housing policies recent developments in the peruvian economy, cecilia esteves, ph.d. (c)

7/31/2019 Housing Policies Recent Developments in the Peruvian Economy, Cecilia Esteves, Ph.D. (C)

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HOUSING POLICIES

Recent developmentsin the Peruvian economy *

Cecilia Esteves, Ph.D. (C)PROFESORA DE ECONOMA DE ESAN

[email protected]

Resumen Explica la evolucin reciente de las polticas habitacionales en el Per y, sobre estabase, analiza el desarrollo del sector inmobiliario residencial durante los ltimos cincoaos, considerando los factores financieros e institucionales que lo han propiciado. La

primera seccin describe el dficit habitacional del pas y hace un recuento de las ante-riores polticas de vivienda y del contexto en que surge el Fondo MiVivienda. La segun-da seccin describe la cadena de produccin de viviendas y el papel del mencionado

fondo. Finalmente, la tercera seccin est dedicada al anlisis de las polticas de vi-vienda y, particularmente, a los programas de financiamiento que ha implementadoel actual gobierno para convertir a la poblacin ms pobre en propietaria de casas-habitacin. Finalmente, el documento cierra con recomendaciones sobre lo que debehacerse para mantener los logros alcanzados.

* Una versin preliminar de este trabajo fue pre-

sentada a la conferencia anual de BALAS (TheBusiness Association of Latin American Stud-ies), realizada en Babson College, Boston, enmayo de 2004.

This document describes, in general, thebasic aspects as part of the housingproduction process to where Governmenthas focused its efforts to create a posi-tive atmosphere for private sector in-volvement as well as the governmentsown role and the support it provides.

It is very important to stress that, inthe medium term, it is the governmentsresponsibility to participate as a promot-ing entity, regulator, guarantor and a sub-sidy administrator wherever the produc-tive chain so requires, but not to engageactively by providing funds, preparingprojects, and building or selling houses,as the private sector has demonstrated it

can perform those roles with little or nocorruption, while reducing costs and op-erating efficiently.


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54 esan-cuadernos de difusin

1. A national issue

1.1. The housing deficit

The housing deficit concept describes thesegment of the population who lack ac-cess to property or to homes with the ba-sic technical characteristics that renderthem appropriate for living.

We can distinguish a quantitative anda qualitative deficit. The first one refersto the number of houses required so thatall the population may have access to ahouse. The qualitative deficit refers tohouses that do not meet certain minimumstandards, and may be located in shanty-towns, or are damaged improvised hous-es, etc.

The Housing Promotion MortgageFund MiVivienda Fund (MVF) is per-forming several studies to determine Pe-rus housing deficit, as well as demand fornew homes, including a study called Newhome market in six cities of Peru1 andothers covering Perus 16 main cities.

The objective of these studies was todetermine and locate the demand for hous-ing. The housing deficit measured byMiVivienda Fund reaches 2 699 971 hous-

es, as shown in the following chart.As shown, Lima makes up 18% of the

demand, while demand in all other citiesis below 10% of the total deficit.

It is important to highlight that othernon-governmental entities estimate the

housing deficit at around 1,7 million hous-es (Peruvian Construction Chamber,Capeco).

1.2. Housing policies: previousPeruvian experience

Housing policies are specific developmentinitiatives to reduce the housing deficit of a country. In what follows, we briefly an-alyze their present status and evolution inPeru, together with the national housingdeficit.

1. Marita Chang, and Cecilia Esteves. El merca-do de viviendas nuevas en seis ciudades delPer . Lima: Unin Interamericana para la Vi-vienda (Uniapriavi), 2003. Cuaderno 199-200.

Chart 1Housing deficit in the B, C and D

income groups of urban Peru

Deficit

Lima 477 647 18%Piura 217 481 8%Cajamarca 177 961 7%Cusco 170 755 6%Puno 170 632 6%ncash 135 379 5%Junn 135 228 5%La Libertad 121 041 4%Hunuco 119 498 4%

Loreto 108 932 4%San Martn 97 657 4%Ayacucho 89 092 3%Lambayeque 83 216 3%Huancavelica 82 888 3%Arequipa 74 931 3%Callao 74 325 3%Apurmac 70 432 3%Amazonas 61 558 2%Ica 55 472 2%Ucayali 54 458 2%Pasco 44 303 2%Tumbes 29 821 1%Tacna 18 934 1%Moquegua 14 558 1%Madre de Dios 13 770 1%

Total 2 699 971 100%

Source: MiVivienda Fund, 2003.


