Contributors’ biographies
Contributors’ biographies
Yusong Deng is the Deputy Director-General association, local government and private rented ing and housing finance spread over more
of the Institute of Market Economy at the sectors in Wales. He has have worked in front than 25 countries in Africa, the Middle-East,
Development Research Centre of the State line and policy roles within social housing and South-Asia, East-Asia and the Pacific. He has
Council of P. R. China [DRC]. He is the team healthcare in Wales for the past 8 years having a passion for low-cost affordable housing for
leader on “real estate economics and policy studied Politics & International Relations and economically weaker sections of society, with
research” at the DRC. His current research inter- Business & Community to degree and masters a regional focus on Asia-Pacific and MENA.
ests mainly focus on macro economy, housing level respectively. EMAIL: zaigham2r@yahoo.com
markets and housing policies.
Jakob Kongsgaard Olsson is Head of Shaun Stevens is the strategist in the real
Claudia Magalhães Eloy is a consultant on Department at Finance Denmark, which is an estate securities team of BNP Paribas Asset
housing finance and subsidy policy in Brazil, who association for the Danish banking sector. He is Management, responsible for asset allocation
currently works for FIPE [Fundação Instituto de an economist by profession and has throughout and investment strategy. He is a chartered sur-
Pesquisas Econômicas] and has worked for the his carrier been engaged with financial issues in veyor and has worked in a variety of roles in the
World Bank [TA] and for the Brazilian Ministry the Danish Ministry of Economics and Business real estate investment management industry in
of Cities and Companhia de Desenvolvimento Affairs, Realkredit Danmark (second largest Europe since 2001.
Urbano e Habitacional of São Paulo [CDHU]. covered bonds issuer), the Association of Danish
Mortgage Banks, University of Copenhagen Claude Taffin is a consultant with over
Claudia has also participated in the development 35 years of experience in the housing sec-
of the National Housing Plan, in the analysis and Copenhagen Business School. He has
also attended Wharton’s International Housing tor. He was first a statistician in charge of
of the Housing Finance System. She holds a housing at the National Institute of Statistics
Finance Program.
PHD in Urban Planning at the University of São and Economic Studies (Insee) before
Paulo [USP], a Master in City Planning at the Alex J. Pollock is a distinguished senior fellow working for several entities involved in
University of Pennsylvania, a Master in Public at the R Street Institute in Washington DC. He housing in France, including Credit Foncier,
Administration at Bahia’s Federal University was President and CEO of the Federal Home a mortgage bank, l’Union Sociale pour l’Habitat,
[UFBA] and a BA in Architecture and Urban Loan Bank of Chicago 1991-2004, and President the association of social renters, and the
Planning [UFBA], with a specialization in Real of the International Union for Housing Finance Notaries High Council. He also served as Senior
Estate Finance at the Brazilian Economists Order 1999-2001. Housing Finance Specialist for the World Bank.
[OEB]. She also attended Wharton’s International
Housing Finance Program. Zaigham M. Rizvi is currently serving as Mark Weinrich holds graduate degrees in
Secretary General of the Asia-Pacific Union political science and economics from the
Matt Kennedy is the Policy & Public Affairs of Housing Finance and is an expert consultant University of Freiburg, Germany. He is the
Manager, Chartered Institute of Housing Cymru. on housing and housing finance to international General Secretary of the International Union for
He leads and supports CIH Cymru’s policy agencies including the World Bank/IFC. He is Housing Finance and the manager for interna-
and public affairs work engaging with hous- a career development finance banker with tional public affairs at the Association of Private
ing professionals working across the housing extensive experience in the field of hous- German Bausparkassen.
Autumn 2017 HOUSING FINANCE INTERNATIONAL 5Regional round up: news from around the globe
Housing news update from APUHF
By Zaigham M. Rizvi
3rd Annual Affordable Housing Some case studies from different countries were The National Economic and Social Development
presented to show successful best practice that Board [NESDB] said that currently 11.2 million or
Conference could be applied by others. 17% of the total population is elderly. By 2036,
The Conference held in Malaysia on 6th to 7th this number will have risen to 19.5 million or
The conference sent a very strong message that 30% of the total population. Thailand is defined
September 2017 was organized by TruEventus.
each country in the region has something to offer as an “ageing society” because people aged
to and something to learn from others. It also 60 and older make up more than 10% of the
The housing stock in many Asian countries
highlighted the usefulness of platforms like the total population.
is grossly deficient in quantity and quality.
