NHB-APUHF-APMCHUD International Conference on Housing: An Engine for Inclusive Growth Session IV:

1. NHB-APUHF-APMCHUD International Conference on Housing: An Engine for Inclusive Growth Session IV: Housing Challenges: International Financial Institutions’ Perspective Christine Engstrom Private Sector Operations Department Asian Development Bank New Delhi, India April 11-12, 2013

2. Asia’s Acute Housing Shortages • Large housing shortages throughout Asia: • India: approximately 25 million for urban areas; • Philippines: 3.75 million shortage from 2005-2010 (Source: HUDC); and • Indonesia: approximately 3 million backlog with a need to add about 800,000 per annum (Source: Ministry of Housing). • Nearly half of all slum dwellers live in Asia with South Asia having highest rates. Approximately 70% of Bangladesh’s population lives in slums. • Continued pressure on housing. Asia is the fastest urbanizing region in the world. • ADB estimates that 120,000 new residents will move to cities each day over the next 10 years. 2 Asian Development Bank

3. The Affordability Challenge • Affordability is increasingly a problem in Asia impacting lower and middle-income classes. • Price-to-income ratios in Asia exceed those of developed countries: • Jakarta = 14.6x; • Dhaka = 16.7x; and • Lahore = 23x (Source: U.N. Habitat). • Drivers of low affordability: • Escalation of property costs; • Increase in costs of building materials; • Slowing growth of wages in some markets; and • Underdeveloped housing finance markets high interest rates and down payments, and transaction costs. 3 Asian Development Bank

4. Initiatives to Address Affordability Issues • First mortgage guarantee company in India. Funded in June 2012. • Provides guarantees against borrower default on interest and principal payments up to a specified amount. • Public-Private Partnership. Benefits from strong shareholders: • - National Housing Bank (38%) – Sponsor and government entity; • - Genworth Financial (36%) – Strategic investor and technical partner; • - Asian Development Bank (13%) – Investor; and • - International Finance Corporation (13%) – Investor. • Genworth Financial is providing transition services to IMGC in areas such as risk management, underwriting, and IT, amongst others. • Ratings: CARE (AA+), ICRA (AA). India Mortgage Guarantee Corporation 4 Asian Development Bank

5. Initiatives to Address Affordability Challenges India Mortgage Guarantee Corporation Long-term contributions to the market: • Helping people access homes earlier. • Addressing gaps in the housing and housing finance markets. • Strengthening the financial sector: • Creating new products; • Helping banks tap new markets; • Diversifying risk; and • Providing capital relief. • Supporting growth of capital markets. • Providing data and feedback on the market to industry and regulators. 5 Asian Development Bank

6. Initiatives to Address Affordability Challenges Long-Term Funding and Technical Assistance • Longer-term funding: • Fills funding gap for banks. Capital markets are typically underdeveloped; • Helps banks to extend longer-tenor loans hence improving affordability; and • Reduces asset liability mismatches. • Technical Assistance: • Strengthen mortgage underwriting and servicing; • Create new models for assessing risk from lower income/informal borrowers; • Better portfolio management; and • Help banks to provide new products for broader customer segments. 6 Asian Development Bank

7. Initiatives to Address Affordability Challenges Microfinance • Using microfinance institutions to help lower income borrowers: • Incremental building or home improvement loans; • Typically for existing customers with good repayment histories; and • Improves affordability. • Potential to scale-up: • MFIs need training; • Funding sources for MFIs can often be limited. 7 Asian Development Bank

8. Initiatives to Address Affordability Challenges Focus on the Fundamentals • To address affordability issues and to support inclusive growth in the housing markets, important to focus on the fundamentals: • Foreclosure processes; • Access to land; • Efficient and effective titling and registration; • Strong underwriting and servicing standards; and • Industry information and transparency. 8 Asian Development Bank

9. FOR MORE INFORMATION: Visit our website at www.adb.org or cengstrom@adb.org