International Finance Corporation is looking at supporting affordable housing in the Rs 5-7 lakh range for the lower-middle and less-affluent segments.

Is not a house with a ceiling fan more ‘green' than one with a power-guzzling air conditioner, asks Mr Prashant Kapoor, Senior Industry Specialist, International Finance Corporation (IFC), Washington.

IFC, which has embarked on a major initiative in the housing finance sector in India for the first time, for the investment arm of WB, is looking at supporting mass housing and ‘truly affordable housing'. Dovetailed with this initiative will be efforts to keep the housing projects it supports in line with appropriate green building initiatives — environment-friendly, energy, water and other resources-efficient structures — that minimise the environmental impact of built-up space.

It plans to work with multiple agencies, including the authorities, and with private sector players — though conditions apply. IFC will involve at various levels, including regulatory, skill upgrading and financing, as a part of this plan.

AFFORDABLE HOUSING

In a telephone interaction mediated by IFC officials in India, Mr Kapoor, who has specialised in the affordable housing segment, outlined some of IFC's plans to support the affordable housing projects targeting the lower-middle and less-affluent segments — possibly housing in the Rs 5-7 lakh range — where there is virtually no supply, with the market focussed on the upper-middle and affluent segments.

IFC is keen on supporting the private sector house builder, who is capable of delivering value housing, rather than the run-of-the-mill developer who speculates on the value of land, he cautions.

It will bring in the expertise it has built up internationally, particularly in economies in Latin America and South East Asia, where they have solved the problem of affordable housing, despite high GDP growth rates that are driving up costs.

They have approached this by being ‘industrial in processing' in real estate development. Speed is the key as ‘cost increases with time'. They peg the gross and net margins in advance, keep the project cycles short, use prefabricated construction, and deliver the products in less than a year.

The investment arm of WB is working with the National Housing Bank on a report for addressing affordable and environment-friendly housing.

REGULATORY INITIATIVE

IFC will also address the regulatory side by working with the authorities concerned on the mandatory minimum standards of efficiency. It has built up experience in Indonesia and other countries, and is keen on bringing similar initiatives in India and China.

As compared with the existing area of built-up space, the new supply will be much bigger. “India is yet to be built” and this is the right time to intervene, to ensure that the incoming supply is of the right kind, he says.

IFC, which has built up expertise in mass housing and green buildings, hopes to work at the ground level, apart from Central Government institutions such as the Bureau of Energy Efficiency.

While IFC will work with agencies such as the Bureau of Energy Efficiency, its focus will be more on working at the ground level with State-level agencies. It is keen for ‘traction at the ground level'. State governments such as Rajasthan, Gujarat and Tamil Nadu are moving in the right direction, and can benefit from support in developing knowledge in human resources among the authorities.

FINANCING

It is looking at a line of financing that lays emphasis on green housing. IFC is talking to some developers in major cities to explore opportunities for direct financing of projects.

During the last two years, it has a taken a ‘systematic approach' to this, and has been monitoring developments in the markets here. It hopes to pursue this line, and is in talks with leading developers and banks, including refinance institutions and private banks and developers, according to Mr Prashant Kapoor.

IFC is looking at basic standards — along the lines of the rainwater harvesting initiative, solar water heaters for homes.

Typically, in Colombia for instance, where the average income is approximately $200, more than 20 per cent of the income goes to energy. If basic measures can help save energy costs, at least 50 per cent, it would significantly add value to the residents. There is a significant impact; it actually makes bank mortgages safer.

Financial instruments such as the ‘green mortgages' are needed to support green buildings.

MORTGAGE GUARANTEE

It is partnering with the National Housing Bank to set up a mortgage guarantee company, IMGC India.

According to information available on the IFC website, this will be a Public-Private Partnership between NHB, IFC, Asian Development Bank and an international mortgage insurance holding company, Genworth Financial International Holdings, a part of the US-based Genworth Financial, a financial services company.

IMGC will provide credit risk coverage to residential mortgage lenders, to protect them in case of borrower default. IFC will invest Rs 80 crore during the next five years, to take up to 19 per cent equity stake in the company, to be headquartered in NCR, Delhi.

Although IFC hasn't invested in mortgage guarantee companies so far, IFC's experience in the housing finance sector and in general financial institution building has helped in specific areas of project design, governance structures and financial evaluation. IFC may also support IMGC through a programme of counter-guarantees that would enable IMGC to expand its ability to support the mortgage guarantee sector in a financially effective manner.

It will have a development impact in enabling home ownership for middle-income households and first-time buyers, and will enhance the financial market for housing finance and standardise lending practices.

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(This article was published on December 17, 2011)
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