Shortages and poor condition are largely the International Union for Housing Finance [IUHF],
result of the rapid urbanization occurring in African Union for Housing Finance [AUHF] and Senior housing projects urged to partner
the region. Factors like inadequate and over- Asia-Pacific Union for Housing Finance [APUHF].
with medical care facilities
crowded housing, unsafe water, poor sanitation
and densely populated cities are threatening the Thailand Developers of senior-friendly residential projects
health and well-being of millions. are urged to partner with hospitals and medical
K.I. Woo
care operators to develop housing products that
In Asia, the formal housing delivery processes Low-income housing programs opened match Thailand’s ageing society’s needs.
in most countries kept pace with demand until to local and foreign developers
the 1997 financial crisis, when the economies Associate Professor Trirat Jarutach, head of the
in the regions declined, which was hard for the The Thai Government recently announced that Appropriate Environment for Elderly and Disabled
countries to endure. Citizens who fall into the both domestic and foreign investors will be invited People Research Unit, Faculty of Architecture,
low-income category are limited in choice caus- to participate with the Government in public- Chulalongkorn University, told the Bangkok Post
ing a rise in homelessness. Despite the current private partnerships [PPP] to build low-income that developers must collaborate with medical
initiatives to combat this problem, there remains housing under the Pracha Rat home scheme. service operators. “To be successful in senior
a challenging imbalance between the demand home development, developers should build trust
and supply of affordable housing. Deputy Prime Minister Somkid Jatusripitak
with potential customers through partnerships
recently told the Bangkok Post that he has asked
with hospitals, hospitality management firms
Various channels of support are needed for more state-owned GH Bank and the National Housing
and wellness centers,” he said.
effective housing policies to curb the over-heating Authority [NHA] to design a housing develop-
property market. The Conference aimed to ana- ment plan for low-income and lower-middle
earners nationwide. The two organizations will GH Bank to offer reverse mortgages
lyze the existing scenarios and scrutinize planning
and policies to improve affordable housing. complete the proposed plan within six months. The Government Housing Bank [GH Bank] will
It featured field experts who shared ideas and “The Government is very interested in helping soon be offering reverse mortgages that allow
solutions to address the challenges. low-income and low-middle income earners, the elderly to convert their home equity to
and young state employees to acquire their own cash. Laiwan Pongsangiam, GH Bank’s senior
The conference had a very good attendance homes,” he said. executive vice-president, said the Bank will be
with participants coming from countries of amending the Government Housing Bank Act
the region including Pakistan, India, Malaysia, Dr. Somkid said that public-private partnerships
to allow it to offer reverse mortgages.
Singapore, Vietnam, Maldives, Philippine and will be used to build these homes. “The demand
some international experts as well. The papers for housing projects remains high in Thailand
Reverse mortgages allow elderly homeowners
presented covered nearly all critical areas on because many low-income earners and lower-
to realize cash from the home equity without
the supply-side as well as the demand side of middle-class people don’t have access to the
monthly loan repayments. Borrowers can use
housing, with the primary focus on low-income housing market.”
the cash to cover monthly living expenses and
affordable housing. The topics covered: the role
of the urban planners in planning and facilitating The Thai Cabinet is expected to approve PPP healthcare costs. When the borrower dies, the
supply of affordable housing, leveraging partner- measures that will encourage new housing for heirs have the option to either pay off the loan
ship between the public and private sectors, the underserved lower-income sector. and reclaim ownership of the home or allow the
manufacturing scale production of low-income lender to sell the home. “Reverse mortgages
housing, innovations in low-cost construction Dr. Somkid said the Thai Government is also will benefit the elderly who own a house and
materials, land use and environmental consid- supporting elderly housing projects, especially need money for daily expenses while allowing
erations in horizontal and vertical housing etc. because of Thailand fast-aging society. them to remain at their homes,” Laiwan said.
6 HOUSING FINANCE INTERNATIONAL Autumn 2017Regional round up: news from around the globe
GH Bank is also offering pre-financing facilities ple. The home builders and construction Pakistan
totaling Bt 3 billion ($ 909 million) to developers materials businesses showcased new con-
of senior housing projects. struction innovations to the market. Dr. M. Saleem
“GH Bank Housing Expo@ Bangkok” The Bank also offered 90 good quality, prime Pakistan Mortgage Refinance Company
grand opening location Non-performing assets (NPAs) in Limited
Bangkok and surrounding areas at up to
Chatchai Sirilai, GH Bank President reported Pakistan Mortgage Refinance Company
45% discounts. NPA customers can also
that the Bank hosted a “GH Bank Housing Expo Limited [PMRC] has been set up by the State
use the Bank’s special 48 month no-interest
@ Bangkok” event at Queen Sirikit National Bank of Pakistan [SBP] as a joint initiative of
down-payment loan campaign.
Convention Center from August 24 -27, 2017. the Government of Pakistan and commercial
Deputy Prime Minister of Thailand Somkid The Bank auctioned specially priced second- public and private sector banks with the tech-
Jatusripitak chaired the event’s grand opening. hand houses (up to 50% discount) at the event nical assistance of the International Finance
Police General Adul Saengsingkaew, Minister of and at all Bank branches on August 26, 2017. Corporation [IFC] and the World Bank [WB] as a
Social Development and Human Security and Mortgage Liquidity Facility [MLF]. The creation
Surachai Danaitangtrakul, GH Bank Chairman Sukhumvit Asset Management Co Ltd and of PMRC marks an important milestone in the
also participated in the event. The Bank con- the Legal Execution Department also pro- Government of Pakistan’s objective to improve
ducted this event to celebrate its 64th anniversary vided several types of NPAs for auction on access to housing finance, particularly to the
(September 24th, 2017). The event’s housing August 25, 2017. middle and low-income group of borrowers who
promotions enhanced quality of life and stimu- are in dire need of access to long-term hous-
lated the real estate industry. These included: iii. “More money with savings deposits” ing finance. PMRC, as a notified Development
campaign Financial Institution [DFI] regulated by the SBP,
i. “Housing loans for all homes” The Bank offered a “More money with saving will provide medium and long-term funding
deposits” campaign with 1.80% per annum to primary mortgage lenders (i.e. banks and
The Bank offered MRR-3.85% interest rates financial institutions) by raising funds from the
(2.90% per annum) for the 1st – 3rd year. Current interest rates for customers who deposit
amounts not exceeding Bt 1,000,000 ($US capital debt market at cheaper rates than the
MRR is 6.75% per annum. Interest rates from primary mortgage lenders would be able to do
the fourth year until the end of the agreement 30,000). 0.90% per annum interest rates will
be paid to customers who have deposit bal- if acting alone. In other words, PMRC will act
will be MRR -1.00% per annum (welfare
ances of more than Bt 1,000,000 ($US 30,000). as an intermediary between primary mortgage
customers) and MRR -0.50% per annum for
Minimum initial deposits of Bt 500 ($US 15). lenders and capital market.
