Download housing finance development impact in emerging

Introducing Housing Finance
in Emerging Markets
Global Findings & Outlook for Turkey
IFC & Dunya Housing Finance Conference
December 3-4, 2007
Istanbul
Hans-Joachim Dübel
Finpolconsult.de, Berlin
1
M
So al
ut ays
h
A ia
Th fric
ai a
la
n
K d
or
ea
C
hi
M le
ex
ic
B o
C ra
ol zi
om l
Es bia
to
ni
C a
hi
n
C a
ze
Po ch
H lan
u d
In nga
do ry
ne
si
a
In
di
Tu a
rk
R ey
us
U sia
kr
ai
ne
40%
Early birds
Latecomer
35%
2000
30%
2005
25%
20%
15%
10%
5%
0%
Sources: World Bank, Finpolconsult.
2
Housing loan to GDP and per capita GDP trajectories
in Latin American markets
10000
Mexico
Colombia
Brazil
Chile
Real Per Capita GDP
Macroeconomic crisis
›
›
9000
8000


High real interest rates
›
›
›
7000
6000
5000

4000
2000
1000
›
0
0%
5%
10%
15%
Housing Loan to GDP Ratio
Sources: World Bank, Finpolconsult.
Legal reform backlog
Weak institutions
Directed credit systems
(subsidies/regulations)
Volatile funding sources
›
3000
Indexed instruments may not
help
Crowding out by gov
International bank financing,
rather than long-term
portfolio/direct investment
Immature domestic capital
markets
 Successful reforms
~ 95-05
3
Real interest rates and housing loan to GDP ratio ~ 2005



Market rates, not
directed rationing)
Sufficient
domestic savings
volume (Asia)
Credible savings
instruments
› Long-term bonds
› Long-term
deposits

Credible
intermediaries
Sources: World Bank, IMF, Finpolconsult.
4

With stabilization,
competition, transparency
›
›

Bank self-insurance
Mortgage insurers
Contract savings/
piggybacks
Maturity increase through
›
›

Maturities, LTVs increase
Shortening time scale.
LTV increase through
›
›
›

Loan maturities and loan-to-value ratios
in selected emerging markets
Capital markets
Intermediary ALM
Public policy role?
›
›
Interest deduction raises
leverage
Rather proper regulation
Sources: Merrill Lynch, Finpolconsult.
5


Chile, Malaysia with long-term
bond market strategies
Mexico hitting liquidity wall (as
earlier Spain), introduces covered
bonds
Risk management


Still imperfect, e.g. Spain swaps
fixed-rate cedulas back to floatingrate loans (Basel II deficiencies)
Ideally incentives for fixed-rate
lending as low credit risk product
Ratio of private sector loans to liquid liabilities in
selected emerging markets
180%
160%
140%
Chile
Malaysia
Thailand
Mexico
Brazil
120%
100%
80%
60%
40%
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
Liquidity
Sources: IMF, Finpolconsult.
6
20%
15%
10%
5%
fr
C
th
A
kr
So
u
U
a
ol
om
bi
a
ic
ne
ai
nd
la
ea
Th
ai
or
K
hi
le
C
an
d
o
0%
Po
l
Minimum standards for mortgage
origination
› Minimum risk management
quality
›
25%
ic
Requires regulation/consumer
protection framework
30%
ex
Finance companies
Brokers
Correspondents
35%
M
Diversify from commercial
bank/ developer origination
›
›
›

Some charter competition by
finance companies
di
a
›

Share of non-bank, non-insurance
distribution in emerging markets ~2005
Commercial banks with access
barriers, institutional constraints
In

Sources: Merrill Lynch, Finpolconsult.
7
Per capita GDP and housing loan to GDP ratio ~ 2005
Sources: World Bank, Finpolconsult.
8
Household consumption to GDP ratio and
housing loan to GDP ratio ~2005

Supporting
factors:
› Growth
› Migration
› Urbanization
› Upgrading
› Cohabitation
/household
division

Sources: United Nations, World Bank, Finpolconsult.
Repetition of US
debacle
unlikely in EMs
9




Fixed exchange rate policies
attract investors with risk
amnesia (Thailand, Mexico).
Lobbyist pressure to reduce
lending/bond market
standards, tax deductions
Conflict of interest between
intermediaries and
consumers/investors (US), esp.
re house prices.
Severe distortions in urban
land and housing markets
limiting supply.
Gross Fixed Investment to GDP Ratio
Causes for lending/price cycles
Investment and housing lending in Thailand
1987-2005
40%
32%
2005
1987
24%
16%
0%
5%
10%
15%
20%
Housing Loan to GDP Ratio
Sources: United Nations, World Bank, Finpolconsult.
10
Mumbai property prices and house price income
relation 1995-2005

Housing finance permanently
reduces funding costs
›
›

initial house price increase.
production signal to developer
industry sets virtuous cycle in
motion.
Distinct from price cycle
caused by fluctuations in
interest rates
› change in mortgage
instrument (fixed-float).
›

Emerging market experience
is divided:
›
›
›
Source: Parekh.
Initial adjustment (Mumbai)
Bubbles (Shanghai, Kiev)
Bubbles occur without housing
finance (Moscow)
11
Access to developer finance
 Developer focus on lowermiddle income segments

›
Middle income housing
Economic housing
Social housing
14
12
›
10
›
8

6
2
02
01
20
00
20
99
20
98
19
97
19
96
19
95
Source: BBVA.
19
94
19
93
19
19
19
19
92
0
Crisis often related to
overbuilding in high-income
Mexico, Malaysia low-income
industries with public stimulus
Thailand (Brazil upcoming)
market solutions.
Pitfalls:
›
4
91
House-price-to-minimum salary ratio
Mexico – house price to minimum salary ratio
in different market segments
›
Mass housing loan/production
subsidies may cause
misallocation (vacancies,
defaults)
Mass housing planning/agency
problems (land hoarding)
12
Turkey scenarios, Greece & Italy historic
development compared
25%
Turkey Scenario A
Turkey Scenario B
Greece 1992-2002
Italy 1992-2002
Mortgages as % of GDP
20%
Growth, demand pressure,
supply constraints drive
prices, lending volumes.
 Loan instrument reduces
growth

15%

10%
Turkey: fixed, short maturities
Greece: float, long maturities
›
Current: Euro bonds/bank lines or
deposits plus swaps
Future: domestic bonds/deposit
mix
Funding/hedging strategies
›
5%

20
15
20
14
20
13
20
12
20
11
20
10
20
09
20
08
20
07
20
06
0%
20
05
›
›
Distribution strategies
›
›
Source: Guerlesel, EMF, Finpolconsult.
Non-bank so far limited to
developers
Excessive regional focus (means
price risk)
13
Lending/demand-side policies
Develop local bond markets, reduce dependence on foreign lending,
swaps
 Avoid subsidization of mortgages, rather reduction of transactions costs
and macro/banking sector stability
 Strengthen public risk monitoring

Investment/supply-side policies
Zoning/infrastructure policies responsive to demand
 Liberalize land market, reform of mass housing policy framework
 Unauthorized housing issue, building standards

14
Hans-Joachim (Achim) Dübel
Finpolconsult.de
[email protected]
www.finpolconsult.de
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