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Similar a Gwinner Cape Town Sept 27 Final
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Gwinner Cape Town Sept 27 Final
- 1. 1 Housing Finance After the Crisis Britt Gwinner September 27, 2011
- 2. Agenda About IFC Urbanization marches on - in emerging markets Finances after the fall (of 2008) – liquidity looks for a home, focus on primary lenders, local investors What to expect in the medium term – volatility in developed world financing, persistent demand for housing in emerging markets 2
- 3. About IFC 3
- 4. IFC Finances Development IFC promotes open and competitive markets in developing countries Direct equity, debt, and hybrid investments Advisory services, standard-setting, business enabling environment work USD 61 billion in assets AAA long-term debt rating Member of the World Bank Group 4
- 6. Wholesale financing of primary lenders
- 7. Reduce barriers to doing business via advisory services
- 8. Focus on low/medium income households, base of pyramid
- 10. Urbanization marches on 7
- 11. 8
- 12. Urban population change 2010-2050 9 United Nations: World urbanization, total change in population between 2010-2050 by region in millions
- 13. The Results of urbanization? 10
- 14. Cities grow with income, so do markets for construction & housing Household incomes have risen with urbanization Higher pay, productivity in cities – in 2007, >1/2 of global GDP came from the top 600 cities* World Bank Data Visualizer http://devdata.worldbank.org/DataVisualizer/ (GDP per capita on X axis, % Urban pop on Y axis) *McKinsey Global Institute 11
- 15. Rising urbanization presents an opportunity for growth 2/3 of a company’s revenue growth results from growth of the market where it is positioned Rental and owner-occupied housing markets will grow Emerging market mid-sized cities to contribute nearly 40% of global growth 2007-2025 By 2025, 235 million emerging market households earning >USD 20,000 per year 98 North American cities to contribute almost 10% of global growth 2007-2025 Source: McKinsey Global Institute 12
- 16. HOWEVER… 13
- 17. 14 Urbanization has been badly managed 1/3 of emerging market houses are substandard 28% of East Asians 61% of Sub-Saharan Africans
- 18. 15 Weak planning leads low-income squatters to occupy hazardous land
- 19. Shoddy, informal construction is a serious risk 16
- 20. Slums keep people poor Self built houses cost 30% more than industrially built Sub-standard houses are bad for your health In Guatemala, 35% of households cook over charcoal – more respiratory ailments* More diseases in houses with dirt floors and inadequate sanitation Low density in emerging market mega cities adds to transport problems, air pollution, and higher costs to extend water and sanitation services 17 *Source: United Nations Habitat
- 21. Limits of Mega cities Traffic gridlock, housing shortages, pollution How to sustain growth? Economic performance – how do public systems support or detract from productivity? Transportation, utilities The quality of life experienced by citizens Green spaces, ease of circulation, prevalence of crime Sustainable resource use Clean production, solid waste management, air pollution Strength of finances and governance Transparency, stakeholder consultations, public/private collaborations 18
- 22. Finances after the fall (of 2008) 19
- 23. Overleveraging is Unresolved Key sectors: households and commercial real estate in the U.S., U.K., and Spain Government debt has replaced private in the crisis – bank, auto industry bailouts Deleveraging is a brake on growth and recovery Subprime a middle class phenomenon – reduces likelihood to clear debt by defaulting An average of 6 years to deleverage from past bubbles Much lower leverage in emerging markets, lower pressure to deleverage Source: McKinsey Global Institute 20
- 24. 21 Data for 2008; Source: McKinsey Global Institute
- 25. The 2008 Crisis and Housing Finance No real estate bubble in most emerging markets Housing demand persists especially among low/moderate income households Housing deficits, rising urbanization, rising GNI & disposable income Capital market funding will be important as banks exhaust short-term deposit bases Securitization, covered mortgage bonds, general obligation bonds 22