general retail customers (current MRR is 6.75%
per annum). If the funds are used to purchase
iv. GH Bank unmanned branches – simula- Pakistan’s mortgage to GDP ratio is 0.5% as
housing appliances and related facilities, the
tion of future customer delivery models. compared to South Asia’s average of 3.4%.
interest rate will be MRR. These loans are for
The low level of mortgage debt is due to the
purchasing, constructing, enlarging, renovat- These branches will provide housing loans, challenges faced by the primary mortgage lend-
ing, paying-off existing loans, purchasing home new account openings, deposits – account ers. Mortgage financing in Pakistan remains
accessories and refinancing. withdrawals and debt repayment without cautious due to several constraints. Banks are
staff. They are an integral part of the Bank’s reluctant to undertake mortgage lending due
The Bank also waived the following three
“Transformation to Digital Services” plan to issues relating to lack of clear land titles,
types of fees:
that will use new technology to develop the slow foreclosure process, lack of long-term
Loan submission fees (0.1% of approved innovative new financial products and ser- funding sources and the low supply of afford-
loan amount) vice channels. It will be optimized to ensure able housing. During the last few years, the
C ollateral appraisal fees for all loan easily accessible, convenient, speedy and Government has demonstrated its commitment
amounts (Bt 1,900 / Bt 2,800 /Bt 3,100), safe services at any time. to housing finance with initiatives which include
(($US 57) / ($US 85) / ($US 94). the establishment of PMRC, recent amendments
The Bank also conducted a “Housing for
Registration and legal transaction fees made in the Financial Institutions (Recovery of
the elderly society: from policy perspective
(Bt 1,000) ($US 30). Finance Ordinance and Records) 2001 to expe-
to practice” seminar that studied elderly
Mortgage registration fees (1% of loan housing ideas and innovations in various dite foreclosure, improvements in land titling
proceeds) countries. Elderly housing design com- system in Punjab and Sindh by digitalising land
petition 2016 winners also received their records and exemptions from tax on interest paid
Customers can apply for loans and loan trans- up to Rs 2.0 million for mortgage instalments by
awards at the event. The Ministry of Social
actions must be completed by December 29, individuals. The State Bank of Pakistan [SBP]
Development Department of Older Persons
2017 (maximum Bt 20,000 million ($US has also kept abreast of the problems faced
and the Human and Security Community
606 million) allocated for project). by the primary mortgage lenders [PMLs] and
Organizations for Development Institute
[CODI] held an exhibition that focused on introduced conducive prudential measures such
ii. Special housing promotions as the Housing Finance Prudential Regulations
elderly housing and living security.
At the event GH Bank offered special housing (May 2014) to promote housing finance.
promotions for new, second-hand and fore- SCG Cement – Building Materials Co., Ltd
closed homes and specially discounted homes exhibited bathroom, bedrooms and living Currently, 24 commercial banks, one micro-
from private developers (70 housing projects). rooms models designed for the elderly and finance bank and the House Building Finance
sponsored free Credit Bureau personal credit Company [HBFC], which is the only special-
The National Housing Authority also offered checks. Customers could access this service ized housing finance institution in Pakistan, are
new housing projects to lower-income peo- with their identification cards. providing housing finance. The market share of
Autumn 2017 HOUSING FINANCE INTERNATIONAL 7Regional round up: news from around the globe
private sector banks increased from 31% to 32% obligations will be tested and this will result in everyone whether living in shanty-slums or with
between December 2015 and December 2016. defaults. Middle and low-income groups are more a meager income source, will have a place to
However, the share of Islamic banks increased exposed to any adverse interest rate volatility live of his/her own. With this object in sight
from 35% to 38% during the same period. as their disposable incomes may not increase Pradhan Mantri Awas Yojana – the mission for
proportionately to interest rate increases. Any Housing for All [Urban] was launched.
