Financial-credit mechanisms of affordable low-rise and cottage housing: international experience and proposals to the government

06.07.2010 11:29
Such was the theme of speeches by Valery Omelchuk at a seminar on the market low-rise buildings.

Housing construction is one of the most important tools for solving the housing problem in Ukraine, which is known, is one of the most painful in the social sphere of our country. Problems of housing, thanks to its particular socio-economic importance extends beyond the construction industry. Housing construction - is one of the national priorities of reforming the social and economic foundations of Ukraine and ensuring the constitutional rights of every citizen of Ukraine for Housing (Article 47 of the Constitution of Ukraine).
The problem of affordable low-rise housing is not just about finding ways to reduce construction costs. Whatever technology is used by builders - house at all times and in all countries has been and probably for a long time to be an expensive commodity. To low-rise housing was really affordable, it is necessary not only to introduce effective construction technologies, but also to apply appropriate financial mechanisms. Appeal to the international experience has revealed that international practice is not using the special financial arrangements to improve access to the segment of low-rise and cottage housing: they are common for the housing market as a whole and make those or other options for housing mortgages.
It should be recognized that today in Ukraine there are no effective financial market for affordable housing, especially in the segment of low-rise and cottage construction. Mortgage banking is focused on the redistribution of an existing dwelling, its enabling role in housing is much overrated. In 2007, only 7.7% of loans have been provided for housing earmarked for the purchase of new housing that is formed effective demand in the market of primary residence, in 2008 this figure dropped to 7% in 2009 - up 5.8 %. Mortgage lending to low-rise and cottage construction - to recognize themselves banking analysts - are fairly rare and isolated cases. This is evidenced by the lack of standardized banking products in this segment. Therefore, bank mortgage lending for a long time can not be a mechanism for the development of cottage and construction of low-rise affordable housing.
Some understanding of this problem is found in Russia, where in 2000 a group of scientists headed by Academician VM Polterovich (O.YU Starkov, AV Chernykh, Polterovich) active development perspectives of different bank mortgage lending market instruments affordable housing. The main conclusions, substantiated the above and several other Russian scientists, published in a series of scientific papers (2004-2007 years) is completely up to date and to Ukrainian realities can be reduced to the following two provisions:
1) transplantation of mortgage banking, in particular its two-level model in the "underdeveloped" economies proved to be ineffective in most cases (investigated 125 cases of attempts to introduce this institute were all ineffective in terms of the mortgage as a financial mechanism of the affordable housing market;
2) mortgages, in order to become a mass, must necessarily pass the stage of formation and development of so-called mortgage-loan-credit institutions, such as proposed for implementation in the first part of the individual experiments, and then nationally.
In fact, based on the developments of these groups in Russia is considered a federal law "On Bausparkasse. At the present stage of S & L lending institutions affordable housing market in the rapidly developing countries such as Slovakia, Czech Republic, Hungary, legislation passed in China, Romania and Kazakhstan, but in the past - designated institutions have not yet acquired sufficient distribution.
Statistics show that the institutions of credit and loan type, in particular budoschadkasy were more resistant to crisis, than a bank mortgage. In particular in the Czech Republic and Slovakia, for the six months of 2009 compared to the same period of 2008 to reduce the rate of lending was 25% and 27% respectively compared to 83% decrease in lending in Russia, 53% - in Poland and 95% reduction of mortgage contracts in Ukraine (in all three countries, the main institution of mortgage lending is the bank mortgage. Although these institutions are not exactly specialized in lending to the acquisition of low-rise housing and cottage-type housing, in many cases in Germany, Austria and to a lesser extent in the Czech Republic, Slovakia and Hungary, they are the major institutional investors in this segment of the housing, they also provide the effective demand for newly built low-rise housing and improve its accessibility to the public.
On the basis of developments VM Polterovich and his team in Ukraine adopted the Concept of development of housing cooperatives and the introduction of residential construction and savings banks in Ukraine, but also practical ways to implement it has not yet been developed.
