Urbanization, Urban Housing And Housing Finance In Indonesia Pascasarjana UI
Urbanization Landscape and Inclusive Housing Finance in
Indonesia
November 7, 2016
Mortgage Market Design for
Macrostability and Access
Susan M. Wachter
Albert E. Sussman Professor of Real Estate
Professor of Real Estate and Finance
KNOWLEDGE FOR ACTION
80.0
90.0
100.0
110.0
120.0
130.0
140.0
150.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
Residential Property Prices for Indonesia,
Index 2010=100, Quarterly
2002-10-01
KNOWLEDGE FOR ACTION
2003-07-01
2004-04-01
2005-01-01
2005-10-01
2006-07-01
2007-04-01
2008-01-01
2008-10-01
2009-07-01
2010-04-01
2011-01-01
2011-10-01
2012-07-01
2013-04-01
2014-01-01
2014-10-01
2015-07-01
2003-09-01
2004-05-01
2005-01-01
2005-09-01
2006-05-01
2007-01-01
2007-09-01
2008-05-01
2009-01-01
2009-09-01
2010-05-01
2011-01-01
2011-09-01
2012-05-01
2013-01-01
2013-09-01
2014-05-01
2015-01-01
2015-09-01
Residential Property Prices for Indonesia,
Percent per Annum, Quarterly
Name of Presenter
2003-01-01
Nominal House Price Index
70.0
2002-01-01
2
The Challenge: Access
• Affordable housing where the jobs are
• Public services
• Financing for infrastructures
• Investing for growth
KNOWLEDGE FOR ACTION
Name of Presenter
3
Mortgage Market Design for
Macrostability and Access
• Mortgage markets can be instrumental in providing access to growing urban
job markets
• Achievable through primary and secondary market design
• Structured to minimize risk and to deliver affordable mortgages
• Potential for transformative role in a rapidly urbanizing economy
KNOWLEDGE FOR ACTION
Name of Presenter
4
Attracting Capital at Affordable Lending Rates:
Fundamentals
• Low and stable inflation
• Low interest rates and credit risk
• Sound banking system
=> Appropriate financial oversight, monetary and fiscal policy
KNOWLEDGE FOR ACTION
Name of Presenter
5
Indonesia Metrics
• Inflation
• Long term interest rates
• Banking sector
• Economic growth
• Informality
• Urban growth rate
• Mortgage to GDP share
KNOWLEDGE FOR ACTION
Name of Presenter
6
Moderate Recent Inflation
16%
14%
12%
10%
8%
6%
4%
2%
0%
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Inflation
KNOWLEDGE FOR ACTION
Name of Presenter
7
Moderate 10Y Government Rate
Indonesia 10Y Decreased
to 7.27% on Nov. 3.
Historically, the Indonesia
Government Bond 10Y
reached an all time high
of 20.76% in Oct. 2008
and a record low of 4.99
in Feb. of 2012.
Source:
http://www.tradingeconomics.com/ind
onesia/government-bond-yield
KNOWLEDGE FOR ACTION
Name of Presenter
8
High Recent GDP Growth
Indonesia GDP
$1,000,000,000,000
$900,000,000,000
$800,000,000,000
$700,000,000,000
USD
$600,000,000,000
$500,000,000,000
$400,000,000,000
$300,000,000,000
$200,000,000,000
$100,000,000,000
$0
1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
Year
KNOWLEDGE FOR ACTION
Name of Presenter
9
100%
% of household
80%
8.000
6.000
60%
4.000
40%
2.000
20%
0%
0
1990
2000
2010
2015
5K-10K USD
< 5K USD
10K-15K USD
>15K USD
Average household disposable Income (RHS)
Source : CEIC, UBS Research
Annual household disposable Income
(USD)
Rising middle
class
Non-Performing Bank Loans
KNOWLEDGE FOR ACTION
Susan M. Wachter
11
Indonesia Urban Population in Slums: 2010 23%
(1990: 51%)
KNOWLEDGE FOR ACTION
Name of Presenter
12
KNOWLEDGE FOR ACTION
Name of Presenter
2050
2045
2040
2035
2030
2025
2020
2015
2010
2005
2000
1995
1990
1985
Indonesia, Urban Population (Million)
1980
1975
1970
0
1965
100
1960
150
1955
250
1950
2050
2045
2040
2035
2030
2025
2020
2015
2010
2005
2000
1995
1990
1985
1980
1975
1970
1965
1960
1955
1950
Urban Population Growth
Indonesia, % Urban
80.0
70.0
200
60.0
50.0
40.0
30.0
50
20.0
10.0
0
13
Indonesia Mortgage Market as % of GDP: 2.8% (2014)
Source: HOFINET and Central Banks
KNOWLEDGE FOR ACTION
Susan M. Wachter
14
In Sum
• Coming out of the Asian Financial Crisis, Indonesia has experienced a rapid
rise in GDP.