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In general, home building in LatinAmerica does not meet the peoples de-mands, either because the formal mecha-

nisms of house construction only reach asmall part of the population, ignoring itspoorest segments, or because informalmechanisms of house construction fail tomeet minimum safety and health techni-cal standards.

These problems started to aggravate inthe early 1950s, when migration flows tothe cities started growing at an exponen-

tial rate bringing with them a dramaticincrease in the housing deficit.

In Peru, housing policies were tradi-tionally managed by Government, whocreated banks to finance housing projectsand built houses directly. Governmentused to play an entrepreneurial role, dis-placing the private sector and taking in itshands the whole home construction chain.

Before the 1990s, the Government hadundertaken considered several plans toreduce the housing deficit. These initia-tives can be categorized in two groups.First, that financed the purchasing of newhouses and others for house construction.As part of its measures to finance housebuilding, Government successively creat-

ed a Mortgage Central Bank, a privatemutual system to finance home buildingfunded through a second-tier bank (Ban-co de la Vivienda or Housing Bank), andfinally, it implemented the National Hous-ing Fund (Fonavi) to provide funding forthe Housing Bank. For its own construc-tion efforts, the Peruvian Government cre-ated the National Construction and Build-ing Corporation (Enace) to build homesand then sell them at subsidized prices.

All these Government policies to tack-le the housing deficit issue were run di-rectly by Government, with minimum pri-

vate sector involvement. In a context of growing government bureaucracy, lack of incentives for change, an unstable andcorrupt political environment, the possi-bilities of success of the above-mentionedorganizations were seriously impaired.

Besides, these measures took place inan adverse macroeconomic context be-cause recession at the end of the eighties

(when GDP fell by 10%) and hyperin-flation (7 649%), hurt house financingsystems eventually leading to their finalcollapse. Additionally, the purchasingpower of Peruvian households wage earn-ers decreased about 60% while prices of building materials increased incessantly,affecting not only supply by Enace andprivate building companies, but also de-mand as revenues fell simultaneously andhome prices rose incessantly.

Likewise, the economic crisis affect-ed the quality of the mortgage portfoliomanaged by the Mortgage Bank and themutual system, as households falling in-comes led to increasing loan defaults. Asa consequence, the risk of this type of credits worsened, therefore reducing sup-

ply, since neither the Mortgage Bank northe Mutual Banks showed any interest ingranting house loans.

In the Mutual Banking system, thepoor performance of the old mortgageportfolio led to the need to create higherprovisions, leading to considerable loss-es in the Mutual system. Simultaneously,personnel and operational expenses in-creased.

Housing policies: Recent developments in the Peruvian economy


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The construction sector

The Peruvian construction industry is splitamong a number of small building com-panies, medium size housing developersand large scale traditional constructors.Given the crisis of the last decade, theyface daunting financial constraints pre-venting them from adequately managingtheir housing construction flows.

Medium size constructors used to

building small scale projects for thewealthier segments of the population andlacking sufficient creditworthiness havefailed to gain access to fresh project fi-nancing to become players in the expand-ing mass construction market of recentyears.

To address the builders financial con-straints, the market has seen a growingnumber of projects sold off architecturaldrawings2 aimed at building client trust inthe final product. Additionally, since the

constructor gains access to funding frompre-sales and loan takers receive extend-ed grace periods, builders only need toseek financing to cover only a small por-tion of their projects financing. Atpresent, off plan sales make up 56% of transactions.

Intermediary financial institutions, IFIs

A fast moving mortgage market in the1990s did not effectively expand access

to housing for the lowest income groupsbecause of their reduced ability to receiveloans. Traditionally, shallow bank pene-tration and a poor credit culture in theseincome groups strongly prevented themfrom considering formal housing as anoption they could afford.

Falling international interest rates, afaster US economy, lower Peruvian sov-


Perus home building market Graph 1

HOUSEHouseholds

Constructor

MiVivienda Fund

DemandSupply

2. Off plan house sales allow to raise funds forproject financing.

IFI


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ereign risk, and appropriate hedging forMVF-managed products, among otherfactors, have helped to improve the con-

ditions under which the poorest socio-economic segments can access homecredits.