- 26. Lessonsfrom 2008 (and Aug., 2011) It will take years for real estate markets in the U.S. and Western Europe to recover from the bubble Implies important changes in expectations and practices for lenders and for capital markets The push for home ownership can be overdone Capital markets are susceptible to volatility and fads Events in other countries can affect your market Mexico did not have sub-prime mortgages, but its non-bank lenders lost access to capital markets in 2008 Non-bank primary mortgage lenders need alternatives to capital markets Investors with deep pockets such as life insurers - Panama Liquidity facilities, 2nd tier securitization companies – Malaysia, Colombia 23
- 27. Policies that expand real estate finance Macro economic stability - lower real interest rates make long term finance feasible Chile, Mexico, Brazil, Colombia, Indonesia, India, China, etc. Improve legal and regulatory structures of real estate markets Efficient land use planning, title registration, contract enforcement Promote strong primary lenders – banks and non-banks Encourage rental housing – makes more sense for many low income households Enable a range of long term fixed-income instruments, and a range of credit ratings Chile – 1980s private pension funds, use of letrashipotecarias Securitization, covered bonds, funds, REITs – issuer chooses best execution Promote secondary bond market liquidity Benchmark government yield curves – extend maturity, issue with consistent frequency to promote liquidity Strengthen securities exchange transparency, efficiency 24
- 28. What to expect in the medium term 25
- 29. Double dip to the great recession? Fiscal policies hinder growth in mature markets 2011-2013 est. 2.6% growth mature economies, versus 6.1% for emerging economies (IIF) OECD expects EUR 3 economies to shrink 4Q 2011 Fiscal weakness, political uncertainty slows mature economies’ recovery – Euro area debt crisis, U.S. debt cap crisis & downgrade, spending contractions Natural disasters do not help – Japan’s earthquake Asset price volatility August 2011 Closed capital markets, regulatory changes accelerate bank deleveraging - net negative lending in Europe and the U.S. 26
- 30. Deleveraging slows recovery 27 Bank lending falls Source: Institute for International Finance
- 31. HousingFinance and Growth In emergingmarkets, housingfinanceisrelatedto new construction and as a resultfixedinvestment, and generallywithdomestic inputs, both labor and materials In developedmarkets, housingfinanceis more linkedto trading of existinghousing and economiccycles In the U.S., there are 7 million new mortgageloanseachyear, 6 million of which are forexistinghousing In developedmarkets, real estate and relatedservicescountforbetween 2% and 4% of PIB In the U.S., 8 of 10 recessionssince 1949 were proceded byreductions in residentialinvestment 28
- 32. Who can shop for a new house? 29
- 33. Growth prospects lead to rising capital flows to emerging markets 30 Source: Institute for International Finance
- 34. 31
- 35. Growth prospects lead to rising capital flows to emerging markets Private capital inflows to emerging economies revived sharply in 2010 expected to be buoyant in 2011 and 2012 Emerging Asia to grow 8% 2011 & 2012; China accounts for about 30% of all private capital inflows to major emerging economies, 2x Brazil and 3x India Domestic credit is expanding in emerging markets Markets IFC sees as attractive for housing South Asia East Asia Latin America Africa 32
- 36. Conclusions The best economic growth prospects are in emerging markets But emerging housing markets have not historically attracted as much formal investment as needed How to have a healthy housing boom: Improve urban planning, better organize land markets Create regulations, public services that facilitate responsible building and financing Create strong domestic lenders with robust links to domestic and international capital markets 33
- 37. Thank You W. BrittGwinner Principal FinancialSpecialist International FinancialCorporation wgwinner@ifc.org 34
Notas del editor
- I wanttospeaktodayfrom my experiences in housingpolicy, housingfinanceregulation, and nowdirectly in housinginvestments and giveyou a sense of where I findoptimism in a volatile and complexeconomicenvironment.In short, the 2008 financial crisis didnotchangethe fundamental demandforhousingthatexists in emergingmarkets, and on-goingeconomicturmoilisunlikelytochangethetrendtowardsgreaterurbanization. Policymakers can actnowtoencouragegrowth in formal sector social housing, and so contributetothegrowth of theirowneconomies in theface of maturemarketturmoil.