As at the end of June December 2016, the mar- significant increase in interest rates will dampen
ket share of Islamic banks, private sector banks the confidence in the market and may lead to a This mission has four components: slum rehabil-
and HBFC was 38%, 32% and 23% respectively. significant decline in the creation of mortgages. itation, promotion of affordable housing through
Public sector banks accounted for 7% of the The availability of medium- or long-term fixed credit linked subsidy, affordable housing in part-
total market share whilst that of the foreign rates from PMRC can instill a degree of certainty nership with the public & private sectors, and
banks remained at 1%. One interesting feature that can help the mortgage markets develop subsidy for beneficiary-led individual house
is that the share of Islamic banks increased from with confidence. construction or enhancement.
20% at the end of June 2013 to 38% at the end
of June 2016. This clearly demonstrates the In addition to the above, in Pakistan, the mort- For slum rehabilitation, average grants of
growing volume of Islamic mortgages. gage lending practices are not standardized and Indian Rs. 1 lakh per house are to be given to
the underwriting and servicing skills of the PMLs all eligible slum dwellers. The Government has
PMRC, the long-term liquidity facility can be improved further to promote a sound and also to establish the eligibility of slum owner-
institution in Pakistan viable mortgage market. In this respect, PMRC ship. For promoting affordability of housing,
Mortgage market in Pakistan is again gearing is already working with IFC/WB to introduce the the interest rate subvention at 6.5% is being
up. For the last 3 years, the Compound Annual Minimum Quality Standards [MQS] for the PMLs. offered to both EWS/LIG categories of people.
Growth Rate [CAGR] of the mortgage market was MQS will act as industry standards for granting To strictly ensure the public-private partner-
11.65%. However, variable rate, non-standardized mortgage loans to borrowers that will qualify ship, the Central Government is to assist with
underwriting practices and significant maturity for refinancing with PMRC. This will promote Indian Rs. 1.5 Lakh per EWS house in projects
mismatch may expose PMLs to higher credit efficiency and mitigate risks in mortgage lending where 35% of the houses are mandatorily for
and liquidity risks which are reflected in higher and lead to more affordable house ownership. EWS. Subsidy for individual house construc-
spreads charged on mortgage loans and rising PMRC’s goal is to address the issues of stand- tion or enhancement is Indian Rs. 1.5 lakh per
non- performing loan [NPL] ratios. This will again ardization and effective risk management. In house for EWS category in slums, if States/
lead to the stagnation of the mortgage market essence, PMRC is adopting a comprehensive cities undertake the projects.
which occurred in 2008-2009 and onwards. approach to improve the accessibility and afford-
ability of housing finance particularly to middle Houses constructed under the mission are tar-
In light of the above, SBP initiated the setting and low-income groups. geted to the female head of the households,
up of a mortgage refinance company, known as or in the joint name of the male head of the
Pakistan Mortgage Refinance Company [PMRC] PMRC as a liquidity facility will spur the devel- household and his wife. The main purpose of
and its role is to develop housing finance in opment of the local bond market since its main the mission, obviously, is to strengthen and
Pakistan to aid financial institutions to extend source of funding will be from the bond market. empower the women, particularly those who
housing loans in greater amounts, by addressing PMRC will issue plain vanilla unsecured fixed- are widows and otherwise disadvantaged in the
their liquidity issues through refinancing facili- mark up debt instruments with lower spreads on society. The beneficiaries of this scheme include
ties. PMRC has the objective to promote, develop the strength of PMRC’s desirable AAA credit rat- the husband, wife and unmarried children, EWS
and improve the housing finance market thereby ing. The issuance of PMRC’s bonds enables the Households having annual income up to Indian
increasing accessibility and availability of afford- primary mortgage lenders to obtain lower cost Rs.3,00,000/- and LIG Households having
able housing finance with greater participation of funding in order to grant mortgage loans for annual income between Indian Rs.3,00,000/-
by PMLs and financial institutions. housing particularly for middle and low-income and up to Rs.6,00,000/-. Among the eligible
groups. At the same time investors have the beneficiaries, preference is given to manual
The impact of PMRC is critical to keep the pace of advantage of investing in safe bonds with a scavengers, persons belonging to scheduled
the growth of mortgages and to make mortgage relatively high return. castes/ scheduled tribes/ other backward
finance accessible to middle and low-income classes, minorities, persons with disabilities
groups. By acting as a central refinancing plat- Major Shareholders: Government of Pakistan- and transgender people.
form, PMRC can act as a force to make the Ministry of Finance, National Bank of Pakistan,
requisite changes in the market. Askari Commercial Bank Ltd., Habib Bank Ltd., The scheme covers all “Statutory Towns” as
United Bank Ltd., Allied Bank Ltd. per the 2011 Census and towns notified subse-
In Pakistan, mortgage finance for the middle and quently. Hence, it covers the entire urban area
low-income groups is not available due to the high India consisting of 4041 statutory towns with an
cost of servicing. Fixed rate mortgages which can initial focus on 500 Class-I cities of the country.