Also, Perus Bank and Insurance Su-perintendent (SBS) has moved decisive-ly to increase transparency in client in-formation, leading to more uniform inter-est rates and fostering greater competitionamong financial institutions currently

operating in the finance market.In this context, the MVF and the IFIs

are developing two products to meet de-mand in poor areas: MiVivienda creditand the credit for beneficiaries of theFamily Housing Voucher Project. Thesetwo will be explained in more detail inthe following section.

2.2. Demand

MiVivienda Fund studied demand for newhouses in Lima. In its first phase, the sur-vey researched a total 1 200 households

from the B, C and D income groups even-ly distributed among the three incomegroups.

The main objective in calculating Li-mas demand for new houses is to deter-mine the price the B, C, and D incomegroups are willing to pay for a house. Thestudy assumes that the families who arenot home owners make up the potentialdemand for property.

Thus, potential demand for new hous-

es for Limas combined B, C and D in-come groups was estimated at 418 000houses distributed as follows by targetgroup:

Of the potential demand for new hous-ing, 14,4% comes from the B group(60 000), 37,8% from the C group(158 000) and 47,8% from the D group(200 000). As already mentioned, onlynon-owners are included as potential buy-ers, even when the market includes demandfor second homes, particularly in for the Bgroup that buys homes for residential aswell as speculative investment reasons.

Lima: Potential demand for new houses Graph 2

Source: MiVivienda Fund.

Group C158 thousand

38%

Group B60 thousand

14%

Group D200 thousand

48%


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However, it is even more important toexamine effective demand, or the popu-lation under study who are actually intend-

ing to buy a house and planning to do soearlier than in two years3. Only once thesetwo factors (disposition to buy and pur-chase opportunity) are taken into consid-eration, will it be possible to determinedemand for new housing in Lima.


Lima: Effective demand for new houses by income group Graph 3

The studies have estimated total ef-fective demand in Lima reaches 225 000houses.

Based on actual demand figures we canderive the number of houses the people wantto purchase in individual price ranges, andthus estimate total market demand (as rep-resented by a demand curve).

3. This paper assumes 24 months as the longest purchase period.

Lima: Cumulative housing demand from the B, C and D income groups (225 000 houses)

Graph 4


Group C88 thousand

39%

Group B35 thousand

16%

Group D102 thousand

45%

0 50 000 100 000 150 000 200 000

Number of homes

Price (US$)

90 000

75 000

60 000

45 000

30 000

15 000

0



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The government competitively selectsconstruction companies/developers inter-

ested in building social interest hous-ings projects on land grants where theyare asked to build the largest possiblenumber of houses while meeting bothtechnical and financial standards, includ-ing number of houses, cost, quality, andothers.

More rarely, local and regional gov-ernments identify unused (abandoned)

private land that is then handed over todevelopers for home building.

3.1.2. Support to builders

Project design

Supply for the B income group concen-trates on homes above US$ 40 000. For theC group, supply concentrates in the overUS$ 25 000 and underUS$ 40 000 USDbracket. Weak demand and cuts in infras-tructure building have hurt formal deve-

Prices (US$)

50 000

45 000

40 000

35 000

30 000

25 000

20 000

15 000

10 000

5 000

-

Lima: Demand for new houses from groups B, C and D (225 000 houses)Graph 5


Housing demand in the non-owningsegment can also be examined by income

group. Graph 5 reveals the proportionalsize of the population that demands anew house as much bigger in group D;however, the prices they are willing topay are lower than in the other socio-economic groups. On the other hand, wecan see that demand curves for the poor-est socio-economic groups reacts morebriskly at lower prices, while at thoseprices demand from group B is almost

stagnant.

3. Solution suggestions

3.1. Current housing policies

3.1.1. Land ownership

Many land plots are government-ownedand are registered as such by the Superin-tendent for State Property (Superintenden-cia de Bienes Nacionales, SBN).

- 20 000 40 000 60 000 80 000 100 000Houses

B C D


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lopers financially, leading to increasedinformal (self-start) house construction,as mentioned earlier.