• At the same time rapid urban population growth generates increased demand
for housing and infrastructure
• Bank lending (primary mortgage market) is sound
• The state of the housing finance system will be a major determinant of the
ability for Indonesians to access affordable housing
KNOWLEDGE FOR ACTION
Name of Presenter
15
Housing Finance as Source of Macro-Instability-1
• FRM matches assets and liabilities of households
while ARM expose borrowers, banking system and
economy to payment shock
• Impact on consumption (Mian & Sufi 2009; Mian, Rao
and Sufi 2013)
KNOWLEDGE FOR ACTION
Susan M. Wachter
16
Today’s Global Low Interest Rate Environment – Will
it Last?
Long Term Interest Rate by Country
14
12
10
%
8
6
4
2
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Year
Canada
France
KNOWLEDGE FOR ACTION
Germany
Japan
United Kingdom
Name of Presenter
United States
17
Housing Finance as Source of Macro-Instability-2
• Real Estate booms and financial busts frequently
associated (Herring & Wachter 1999; Reinhart & Rogoff
2008)
• Recent history
– Japan – 1990
– Asian Financial Crisis – 1997
– Subprime in the US – 2007
– Europe – 2007
• Why: financial accelerators (Abraham & Hendershott
1996; Herring and Wachter 1999; Bernanke 2007)
KNOWLEDGE FOR ACTION
Susan M. Wachter
18
Financial accelerators in banking
• Why is this?
– Lack of short selling
– Irrational exuberance
– Financial acceleration
Richard Herring and Susan
Wachter. Real estate booms and
banking busts: an international
perspective.
http://fic.wharton.upenn.edu/fic/
papers/99/9927.pdf
KNOWLEDGE FOR ACTION
Susan M. Wachter
19
GFC originated with house price bubble in many economies
Sources: BIS; Bundesbank; FHFA; Japan Real Estate Institute; NVM; Nationwide; OECD;
Office for National Statistics; Standard & Poor's; Statistics Denmark; Statistics Netherlands;
Statistics Sweden; Thomson Reuters; vdpResearch
KNOWLEDGE FOR ACTION
Susan M. Wachter
20
Volatility of housing asset prices with mortgage
lending
• Housing assets particularly vulnerable to bubbles and busts and to
extreme tail risks (Levitin and Wachter 2013)
• Securitization can complete market and correct for underpricing of
credit risk (Pavlov and Wachter 2009)
KNOWLEDGE FOR ACTION
Susan M. Wachter
21
In Conclusion
• Need to access capital markets for housing finance
• Stable housing finance => affordable mortgage and
macrostability
• Secondary markets can contribute to macrostability
• Research and information gaps:
– Secondary mortgage markets: institutional details
matter
– Transition to formal housing: role of mortgage market
KNOWLEDGE FOR ACTION