be refinanced by PMRC are especially important Zaigham Rizvi
for the middle and low-income groups who are Under the main mission of housing for all
Housing for All by 2022” Mission: National
vulnerable to the volatile interest rate movements by 2022, a technology sub-mission has also
Mission for Urban Housing
in Pakistan. All mortgage loans in Pakistan are been set up to facilitate adoption of modern,
based on floating rates. Historically, interest rates India adopted a mission in 2015 for 2022 when innovative and green technologies and building
and inflation in Pakistan are relatively volatile. India will be complete its 75 years of independ- materials for faster and higher quality construc-
With interest rates expected to rise, the bor- ence. The target for the mission is that no one tion of houses. The technology sub-mission was
rowers’ ability to meet their monthly repayment in the country would remain without a house, also to facilitate preparation and adoption of
8 HOUSING FINANCE INTERNATIONAL Autumn 2017Regional round up: news from around the globe
layout designs and building plans suitable for Aimed at creating a platform for an exchange Rent-to-Own schemes should be consid-
various geo-climatic zones and for disaster of views, the dialogue offered an opportunity ered within housing policies, given that
resistant and environment friendly technologies. for industry experts to deliberate on issues under current conditions, incomes for B40
relating to affordable housing both locally and M40 will not be able to catch up with
The scheme, however, has drawn criticism from and internationally. The panellists presented rising house prices and as such, these
some quarters, who think that all the provisions various insights and valuable knowledge on income groups will never be able to own
of this scheme have loopholes that cast doubt subjects which included the global perspective their own homes.
over the scheme’s bold title: ‘Housing for All’. on affordable housing provision, the Malaysian
It might be nearly impossible to establish the Government’s perspective and initiatives and Establish a taskforce on the Sustainable
eligibility of owners in slums for a plethora of case studies as well as the challenges faced by Development of Affordable Housing with
reasons, without which nobody would be enti- first time home buyers. In addition to that, the members drawn from The Ministry of
tled to have a house of his/her own, and the dialogue seeks to give participants a flavour Urban Wellbeing, Housing and Local
scheme can cater for only those with income of how other countries are tackling the issues Government, city councils, state invest-
below a certain level. In addition, it overlooks of affordable housing. ment agencies and housing market
vast numbers of people in the bigger cities like players. The taskforce should work hand
in Mumbai, for example, where over 60% of Among the key takeaways discussed included in hand in forming innovative solutions to
residents are living in informal housing, and it the following: address the current issues. For example,
may not be possible to provide housing to all of the task force could look into issues such
them as it claims in its statements. (Bilal Khan Sound, innovative and coordinated public as the overhang housing units, compliance
and Ane Gupta on 18/04/2017). policy is central to addressing the afford- of housing developers, effectiveness of a
able housing challenge. This should reside One-Stop-Centre, eliminating obstacles to
with a central authority that leads, over- house ownership and so forth.
Malaysia
sees and coordinates affordable housing A central repository as a systematic way
Datuk Chung Chee Leong
initiatives for the nation. of monitoring and managing the demand
Dialogue on sustainable development of A good practical policy on affordable and supply of affordable housing includ-
affordable housing housing should encompass the following: ing granting access to those seeking to
targeted public resources, participation by purchase or rent homes.
The dialogue on the sustainable development
the private sector plus a transparent and Efforts should also be made to increase
of affordable housing was held on 4th July
proficient regulatory environment. the opportunity for potential solutions and
2017, organised by Cagamas Holdings Berhad
at Sasana Kijang, Kuala Lumpur. The demand Designs for neighbourhoods and town- effective project management through the
for housing in Malaysia remains strong with a ships are also important; for example, study of various cases and successful
relatively young population, rising affluence and it should not be only the higher income developments from multiple regions as
larger middle-income group, underpinned by groups living in the city centre. Initiatives well as to develop a thriving rental mar-
strong demand for housing by first time buyers. such as Federal Territory Affordable ket to reduce the supply-demand gap for
This situation had spurred the idea of hosting Home (RUMAWIP) should be intensified affordable housing by strengthening the
a dialogue on affordable housing to address to create more diverse groups in town- legal and institutional frameworks under-
various pressing issues. ships and cities. lying the rental market.