An initial approach to reverse thistrend was to encourage developers to buildcheaper houses. They were proposed toincrease their earnings through massbuilding at slimmer margins, in otherwords, giving up their high unit marginsin compensation for a strong increase indemand, supported by a steady commu-nication campaign. An important step in

this direction was a study to determinecumulative demand in six cities (Lima,Arequipa, Chiclayo, Chimbote, Ica andTacna).

On the other hand, they were encour-aged to introduce new construction tech-niques to reduce costs per m2, though per-haps even more important were efforts tofoster creative designs to build houses onsmaller footage without detriment to ei-ther functionality or quality.

These goals were achieved while pre-serving MVF as a promotional agency andencouraging greater competition in thehouse building market. A good exampleof these results can be seen in tenders re-sults. Having to bid for construction prop-

erty spurred competition and drasticallyreduced costs per m2, compared to priorcommercial costs in similar areas.

Constructor financing

Meanwhile, off-plan sales promotionswere designed to address the constructorsfinancial straits, as described above.Builders had to finance only a small por-tion of the project, allowing them to makea profit. Off-plan sales now account for56% of all houses sold.

Project risk

Falling public investment in infrastructure

projects was crucial for builders as it al-lowed them to preserve their profit mar-gins, in particular at the beginning of the1990s. Reduced investment in infrastruc-ture building hurt some builders serious-ly and eventually led to their collapse.Against this background, MVFs initia-tives have not only brought the crisis un-der control, but have also made it possi-ble for these companies to become profit-

able again and even thicken their marginssignificantly.

Larger profits have not been their onlybenefit. Other benefits include a sharplearning curve as they learned to buildcheaper houses using new technologies,greater access to both credit for projectdevelopment and to markets previouslyclosed to them, and faster and cheaper reg-istration costs, and others.

All of this greatly reduced the per-ceived risks in urban construction projects,a development that has not gone unnoticedby potential home buyers and financialorganizations in the new house real estatemarket.

Marketing

A major government initiative to increaseturn over in private house building includ-ed advertising projects in the media, at realestate trade fairs and shops, and the MVFweb site4.

Additional publicity came in the formof morning live television broadcastsshowing high ranking government offi-


4. http://www.mivivienda.com.pe


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cials during their tours to inspect and com-mission project building works.

Financing for buyers

Real estate is an important driver of thePeruvian economy. In the last 12 months,the programs managed by the MVF havehelped to double the building industryscontribution to the Peruvian economy. Nev-ertheless, a major segment of the popula-tion nationwide does not yet receive financ-ing to allow them to own a house. To nar-

row this gap, MVF has created the MVPand TPP programs described above.

3.1.3. Subsidies

The following chart shows the presentstructure of Perus housing market, includ-ing the relations among players, and theirrespective market segments and position-ing. MVF appears as a non-production,investment entity. It plays a key facilita-tion role in matching supply and demandthrough its MVP and TPP programs sec-ond-tier loans channeled by IFIs to the B2,C and D income segments.

MiVivienda Loans

The product was designed under the

premise that the government should act asa facilitator and promoter. These loanproducts should be sustainable over timeto remove one of their main risk compo-nents.

MiVivienda loans provide funding toIFIs at a higher rate than the regular long-term rate from these entities. However,several collateral advantages allow themto make a profit, including lower loanrisks (one third subordinate or two thirdsproportionally), the matching of terms and

currencies, the Good Payer Refunds (PBP)and a free financial margin. An attractiveproduct design has lured already 34 IFIs

to affiliate with the MVF to place theirloans in almost every department (state)in Peru.

IFIs benefit from free margins they setthemselves competitively, and from loanrisk hedging, funding, currency matching,term matching, Good Payer Refunds, allof which translates into acceptable profitrates compared to the reduced risk they

take. In addition they are able to expandtheir client portfolio and reach new mar-ket segments through additional financialproducts.

Also, the IFIs benefit through theirother products. When customers choose anIFI to get a mortgage loan, they will usual-ly buy other financial products such ascredit and debit cards, consumer loans,Severance Payment Accounts (CTS), etc.from the same organization. A relationshipmay thereafter be built founded on the cus-tomers loyalty for the organizations thattrusted them. It is the IFIs decision to pro-vide them with all their products in an at-mosphere of cordiality and transparency.