Susan M. Wachter
22
Thank you
Susan M. Wachter
Albert E. Sussman Professor
Professor of Real Estate and Finance
Co-Director - Institute for Urban Research
The Wharton School, University of Pennsylvania
Tel: 215-898-6355
Cell: 610-299-9714
[email protected]
KNOWLEDGE FOR ACTION
Susan M. Wachter
23
KNOWLEDGE FOR ACTION
Indonesia
November 7, 2016
Mortgage Market Design for
Macrostability and Access
Susan M. Wachter
Albert E. Sussman Professor of Real Estate
Professor of Real Estate and Finance
KNOWLEDGE FOR ACTION
80.0
90.0
100.0
110.0
120.0
130.0
140.0
150.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
Residential Property Prices for Indonesia,
Index 2010=100, Quarterly
2002-10-01
KNOWLEDGE FOR ACTION
2003-07-01
2004-04-01
2005-01-01
2005-10-01
2006-07-01
2007-04-01
2008-01-01
2008-10-01
2009-07-01
2010-04-01
2011-01-01
2011-10-01
2012-07-01
2013-04-01
2014-01-01
2014-10-01
2015-07-01
2003-09-01
2004-05-01
2005-01-01
2005-09-01
2006-05-01
2007-01-01
2007-09-01
2008-05-01
2009-01-01
2009-09-01
2010-05-01
2011-01-01
2011-09-01
2012-05-01
2013-01-01
2013-09-01
2014-05-01
2015-01-01
2015-09-01
Residential Property Prices for Indonesia,
Percent per Annum, Quarterly
Name of Presenter
2003-01-01
Nominal House Price Index
70.0
2002-01-01
2
The Challenge: Access
• Affordable housing where the jobs are
• Public services
• Financing for infrastructures
• Investing for growth
KNOWLEDGE FOR ACTION
Name of Presenter
3
Mortgage Market Design for
Macrostability and Access
• Mortgage markets can be instrumental in providing access to growing urban
job markets
• Achievable through primary and secondary market design
• Structured to minimize risk and to deliver affordable mortgages
• Potential for transformative role in a rapidly urbanizing economy
KNOWLEDGE FOR ACTION
Name of Presenter
4
Attracting Capital at Affordable Lending Rates:
Fundamentals
• Low and stable inflation
• Low interest rates and credit risk
• Sound banking system
=> Appropriate financial oversight, monetary and fiscal policy
KNOWLEDGE FOR ACTION
Name of Presenter
5
Indonesia Metrics
• Inflation
• Long term interest rates
• Banking sector
• Economic growth
• Informality
• Urban growth rate
• Mortgage to GDP share
KNOWLEDGE FOR ACTION
Name of Presenter
6
Moderate Recent Inflation
16%
14%
12%
10%
8%
6%
4%
2%
0%
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Inflation
KNOWLEDGE FOR ACTION
Name of Presenter
7
Moderate 10Y Government Rate
Indonesia 10Y Decreased
to 7.27% on Nov. 3.
Historically, the Indonesia
Government Bond 10Y
reached an all time high
of 20.76% in Oct. 2008
and a record low of 4.99
in Feb. of 2012.
