South Asia: Housing Finance to Underserved

The South Asian region has witnessed rapid economic growth, urbanisation, and a rising middle class, all of which have significantly increased the demand for housing and housing finance. However, the growth of South Asia’s housing finance markets has mostly catered to upper-income groups. This report aims to explore the importance of housing, the growth potential of housing finance, and the ways to expand access to middle and lower-income groups. It also delves into low-income housing solutions and policy options to ensure that housing finance reaches the underserved.

South Asia’s housing and housing finance markets have grown at an impressive rate of around 30% in the past decade. However, this growth has been largely limited to upper-income groups, leaving a significant portion of the population underserved. More than 14% of low-income South Asians have no home. The existing housing finance market is segmented, with ample supply for the upper-income groups but high prices that are unaffordable for middle- and lower-income groups.

Access to affordable housing is a crucial element in fostering positive development outcomes. It plays a significant role in alleviating poverty at the individual level, supports the wider growth of the financial system, and helps propel economic growth on a national scale. A stable and secure home is not just a foundation for improved health and educational outcomes; it is also a catalyst for poverty reduction and wealth creation for individuals and families. Moreover, it contributes to enhanced employment opportunities, economic advancement, and societal stability for countries.

The housing and real estate sector contributes considerably to overall economic growth, social uplift, and employment. The impressive growth rates of South Asia’s housing finance markets give hope that housing and housing finance services have the potential to be expanded to middle- and lower-income families. This expansion requires an improved land administration, a strengthened legal framework for all aspects of housing, and promotion of long-term funding for mortgage lenders and developers. Finance to Underserved.

Expanding housing finance to the underserved requires innovative financial instruments, including for the informal sector. The availability of long-term funding is crucial, as is the development of affordable mortgages for the poor and rural population. A functional legal, regulatory, and information infrastructure is also necessary to ensure the effective implementation of housing finance programs. Finance to Underserved.

Innovative traditional mortgage products and non-traditional options such as Islamic finance and microfinance could meet demand in underserved market segments. In some countries, private developers are discovering that cheaper housing can present good commercial opportunities, provided there is developer finance and efficient land administration. Additionally, easing access to housing finance for low-income, rural, and informal population groups is key to making housing affordable to an increasing number of families.

To address the housing crisis and ensure that housing finance reaches the underserved, several policy options can be considered. These include restricting ownership transfer for a certain period after the purchase, regulating institutional investment in real estate, increasing capital gains tax, and imposing a non-utilization fee on idle unproductive land. Other mechanisms include mandating the integration of affordable housing in new private schemes by dedicating a certain percentage of plots for low-income groups. An urban land ceiling act and establishing a minimum density requirement can also help manage land use more effectively.

Expanding housing finance to the underserved in South Asia is not only a moral imperative but also an economic necessity. By addressing the current shortcomings of the housing finance market and implementing innovative solutions and policies, it is possible to create a more inclusive and sustainable housing market that benefits all segments of society. This will not only improve the living conditions of millions but also contribute to the overall economic and social development of the region.