It should be noted that according to the concept, as in the corresponding Russian law can be traced some inconsistency methodological plan. Sam Polterovich V. and his group, which are "ideologues" of both regulations, quite rightly point out that it is necessary to transplant is not the most advanced mortgage institutions, since they require a sufficiently developed institutional environment that does not exist in Ukraine. At the same time a proposal for the introduction of S & L building desks is nothing like the proposal to introduce the most advanced mortgage credit institution loan-type. If you look briefly at the evolution of credit and mortgage lending institutions, it begins with the construction companies and cooperatives. Last fall into cooperatives, which are being closed, serial and continuous. The co-op of the first type all the members come into it at the same time, after they have housing - co-operative wound. In the batch co-op new members are taken in series (cohorts), after receiving a series of housing was adopted following a cohort of participants. In the continuous co-op admission of new members is constantly (continuously). Budoschadkasy emerged precisely as a continuous development of credit and housing cooperatives. The main difference between them: co-op housing is owned by the cooperative until full repayment of the loan, the home-savings bank - owned by the borrower, with whom a mortgage agreement. In low culture borrowers and undeveloped Institute penalty appeals for a mortgage in the event of insolvency of the borrower to repay the loan, taking place in Ukraine - the development of credit and credit institutions, the housing market to start from a certain "hybrid" continuous cooperatives and cooperatives, which are being closed, which subsequently could b transformed into a more developed institution - budoschadkasu. The bulk of the participants of this institute is to do both at the time of the creation of cooperatives, making a kind of "core", but later in a cooperative appropriate to provide opportunity for continuous introduction of new members.
For the segment of the construction of low-rise housing credit and building societies are probably the only viable institution to ensure supply and flow of financial resources, since the same budoschadkas significant risk orientation on the redistribution of existing housing rather than building new.
However, without the participation of the state credit and housing cooperatives are not able to function. The adopted concept can be traced a certain asymmetry: for budoschadkas stated public support in the form of premiums on deposits, while cooperatives are no state action to support them is not provided.
What can be done today a state? Main objective: to attract funds from the public sector in low-rise affordable housing. Obviously, the value of financial flows will be proportional to the availability of housing. Therefore, government action should be concentrated to increase the availability of new housing. The cost of the permits for the construction of housing and related approvals analysts estimate of 30% of the cost of the building. Then we get a significant reserve to reduce the cost of new housing.
Assessing the actual situation, we must recognize that in order to low-rise housing more affordable, should use all available tools, in particular, and low cost tools and features of the banking system.
Just under a single budget, builders, banks and building savings cooperatives will be able to give an impetus to build truly affordable for citizens of low-rise housing.
The overall financial framework of the designated system approximation may be filed in the following provisions:
member of the cooperative is implementing a program of savings (or make one-time contribution) to 30% -50%. Calculations show that the greatest effect of state support is observed for a full or partial funding is an initial payment at the expense of budget funds;
after accumulating a down payment party concludes a credit agreement with the cooperative for half the amount that remains, and gets right to reside in the house, which remains the property of the cooperative before the end of the loan repayment;
the rest of the amount of party concludes a credit agreement with a bank in which the cooperative is to sponsor and as a pledge offers a home that stands out party. For the bank less risky to enter into credit agreements with one subject than many individuals. Additional risk reduction is much lower cost of credit relative to the value of the property (may be 35-25%). Another thing that will attract banks to lend new low-rise housing is that in case of nonpayment of the loan to the cooperative have the opportunity to "replace" such bad faith in terms of payment of the debt to another party;
funds that are accumulated in the accumulation period the initial amount of participants (as well as budgetary support to some categories) on investment contracts are sent to the developer with the condition of slight decline in housing prices. This will weaken the financial strength of a construction company during commissioning of facilities and reduce the risk of depreciation and cash losses in the event of placing them in the financial market.
The specific scheme can be described as follows.
Developer prepares a complete package of permits for construction.
1) create a building-savings cooperative for members whose accounts are opened in an authorized bank. Inflation problem should necessarily be taken into account, therefore, such accounts must be tied to the cost of housing. Interest on the account is not charged: the main incentive for investors is to receive no income, and housing. Such a cooperative may be created within the law "On Cooperation" that defines the term "Housing and construction" of the cooperative;
2) a tender with construction companies for construction under the guarantees of realization of the housing and the partial financing of the construction phase at the expense of building and savings cooperative. Initial parameters of the tender and at the same time the selection criteria should include: construction costs, timeframes and risks of completion;
3) a tender with the banks under the terms of cooperation within the framework of a funded program and further mortgage lending.