Datuk Chung Chee Leong, Chief Executive
Officer Cagamas Berhad with the panellist
during the dialogue session
Autumn 2017 HOUSING FINANCE INTERNATIONAL 9Regional round up: news from around the globe The challenges of the European banking sector – the case for a small banking box By Mark Weinrich Almost a decade after the onset of the Global capital might be better indicators than the banks, in particular, on those with simple and Financial Crisis [GFC] many European banks aforementioned. While revenues are cash flow- low-risk business models. This fact has raised are still struggling to cover the cost of equity based and thus generally more reliable, as well the case for a more proportionate regulatory and to deliver an economic profit. Some of the as independent of business models and finan- regime, discussed under the label “small bank- causes of this underperformance are largely cial structures, the equity capital corresponds ing box”. The discussion is not about lowering out of banks’ hands, as is most strikingly to the book value of a bank, which is relatively quantitative requirements – for capital or liquid- the case in relation to the zero-interest rate stable and mostly immune to measurement ity, for instance; but rather the discussion is on policy of the ECB. Yet some causes are related problems or differences in business models. tracking down operational requirements that to inherent weaknesses within the banking can be dispensed with. In this sense, the small industry itself. The debate on potential rem- That something has to change in the European banking box would be a separate framework edies is dominated by the assumption that banking landscape seems to be evident. But for smaller banks, which would not affect capi- Europe is overbanked with reference to the traditional market consolidation may not be tal or liquidity requirements but would still cut cost structure and that the European banking the answer since it normally causes a reduc- reporting and disclosure rules. In effect, the list sector had ballooned since the 1990s. Clearly, tion in the number of small banks. Traditional of requirements would be much shorter and Europe remains highly dependent on banks by consolidation goes against the policy aspiration considerably easier to understand, and comply- international standards, while capital market of wanting banks to be smaller, not bigger. There ing with the rules would become a much less orientation is relatively weak by comparison. is also little point in joining two small weak time-consuming exercise for small institutions. This raises the question of how to measure banks together to make one big weak bank This does not require establishing an entirely the size of the banking sector in an adequate unless it can then execute the structural and new set of rules; a separate, short passage in and comparable way. Total assets represent operational changes to make itself stronger. existing European law would be sufficient which the indicator which regulators and academics Some smaller institutions might not be able to determines the areas in which the rules would use most frequently. But this indicator suffers hold their ground, while downsizing might be be eased and which establishes a definition of from some flaws: valuation problems for some healthy for some larger institutions, and some those institutions to which a simplified set of instruments (in particular but not only deriva- services might be provided also more efficiently rules could apply. tives), the different treatment of off-balance and better by fintech competitors. sheet exposures, and the lack of adequate As the previous discussion on how to measure consideration of capital market activities (as The fragmentation of the German banking the size of the banking industry has shown, even for those liabilities where the creditors market makes it easier to establish the fact it will be not enough to look at total assets only are non-banks, banks are typically involved that consolidation and the creation of larger (whereby an absolute and relative threshold in crucial ways). If, in particular, the different entities is not necessarily a success factor. would be needed) to define whether a bank strength of equity capital markets is taken There are also several small institutions with a would be subject to simplified rules. A list of into consideration, the financial system in cost income ratio of around 40% and return on secondary requirements should be adopted as Europe compared to the US does not at all equity (before tax) of more than 10%.1 well to exclude credit institutions with riskier look outsized anymore. Instead of looking at business models. total assets we could look also at the average Unlike other large jurisdictions, such as the number of customers per bank and will find USA, the EU applies the same regulatory rules Early results are unlikely in relation to the small that in the US there are 27.000 customers to all its banks in seeking to achieve a level banking box. Many matters are still disputed on average per bank, while the respective playing field. However, this “one size fits all” and need further elaboration, like the concrete numbers for Europe and Germany are 62.000 approach of common binding rules for all banks design of the small banking box or the specific and 47.000 customers. However, this indicator can cause distortions given that the costs of requirements and thresholds for banks to qualify is also not really useful. Revenues and equity regulation tend to bear more heavily on smaller for the simpler set of rules. For example, Sparkasse Spree-Neiße (balance sheet total EUR 3,2 billion) with a cost income 1 ratio of 40,3%, Sparkasse Holstein (balance sheet total EUR 5,7 billion) with ROE of 16% and Sparkasse Markgräflerland (balance sheet total EUR 2,4 billion) with ROE of 13,4%. 10 HOUSING FINANCE INTERNATIONAL Autumn 2017
Regional round up: news from around the globe
Latin America and Caribbean Round Up:
Special housing finance funds
By Claudia Magalhães Eloy
Special housing finance funds sectors. Account holders are allowed to make According to Chiquier and Lea (2009)11,
withdrawals to use as a down payment to pur- “Infonavit loans are linked to an index of wage
in Latin America chase a house, together with a loan from either inflation, to which a spread is added that varies
Some major special housing finance funds the fund or from a private lender. Moreover, by income category, cross-subsidizing borrow-
were created in the Region around the late 60s they both offer credit at below market rates. ers in lower-income segments”.
and early 70s, to provide funding for housing
finance through mandatory long-term savings Yet, while Infonavit integrates the pension sys- In 2016, FGTS and Infonavit housing loan port-
schemes, which are still among the main financ- tem, providing savings to supplement retirement folios were US$ 78.2 billion12 and US$ 70 billion
ing sources in their respective countries. income, FGTS is an indemnity fund7, created as respectively and they provided around 432,000
a substitute for the workers’ decennial stability and 373,00013 housing loans each. Despite the
In Brazil, FGTS1, the workers indemnity fund,
law that was in force up to the 60’s in Brazil. The growth of private market lending, Infonavit is
was created in 1966 to solve the lack of funding
commitment of FGTS is to provide workers with responsible for around 70% of all mortgage
for the recently established national housing
a personal fund that amounts to an equivalent of lending in the country.
system2. It receives monthly mandatory con-
1 salary per year8 which can only be withdrawn
tributions from employers, equivalent to 8%
under certain conditions, including down pay- In both cases, macroeconomic stability has ena-
of formal private sector workers’ salaries.