- Onemajorresult has beengrowingincomes & wealth
- Lower leverage in emerging markets – results partly from wise management of public debt, limited development of private debt markets, limited bank access (+/- 30% access to banks in Latin America, less in South Asia, parts of Africa)
- Since mature markets have high quality housing stocks, mature residential real estatedvlp addresses population expansion – but as we saw earlier, urbanization in mature markets is largely complete. So the bulk of financing transactions in mature markets are for existing, used housing. But emerging markets have low quality housing stocks – between 30% and 60% substandard, and their populations are young and expanding. Combine urbanization, household formation rates, smaller households, and rising real incomes and you get persistent demand for new housing. In emerging markets, 90% or more of mortgage transactions are for new construction.
- Kenneth Rogoff: “The phrase “Great Recession” creates the impression that the economy is following the contours of a typical recession, only more severe – something like a really bad cold. That is why, throughout this downturn, forecasters and analysts who have tried to make analogies to past post-war US recessions have gotten it so wrong. Moreover, too many policymakers have relied on the belief that, at the end of the day, this is just a deep recession that can be subdued by a generous helping of conventional policy tools, whether fiscal policy or massive bailouts.But the real problem is that the global economy is badly overleveraged, and there is no quick escape without a scheme to transfer wealth from creditors to debtors, either through defaults, financial repression, or inflation.A more accurate, if less reassuring, term for the ongoing crisis is the “Second Great Contraction.” Carmen Reinhart and I proposed this moniker in our 2009 book This Time is Different, based on our diagnosis of the crisis as a typical deep financial crisis, not a typical deep recession. The first “Great Contraction” of course, was the Great Depression, as emphasized by Anna Schwarz and the late Milton Friedman. The contraction applies not only to output and employment, as in a normal recession, but to debt and credit, and the deleveraging that typically takes many years to complete.”
- The contraction in credit implies that businesses lack the confidence to borrow, and that consumers and businesses are more concerned with deleveraging than with losing growth opportunities. It is likely to take years for this confidence to return.
- Housing finance and residential construction can be a growth engine for emerging markets – it has been for many cycles in the U.S. (Ed Glaser) but overbuilding in the U.S. and Europe imply a limited role for real estate in mature markets
- Improved growth prospects for emerging markets for the near term, but not necessarily forever.As Dani Rodrik noted in his blog in July, many emerging economies remain fragile, and a significant part of growth in emerging markets comes from strong commodity price cycles, which can reverse if mature economies remain weak or if China slows down significantly. “Growth in Latin America and Africa is fragile; much of it is making up for lost time rather than real convergence. Asia, I am more optimistic about. But growth in Asia has required unconventional policies (undervalued currencies, industrial policies) that will be difficult to rely on in a world where rich countries are facing economic crises. Ultimately, greater convergence in the post-crisis global economy appears inevitable. But a large reversal in the fortunes of rich and poor countries seems neither economically likely, nor politically feasible.”
- South Asia - India – pop 1.2 billion, Mortgages 4% of GDP - IFC actively supporting NDHC, Dewan housing, others, to issue small mortgages for low income householdsEast AsiaIndonesia – pop 232 million people, mortgages/GDP 2.9%, commercial banks >1/2 of GDP, 2ndary mtg co estab., private pension funds, mid-2000s shift from public lenders to private for mortgage origination, mortgages small at 8% of total loans 2009, but doubled from 2002 China – more problematic with questions about asset price bubbles in some cities, volatility around property developer shares as CBRC apparently seeks to restrict real estate lending – mortgage pricing has been a problem in the recent pastLatin AmericaMexico – persistent demand, comeback for moderate and low-income segments as surviving NBFIs can attract capital or merge with banks Colombia – persistent demand, limited addressing of moderate-income segments by banks Peru – persistent demand, liquid and well-capitalized banking system, prices rising around Lima, risks around copper/gold pricesAfricaSouth Africa – IFC investmentssuchas South African Home Loans, 1st RMBS SAfrica, 2001East Africa – IFC USD 100m for KCB's mortgage and small and medium enterprises business in Kenya, Rwanda, Southern Sudan, Tanzania and Uganda- Nigeria – big potential, more difficult to follow through immediately given issues with land market, financial system structure