The process of creating construction and savings cooperatives includes compiling a list of participants in the main, would amount to "core" of the cooperative. At this stage in such a list should include the category of citizens who provide for the granting of state support to acquire housing, for example through the youth housing, etc. Thus the state could carry out "injections" of funds in the construction of low-rise housing, which in modern conditions are limited, but in parallel with the means of population and resources of the banking system create sufficient cash flow for the resuscitation of the construction of low-rise housing. In the initial stages of a list of such categories may be small. It can be: young families with many children, young families, where one family member disabled first (second) group. Over time, the list of privileged categories can be expanded, in particular, can be included family health workers, educators, scientists, etc. The above will allow the state to carry out substantial support from those sectors of society, which play an important role in the development of society, but for which there is a state is unable to establish high level of wages. The initial list should include the complement, as well as replacement of the members.
After forming the "nucleus" of the cooperative parallel to occur two processes: accumulation of a down payment and building a dedicated site builder. Constructed houses become the property of the cooperative. Participants who complete the program of savings (either alone or with state support), enter into a loan agreement with the cooperative and the bank and get the right tenure with the subsequent transition to the property after the implementation of obligations under both credit agreements. The charter of the cooperative should be written procedures for regular provision of housing in use.
After that there is repayment of loans. Loan from the cooperative should be provided by a small percentage (3-5%). Part of the interest will be the source of financing cooperative management, and some - go for the parties to expedite access to housing, which in the past by executing the program savings. The amount to be received over the cost of housing, when the construction plan will be satisfied by the decision of the meeting may be directed at further improvement of infrastructure and other purposes. After receiving the housing cooperative by all participants in liquidation, or maybe its transformation into a building-savings banks. In this case, additional resources, construction, savings bank may be the amount of interest received by the cooperative for Loans to participants.
Designated scheme increases the availability of new low-rise housing for the population due to:
general decline in its value - reduced costs for developers obtaining permits, reducing the margin over cost due to the partial financing of construction and reduce the risk of not implementing the new housing;
additional depreciation expense of budget funds for separate categories of the population;
more accessible to members of the bank credit;
lower average interest rates on credit - on the one hand a bank loan may be issued for less than market rate, because in this case, the bank takes on a much smaller risk than the scheme is applied directly to mortgage borrowers, on the other - the share of loans from the cooperative will be issued at a much lower interest rate;
during the construction of low-rise housing compared with high-rise.
For construction companies this specific scheme is attractive at least three positions:
simplified procedure for obtaining permits;
partial funding of working capital during the construction phase with the third-party sources, which is equivalent to the inflow of investments in the construction industry;
guaranteed supply of new housing sales in full.
Attractive for commercial banks participate in this scheme is determined by the ability to significantly reduce the risks in lending due to a smaller proportion of loans from housing costs and the availability of guarantees in the form of building and housing co-operative and collateral owned by his residential property.
For the state, this scheme provides the following benefits:
not spent budget for income of commercial banks in case of subsidizing interest on loans;
relatively smaller amount of budgetary funds needed to stimulate the construction industry, as budgetary resources in sync with public funds and the banking system combined into a single investment flow;
as in the above case - a smaller amount of budget funds to provide housing for certain categories of people.
An additional effect can be obtained in the case involving the construction of public construction companies, existing or specially created for this purpose and Savings Bank. In this case, the additional funds from the public will be entirely within the segment controlled by the government and help increase revenue.
Designated financial-credit mechanism available to low-rise housing can first be implemented in the framework of institutional experiment in one or more regions in order to establish the optimum parameters of its work and identify key problem areas.
With a view to implementation in Ukraine of new financial-credit mechanisms of affordable housing including little surface with loan-credit schemes: the involvement of citizens is proposed to establish at Minregionstroy State Construction Savings Holding Company (Budoschadholding. The composition Budoschadholdingu must log in first state venture Bausparkasse. "This is a joint venture on the basis of the Savings Bank, which will use a network of state-owned bank to raise funds in order to achieve affordable housing.
In addition to Budoschadholdingu must include the State Enterprise "State Construction Company, whose main objective will be to coordinate the work of regional departments of capital construction and other public regional services to simplify and reduce the cost of the procedures of land allocation, development of design estimates for construction of affordable housing.
The composition of Budoschadholdingu should include state-owned enterprise "Building Materials", which will provide wholesale deliveries of building materials and components to the facilities being built in the state and regional programs affordable and social housing in order to reduce the cost of its construction.

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