Development of the Housing Finance Market

Honorable Adviser, distinguished participants, ladies and gentlemen:

Good Morning,

I am delighted to have this opportunity of welcoming you to the “Seminar on Housing Finance” which focuses on the current state of the housing finance market in Bangladesh and internationally, and outlines available policy options.

Despite its considerable economic and social potential, housing finance remains underdeveloped in Bangladesh. The House Building Finance Corporation (HBFC) which has traditionally dominated the housing finance sector is now a declining player, in part, because of decreasing government support and in part, because of its history of operational ineffectiveness. In its place, domestic and international commercial banks and a few new specialized institutions have entered the market, with a significant potential for growth.

Yet, affordable housing remains scarce. Most mortgages are small, unaffordable, and only available from few institutions. Modern methods of mortgage processing and risk assessment are starting to provoke interest, but are still not widely used. As a result, housing finance is expensive and rationed in favor of salaried employees with relatively high incomes, or those who can offer adequate land as collateral.

Housing lenders also face tight funding, because savings within the banking system are small, and there are few long-term savings intermediaries, which constricts the capacity of the capital market to contribute long term resources. On the demand side, the legal, regulatory, and taxation frameworks are not enabling housing finance market development, and home-buyers who can afford it prefer to pay for their home in cash instead of taking out a mortgage loan.

It is, therefore, desirable to promote growth in home financing to a wider population group at a lower cost. Access to housing in turn contributes to a wide range of economic benefits, from preventing slum proliferation to promoting savings, construction, employment, and consumption. Housing finance development plays a role in boosting equitable economic growth and reducing poverty through helping households build assets, improving living conditions, as well as empowering the middle and lower income population and strengthening communities.

The government of Bangladesh recognizes the importance of the housing sector and its potential to contribute to the long-term economic development. Accordingly, it has taken steps to address present weaknesses and encourage the development of a more stable and vibrant housing sector. Registration and titling improvements have been piloted, liquidity-enhancement schemes have been experimented with, and existing legislature has been deepened to further regulate new markets, such as the developer sector. Therefore, boosting and further developing the market-based housing finance system now looks very timely for Bangladesh. The nation faces the challenge of providing appropriate housing for this growing portion of the population, whose needs are not well met by the existing channels.

This seminar will touch upon some promising policy options which will help achieve this goal, including strategies to increase the efficiency of the House Building Finance Corporation, to create liquidity in the market, to promote savings for home-buyers, as well as to support and promote other aspects of the housing finance markets.

I hope the seminar will be productive and interesting through exchange of experiences, and will contribute to the promotion of housing finance as well as general development in Bangladesh.

Thank you.

Contacts:

S.M.Rezwan-ul-Alam  (880-2) 8159001 Ext. 4242

salam3@worldbank.org