We also have to understand that the

main objective of MiVivienda credit is tofinance the construction and purchase of new houses or expanding a previous con-struction. Eligible applicants must fill cer-tain standards5.

The value of the house6 to be pur-chased or built must not exceed 35 Tax

5. (i) Not having benefited from Fonavi or Ban-

mat programs, (ii) becoming eligible for an IFImortgage loan, (iii) not owning a house.6. Not including the value of the land and the val-

ue added tax.


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Units (UITs)7 and the down paymentshould not be less than 10% of the totalvalue of the house8. Nevertheless, borrow-ers can substitute their land plot for thecash down payment.

The maximum repayment term forFund loans to the IFIs, as well as the lat-

ters loans to direct beneficiaries, is 20years. End-beneficiary loans with terms10 years or longer are divided into twostages: the first one is the non-concession-ary stage, covering 80% of the loan, andthe second concessionary stage covers theremaining 20%.

Repayments for the first portion aremade monthly while for the second stagerepayments are made half-yearly.


7. US$ 32 130.8. The total value of the house does include the

value of the land and the tax.

Chart 2Structure of Perus Housing Market

Role 1st tier 2nd tier Type of Income

organization organization subsidy group

Consumer creditprovider

Commercial

credit provider

Micro-creditprovider

Banks

IFIs

Banmat*

Banmat

Banks

Consumerbanking

Cofide**(Coficasa)MiViviendaTecho Propio

PBPBFHBanmat

Banmat

A, B1, B2

B2, C1, C2C3, DD1, D2, E

Natural disastervictimsPayroll and self-employedworkers

Payroll workers(B2-D1)

Mortgage

Type of investmentNon productive investment (diminished borrower repayment capacity)

Productive investment (increased borrower repayment capacity)

IFIs

Multilaterals

Banmat

Cofide

Cofide(IDB, CAF***)

Banmat

Companies

Self-employedworkers (A-B)

Self-employedworkers (C-D)

* Banco de Materiales.** Corporacin Financiera de Desarrollo (Development Financial Corporation of Peru).*** Corporacin Andina de Fomento (Andean Development Corporation).


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Good Payer Refunds (PBPs) areawarded to payers who make their month-ly payments punctually during a full half-

year. They then become eligible for a con-cessionary installment for that period.Punctual borrowers therefore pay only80% of the corresponding total half-year-ly bill. The discount is transferred to theIFI that will in turn pay back only 80% of the initial loan granted by the Fund.

Although initially IFIs did not find theproduct attractive, through the Banks

Association (Asbanc) the MVF explainedthat despite more expensive MVF fundsthan the banks own long term financing,this greater cost was compensated by thelower risk the offered by the Fund, andthe PBPs lateral benefits to their clients.

Banks could therefore be free to chan-nel larger funds to other more lucrativesegments, would not run into major risk,and by eventually expanding their clientbase, could use their idle installed capac-ity. So the overall advantages exceeded thedisadvantages.

Interbank is an interesting case inpoint. Initially they did not show muchinterest in promoting the product and werelittle involved. At a special meeting, the

MVF explained the potential advantagesof selling the product and the benefits ob-tained by its competitors when develop-ing this market segment.

Starting from there, the change wasradical. This year they became leaders forthe number of loans awarded, and ranksecond for amounts of loans granted. Also,they bet on Techo Propio, the other Fundproduct targeting the poorest people of Peru.

Effects of the MiVivienda credit

A calculation of housing demand for this

program included in the demand surveymentioned earlier determined that effec-tive demand by the target segment of MiVivienda loans reaches about 145 185houses, of which 44% would be locatedin Lima and 66% in the provinces. If thePBP component is included, effective de-mand rises to some 189 150 new houses,43% in Lima and 67% in other cities.

The following chart shows PBPincreases demand by 30% overall, witha greater impact in the US$ 8 000-US$ 20 000 and US$ 30 000 - US$ 35 000brackets.

The Techo Propio Program (TPP)

MVF also manages the TPP targeting thepoorest segments and in particular house-holds with net monthly incomes around1 000 Nuevos Soles9.