ment for housing acquisition9. bled the growth seen over the last two decades
At the end of 2016 it totaled US$160.4 billion3
in assets with over 40 million active accounts, and subsidies (both direct and indirect) have
contributions of US$40.7 billion4 and a net result Another difference is that FGTS’ financing increased down-market access. They comprise
of U$4.6 billion. agents are two major public banks – CAIXA of low cost funding sources and offer affordable
and Banco do Brasil but Infonavit acts as a direct financing options in their markets14: in the case
Mexico’s Infonavit5 was founded in 1972 to lender. Infonavit is under the same reporting of Infonavit, payroll deductions reduce lending
enforce a constitutional mandate for suitable and control rules as commercial banks, while risk, contributing to lower interest rates that
housing. It receives monthly mandatory con- FGTS is not subject to oversight by the finan- are around 12% per year; loan rates funded by
tributions equivalent to 5% of formal private cial regulator. Furthermore, within Infonavit, FGTS range from 4% to 8% (+TR per year15).
sector workers’ salaries and now administers only account holders are eligible for housing
over 58 million accounts. In 2016 contributions loans but FGTS’ loans are offered to anyone This year FGTS is expected to total US$ 20 bil-
amounted to US$10 billion6 and the net result who qualifies, regardless as to whether they lion16 of new housing loans, but it has been
was of U$1.27 billion. are account holders or not, including informal under a lot of political pressure, due to political
workers and unregistered commercial opera- instability and economic recession, which has
Both FGTS and Infonavit have a dual mandate tors, causing the subsidization of mortgagees resulted in the following changes:
as a workers’ fund and mortgage lending by account holders10. Since the mid-2000s,
entity; they enjoy fiscal authority for collecting as FGTS has (re)focused on lower income The creation, in 2007, of an investment
employer contributions and have council boards groups, cross-subsidies have allowed low fund, FIFGTS, to finance infrastructure
composed of representatives from the federal income families to access housing finance. investment projects17, not necessarily
government and the labor (union) and employer Cross-subsidies are also present at Infonavit. profitable ones, totaling over US$ 10 billion;
1
Fundo de Garantia por Tempo de Serviço. 9
3 consecutive years out of FGTS, unjustified dismissal, redundancy, retirement, death, etc.
2
T his System, created in 1964, was originally intended to be funded from the sale of bonds by 10
The majority of resources contributed belong to a minority of account holders.
the National Housing Bank. 11
CHIQUIER, Loïc; LEA, Michael. Housing Finance Policy in Emerging Markets. The World Bank, 2009.
3
BRL 505.3 billion, of which, BRL 339.5 billion (US$107.8 billion) were active account deposits. 12
Near 49% of total assets.
4
Withdrawals totaled US$34.1 billion, resulting in a net inflow of US$6.6 billion. 13
In 2015 Infonavit totaled 690,000 mortgages. On average, it is responsible for 74% of the
5
Instituto del Fondo Nacional de la Vivienda para los Trabajadores. In Mexico there is also an- formal credit market.
other provident fund, FOVISSTE, exclusively for public-sector employees, but much smaller 14
58% of mortgages were contracted with families with incomes of up to 4 minimum wages.
than Infonavit. 15
The TR is a reference rate which is not a price index: it averaged 1.08% in the last decade.
6
181.4 million pesos. 16
f the yearly loan investment budget approved by the FGTS council board, at least 60%
O
7
Its savings, relative to time worked, aim to provide support for workers in case of dismissal and must be used for affordable housing loans. The remainder may be invested in sewage and
for their dependents in the case of death. infrastructure loans.
8
That is why monthly contributions were set to 8% of salary paid. 17
Energy, ports, roads, etc.
Autumn 2017 HOUSING FINANCE INTERNATIONAL 11Regional round up: news from around the globe
The rise of income and house price limits, lenges are, therefore, avoiding stress on cash income, depending on the category) also on a
reducing FGTS’ focus on lower incomes flow and keeping up with housing finance needs. monthly basis26. Contributions qualify employers
(2017); for tax exemption. Non-compliant employers are
Political influence and weak financial manage- prevented from obtaining a Clearance Letter
T he distribution of 50% of its profits
ment that had been present for many years from the NHT, which is a prerequisite for a com-
among account holders18, increasing
in Infonavit, seem to have been overcome pany to be issued a Tax Compliance Certificate.
yields19 but subject to the same withdrawal
by many reforms undertaken during the late Housing loans are, as is the case for Mexico,
restrictions20 (2017);
2000s23. Nonetheless, according to Sebastian exclusively for NHT contributors27 and can be
The temporary relaxation of withdrawal Fernandez24, three main challenges remain: used for acquisition of serviced lots or properties
restrictions on inactive accounts releasing in new developments, construction, repair and
nearly US$ 14 billion21 thus reducing the Achieve higher quality affordable housing; improvements. Mortgage payments require a
cash flow of the Fund (2017); Emphasize Infonavit’s pension charter 1month prepayment and payroll deduction. NHT
without neglecting its mortgage mandate; may also provide equity loans with deferred pay-
More recently, as unemployment has risen, ments for up to 40% of the unit cost for eligible
there has been a reduction in contributions Provide housing financing solutions for scheme applicants. Low income contributors
and an increase in withdrawals, resulting in the informal sector. who have contributed for at least 7 years may
negative net inflows since last March. The qualify for a subsidized loan to buy or build a
recent trend of reduced basic interest rates22 The National Housing Trust (NHT)25 of Jamaica, unit. Interest rates on loans range from 0% to
has reduced financial gains from investments in created in 1976 also collects contributions from 6% depending on the contributor’s income28.
treasury bonds (30% of assets). All those trends employers (on behalf of employees who are NHT is the single largest financier in Jamaica,
and changes together may impose financial liable to contribute, equivalent to 3% of their with total assets of US$ 1.6 billion in 2014, hav-
constraints and threaten the ability of FGTS to total gross pay), employees (2% of the gross ing provided 7.8 thousand loans, representing
sustain affordable loan levels. Its main chal- salary) and self-employed (from 2% to 3% of 45% of all mortgages in the previous 12 months.