The programs loans include a com-ponent from the beneficiarys savings, adirect subsidy (the Home Family Vouch-er, or BFH), and a loan component man-aged by the IFIs, except in the ZeroDebt system, where only the first two are

included.For first-home purchases the direct

subsidies are structured as follows: For new houses from US$ 4 000 to

US$ 8 000, a subsidy of US$ 3 600. For new houses from US$ 8 001 to

US$ 12 000, a subsidy of US$ 1 800.

9. US$ 287 at an exchange rate of 3,48 NuevosSoles to the US dollar.


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65 Housing policies: Recent developments in the Peruvian economy

Chart 3PBP impact on effective demand

Lima Other Urban Urban

Areas Peru

Effect of PBP

Between 8 000 and 15 000 5 022 6 550 11 572Between 15 001 and 20 000 3 946 7 273 11 219Between 20 001 and 25 000 2 870 1 259 4 129Between 25 001 and 30 000 717 3 114 3 832Between 30 001 and 35 000 2 870 4 490 7 360Above 35 000 2 152 3 701 5 853

Total 17 578 26 386 43 964


Without PBP

Between 8 000 and 15 000 9 686 15 679 25 365Between 15 001 and 20 000 9 327 11 429 20 756Between 20 001 and 25 000 11 121 16 766 27 887Between 25 001 and 30 000 10 403 13 188 23 592Between 30 001 and 35 000 8 251 8 722 16 973Above 35 000 15 067 15 546 30 613

Total 63 855 81 331 145 185

With PBP

Between 8 000 and 15 000 14 708 22 229 36 937Between 15 001 and 20 000 13 273 18 701 31 975Between 20 001 and 25 000 13 991 18 025 32 016Between 25 001 and 30 000 11 121 16 303 27 424Between 30 001 and 35 000 11 121 13 212 24 333Above 35 000 17 219 19 247 36 466

Total 81 432 107 717 189 150

Effect of PBP%

Between 8 000 and 15 000 51,9% 41,8% 45,6%Between 15 001 and 20 000 42,3% 63,6% 54,1%Between 20 001 and 25 000 25,8% 7,5% 14,8%Between 25 001 and 30 000 6,9% 23,6% 16,2%Between 30 001 and 35 000 34,8% 51,5% 43,4%Above 35 000 14,3% 23,8% 19,1%

Total 27,5% 32,4% 30,3%


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Within the ranges indicated, the sup-ply has concentrated on houses cheaperthan US$ 8 000, in order to get the largest

possible subsidy.The target population for this program

is in the C2 and D income groups whoshow the largest housing deficit. BFH sup-plements the borrowers incomes to makeapplicants more easily eligible for loans.

Additionally, there are alternativeways for granting the subsidy to poor fam-

ilies who are already eligible for a loan,or who own a house or a land plot and

Chart 4Products managed by MVF

TechoPropio

HomeFamily

Voucher(BFH)

20% of loan(Under 3% on the

interest rate)

US$ 1 200 Homeimprove-ment

Up toUS$ 8 000

D1-D2

Product Subsidy AmountsubsidizedValue of

constructionRequisites Income

group

MiViviendaloan

Good PayerRefund (PBP)

Up toUS$ 32 000

(35 UIT)

Non-owners B2-C1

Product Subsidy Subsidyamount

Types House value

Non-owners(land orhouse)

Incomegroup

TechoPropio

Zero DebtUS$ 3 600

Up toUS$ 4 000 D3

FromUS$ 4 000 to

US$ 8 000

Newhome

purchase

FromUS$ 8 001 toUS$ 12 000


D1-D2US$ 3 600

FromUS$ 4 000 to

US$ 8 000

US$ 1 800 C2-C3Non-owners

(land orhouse)


D1-D2US$ 2 800

US$ 1 400From

US$ 8 001 toUS$ 12 000


C2-C3


Construc-tion on

property

wish to build on them. The following chartsummarizes these options.

Effects of the Techo Propio Program

The MVFs demand surveys examined theimpact of the Family Housing Voucher(BFH) on effective housing demand inPeru. Graph 6 describes the two impactson effective demand:

The first one is a surplus for subsidizedhomes that may be invested in house im-

provement or extension. TPP project de-sign is crucial as regards surplus invest-


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ment to prevent these funds from beingused in alternative activities, and therebywasting the loans social efficiency.

The second effect is the larger demandresulting from granting the BFH, or anadditional 30 000 houses.

This demand was determined onlyconsidering the population earning under1 000 Nuevos Soles who are willing andable to purchase a house, as explainedbefore.

Banco de Materiales (Building Materials Bank)

The Banco de Materiales (Banmat) ad-dresses the problem of the construction,extension and improvement of basic hous-ing by providing loans in kind, i.e. build-ing materials.


BFH impact on effective housing demand in Lima Graph 6

0 20 000 40 000 60 000 80 000 100 000

Number of houses

Price (000 US$)

14

12

10

8

6

4

2

0


Banmats main funding source is a re-volving fund created by contributions tothe Fonavi National Housing Fund, and

additional contributions from Enace,MiVivienda, and others.

These loans target the poorest incomegroups through i) the Progressive HouseBuilding Program (individual loans), andii) the Basic Housing Program (loans togroups of people, associations, housingcooperatives, etc.).

Banmat awards direct loans to borrow-ers with a high delinquency potential.Because they require frequent debt re-scheduling and write-offs, these borrow-ers may have a negative impact on theculture of repayment, mainly in the D in-come group targeted by TPP loans.


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3.2. Results

MiViviendas mortgage portfolio has

grown steadily and shows the lowest de-linquency rates in the mortgage loans seg-ment, with rates under 1%.

Meanwhile, in its first year the TechoPropio Program assisted over 9 000 poorfamilies mostly for new home purchases.

Candidates apply for the subsidy atmonthly calls for applications. After check-

Source: MiVivienda Fund, 2003.Credits granted

Graph 7

Delinquency rate Graph 8

TOTAL 20 392

Credits granted

9 000

8 000

7 000

6 000

5 000

4 000

3 000

2 000

1 000

0

200

180

160

140

12060

40

20

0

1999 2000 2001 2002 2003 2004

Credits Mill. US$

Source: Asbanc, 2004.

8%

7%

6%

5%

4%

3%

2%

1%

0%

MV mortgage loans Mortgage loans Mortgage loans (without MV)

Aug-02 Dec-02 Mar-03 Jul-03 Oct-03 Jan-04 Apr-04 Jul-04

Delinquency Level0,24%


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69

ing compliance with loan requirements,eligible families receive their HousingVouchers. The vouchers are distributed

daily and therefore there is no accuratefigure for the number of beneficiary fam-ilies.

Although these two programs havedramatically increased the supply of homes in Peru, some 90 000 houses mustbe built every year just to close the exist-ing housing gap.

An MVF study underway aims at de-termining the returns to Government in-

vestment in both the MVP and TPP pro-grams, together with ongoing monitoringand follow-up of TPP beneficiaries to

provide the baseline for a subsequent as-sessment of the programs impact on theassisted populations.

MVF programs create a return flow of government revenues either from MVPbeneficiaries to the IFIs and then back tothe Fund, and as national (federal) andas local taxes, rates on city services,property registration fees and other con-

tributions to either the central or city gov-ernments.


BHF assigned (October 2004)Graph 9

New supply of homes in Peru Graph 10

New supply

32 448

TOTAL 41 543houses offered

in 2003

9 095

Under review

8 415Definitive

963Source: MiVivienda Fund.

TOTAL 9 378BFH awarded


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Ao 9, n. 16, junio de 2004


Moreover, these programs have a di-rect impact on the construction and finan-cial sectors and through them on the econ-

omy at large. This impact may be quanti-fied by determining the multipliers for theindustries directly involved in housebuilding.

4. Development outlook

The time has come for restructuring Pe-rus mortgage market. Several Latin

American countries have pulled ahead indeveloping housing plans and classifyingtheir markets, and the MVF can benefitfrom their experience.

Government should not be involved infirst-tier banking to avoid creating a per-ceived credit-State link that createsa poor repayment culture and hampersprivate capitals from flowing to this in-dustry.

The proposed changes are a task forthe housing sector that would thus fostera secondary mortgage market, with thefollowing advantages:

Better risk management for lenders inthe primary market and lower credit

risk for participants. Easier access to more resources for

the housing industry that those avail-able in local banks.

Access to financing through the capi-tal market.

Better quality and cheaper financingthanks to safe property titles issued byeither MVF or other agencies.