18
In 2016, profits totaled US$4.6 billion of which US$2.6 billion is currently being distributed. auditing, and strategic policy; improving its cash flows, paying return on savings comparable
FGTS’ profits are tax exempt. to private pension funds; adopting international accounting standards and becoming subject to
19
F GTS’ deposits yields are fixed at 3%+TR. The average difference between yields paid by FGTS oversight by the financial regulator.
and the reference rate was of 7 percentage points in the last decade. 24
Director of Infonavit during his presentation at the IUHF Congress in Washington DC, June, 2017.
20
Average turnaround time on account balances is 2 years. 25
http://www.nht.gov.jm/
21
60% of the total benefitted 10% of workers who were able to withdraw. 26
It also accepts voluntary contributors.
22
F rom over 14% per year in 2015/16 to the current rate of 9.15% with estimates of 7.5% by 27
T hose between 18 and 65 years of age who have made at least 52 weekly contributions,
the end of this year. of which 13 must have been made in the last 26 weeks, just before the date of application.
23
A ccording to Chiquier and Lea (2009, p.286): modernizing information and accounting sys- Contributors earning less than US$ 58.6 per week are only required to pay up contributions
tems, improving the procedures in mortgage origination and servicing, appointing external for 1 year.
debt collectors, better tracking the evolution of employees who left their jobs (operational risk 28
Average of 4.9% in 2014.
as one of the main reason of defaults), and creating new committees for risk management,
12 HOUSING FINANCE INTERNATIONAL Autumn 2017Regional round up: news from around the globe
Has Canada’s housing bubble finally
reached bursting point?
By Alex J. Pollock
Both Canadian and foreign observers have
watched with wonder as Canadian house Graph 1 Two housing Bubbles – House Prices in Canada and U.S.
prices have continued up and up, waiting for 2000-2017 (2000 = 100)
the inevitable correction and fall. Average 325
330
Canadian house prices are more than 3 times
as high as they were in 2000. They already 280
House Price Index Values
looked very high in 2012, five years ago, but
have risen rapidly, by another 43%, since 230
then. They have inflated measured house- 193
hold net worth, inflated household debt and 180
debt-to-income ratios with rapidly expanding
mortgages, caused the number of realtors in 130
Toronto to expand by 77% in the last decade,
80
and they display “an element of speculation,”
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
in the careful words of the Governor of the
Bank of Canada, Stephen Poloz.
U.S. Home Price Index Canadian Home Price Index
The national Housing Market Assessment of Source: S&P Case-Shiller U.S. National Home Price Index;
the Canada Mortgage and Housing Corporation Teranet-National Bank (11-city) Canadian Home Price Index
“continues to detect strong overall evidence
of problematic conditions… due to overvalu-
ation and acceleration in house prices.” This
To add some perspective to the comparison, total U.S. GDP of $ 18.6 trillion. Thus, mortgage debt
is pretty clear language for a government
residential mortgages in Canada are C$ 1.5 tril- in Canada is much higher relative to GDP than
agency which is itself heavily at risk in the
lion, or $ 1.2 trillion in U.S. dollars. This is equal in the U.S.: 73% compared to 55%.
mortgage sector.
to about 11% of the U.S. outstanding mortgages
of $ 10.3 trillion. In contrast, Canadian 2016 GDP Notably, 73% is about the same ratio as the U.S.
“The longer it goes, the bigger it gets, the more
of C$ 2.0 trillion, or $ 1.6 trillion, is 8.7% of the had at the peak in house prices in mid-2006.
you start to be concerned,” said Governor Poloz
in June of this year.
It has gone on very long and gotten very big. Graph 2 Homeownership Rates: U.S. and Canada
Although Canada has a sophisticated and 1971-2016
advanced financial system, although the central
bank and financial regulators have, a number 75%
of times, tightened lending rules to try to mod-
erate the house price inflation, and although 70%
69.0% 69.0%
the cities of Vancouver and Toronto have put
on fees to slow down foreign house buying, 65%
the boom has continued. On the other hand, 64.3%
63.4%
this is not surprising, since the Bank of Canada, 60%
like its U.S. counterpart, has run negative real 60.3%
interest rates for most of the last eight years. 55%
These reliably induce asset price inflations and
promote bubbles. 50%
1971 1978 1981 1986 1991 1996 2001 2006 2011 2016
As shown in Graph 1, the Canadian house price
inflation dwarfs the infamous U.S. housing bub- United States Canada
ble, which imploded starting in 2007, as well Source: United States Census Bureau and Statistics Canada
as the U.S. price run-up of the last five years.
Autumn 2017 HOUSING FINANCE INTERNATIONAL 13You can also read