Reduced cost of default provisions byeliminating the lenders portfolio risk.

Lower intermediation costs to the fi-nal borrower, by reducing the cost of access to the system and consequentlyincreasing the number of potential ben-eficiaries.

New long term investment options toinstitutional investors.

Increased funds to replenish MiVivi-

enda sources.To the extent possible, market makers

should act decisively to guide the finan-cial market to adopt the structure de-scribed in the following chart:

For that purpose, the following initia-tives may be taken:

Removing government from first-tierfinancing operations and allow freeprivate competition in this environ-ment.

Creating a financial fund with privateparticipation (multilateral entities toreduce the risk perception, among oth-ers) to provide funds for mortgage fi-

nancing, since MVF s remaining re-sources, at the projected rate of loanawards, would be depleted by the endof 2005. Replenishing the MVF isnot possible from the resulting mar-gins because the subsidized borrowerrate does not allow to reach the mini-mum profit rate required by inves-tors. In future, this fund would neces-sarily be aimed at developing the sec-ondary mortgage market, by securi-tizing mortgages bought from the


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Ao 9, n. 16, junio de 2004

71 Housing policies: Recent developments in the Peruvian economy

banks, and thus lure government andprivate capitals. It would also helpavoiding short and medium term in-vestment and fast turn over of a sig-nificant portion of these financial re-sources (through financial leasing andcorporate bonds, among others).

Operating the MVF as a credit qualityimprovement agent through the great-er long term stability provided by theprivate fund described above. Bettercredit resulting from increased stabili-ty provided by the private fund wouldallow reducing investor risks and con-

Chart 5Peruvian financial market

Lists First tier Second tier Subsidy Segments

Micro-credits

ConsumerBanking

Cofide(Coficasa)

(Secondary marketfund with private/ MV participation)

Banmat (Naturaldisaster insurance

fund)

Natural disastervictims

Mortgage

Type of investmentNon productive investment (lower borrower repayment capacity)

IMFs

Banmat (exit)

Cofide(IDB, CAF)

Companies Self-employed

workers (A-B)

Payroll andself-employed

workers

A, B1, B2

(B2, C1, C2)

MiViviendaI roof Own

(MVF improvementand supplier

subsidy)

B2, C1, C2

C3, D

D1, D2

PBP

BFHBanmat (Mergedwith improvement

fund)

Banks

IFIs

Banmat (exit)

Banmat (exit)

BanksConsumer Loans

Clerks (B2-D1)

Productive investment (increased borrower repayment capacity)

Commercialcredits

IFIs Cofide

Self-employedworkers (C-D)Banmat

(Productivehousing voucher)

(MVF improvement

and suppliersubsidies)


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sequently use the resulting mortgagesfor the poorest income groups.

Creating a special insurance fundagainst natural disasters, thus remov-ing the implicit risk created by naturaldisasters affecting the normal flow anddirection of future funds capitals.

Enhancing productivity among theneediest to reduce the default risk dur-ing the mortgage loans life. A specialvoucher for micro-credits may improve

the beneficiaries ability to honor theirrepayment commitments and reducedefault risk since the final risk wouldfall on the credit quality improvementfund.

In its role as mortgage market promot-er, the MVF has taken steps to develophousing solutions along the productionchain, from the early builder/developer stage,through demand organization and induc-tion, to linkages with private financing.

Since its inception, the MVF has beenable to create a link with citizens, manu-

facturers and financing entities in the pro-duction chain. Now, it should grow to be-come a market catalyst, because surviv-

ing housing price and purchasing processdistortions preclude potential buyers frommaking purchasing decisions based onquality information.

To correct the present situation, theMVF must promote market transparen-cy for buyers to make better purchase de-cisions. In addition to transparent dissem-ination of price and process information,

research about and involvement of largescale passive investors in this industryshould be encouraged.

To adopt its new role as informationbroker, market catalyst, risk improver,and champion of the secondary mortgagemarket, the new MVF must address theneed to create the necessary capacity togather information about potential hous-ing clients, suppliers, tender bidders, andopen the option for very-large scaleprojects involving other organizationsthat can support using new products indeveloping the mortgage market.

housing policies recent developments in the peruvian economy, cecilia esteves, ph.d. (c)

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