Source:
http://www.tradingeconomics.com/ind
onesia/government-bond-yield
KNOWLEDGE FOR ACTION
Name of Presenter
8
High Recent GDP Growth
Indonesia GDP
$1,000,000,000,000
$900,000,000,000
$800,000,000,000
$700,000,000,000
USD
$600,000,000,000
$500,000,000,000
$400,000,000,000
$300,000,000,000
$200,000,000,000
$100,000,000,000
$0
1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
Year
KNOWLEDGE FOR ACTION
Name of Presenter
9
100%
% of household
80%
8.000
6.000
60%
4.000
40%
2.000
20%
0%
0
1990
2000
2010
2015
5K-10K USD
< 5K USD
10K-15K USD
>15K USD
Average household disposable Income (RHS)
Source : CEIC, UBS Research
Annual household disposable Income
(USD)
Rising middle
class
Non-Performing Bank Loans
KNOWLEDGE FOR ACTION
Susan M. Wachter
11
Indonesia Urban Population in Slums: 2010 23%
(1990: 51%)
KNOWLEDGE FOR ACTION
Name of Presenter
12
KNOWLEDGE FOR ACTION
Name of Presenter
2050
2045
2040
2035
2030
2025
2020
2015
2010
2005
2000
1995
1990
1985
Indonesia, Urban Population (Million)
1980
1975
1970
0
1965
100
1960
150
1955
250
1950
2050
2045
2040
2035
2030
2025
2020
2015
2010
2005
2000
1995
1990
1985
1980
1975
1970
1965
1960
1955
1950
Urban Population Growth
Indonesia, % Urban
80.0
70.0
200
60.0
50.0
40.0
30.0
50
20.0
10.0
0
13
Indonesia Mortgage Market as % of GDP: 2.8% (2014)
Source: HOFINET and Central Banks
KNOWLEDGE FOR ACTION
Susan M. Wachter
14
In Sum
• Coming out of the Asian Financial Crisis, Indonesia has experienced a rapid
rise in GDP.
• At the same time rapid urban population growth generates increased demand
for housing and infrastructure
• Bank lending (primary mortgage market) is sound
• The state of the housing finance system will be a major determinant of the
ability for Indonesians to access affordable housing
KNOWLEDGE FOR ACTION
Name of Presenter
15
Housing Finance as Source of Macro-Instability-1
• FRM matches assets and liabilities of households
while ARM expose borrowers, banking system and
economy to payment shock
• Impact on consumption (Mian & Sufi 2009; Mian, Rao
and Sufi 2013)
KNOWLEDGE FOR ACTION
Susan M. Wachter
16
Today’s Global Low Interest Rate Environment – Will
it Last?
Long Term Interest Rate by Country
14
12
10
%
8
6
4
2
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Year
Canada
France
KNOWLEDGE FOR ACTION
Germany
Japan
United Kingdom
Name of Presenter
United States
17
Housing Finance as Source of Macro-Instability-2
• Real Estate booms and financial busts frequently
associated (Herring & Wachter 1999; Reinhart & Rogoff
2008)
• Recent history
– Japan – 1990
– Asian Financial Crisis – 1997
– Subprime in the US – 2007
– Europe – 2007
• Why: financial accelerators (Abraham & Hendershott
1996; Herring and Wachter 1999; Bernanke 2007)
KNOWLEDGE FOR ACTION
Susan M. Wachter
18
Financial accelerators in banking
• Why is this?
– Lack of short selling
– Irrational exuberance
– Financial acceleration
Richard Herring and Susan
Wachter. Real estate booms and
banking busts: an international
perspective.
http://fic.wharton.upenn.edu/fic/
papers/99/9927.pdf
KNOWLEDGE FOR ACTION
Susan M. Wachter
19
GFC originated with house price bubble in many economies
Sources: BIS; Bundesbank; FHFA; Japan Real Estate Institute; NVM; Nationwide; OECD;
Office for National Statistics; Standard & Poor's; Statistics Denmark; Statistics Netherlands;
Statistics Sweden; Thomson Reuters; vdpResearch
KNOWLEDGE FOR ACTION
Susan M. Wachter
20
Volatility of housing asset prices with mortgage
lending
• Housing assets particularly vulnerable to bubbles and busts and to
extreme tail risks (Levitin and Wachter 2013)
• Securitization can complete market and correct for underpricing of
credit risk (Pavlov and Wachter 2009)
KNOWLEDGE FOR ACTION
Susan M. Wachter
21
In Conclusion
• Need to access capital markets for housing finance
• Stable housing finance => affordable mortgage and
macrostability
• Secondary markets can contribute to macrostability
• Research and information gaps:
– Secondary mortgage markets: institutional details
matter
– Transition to formal housing: role of mortgage market
KNOWLEDGE FOR ACTION
Susan M. Wachter
22
Thank you
Susan M. Wachter
Albert E. Sussman Professor
Professor of Real Estate and Finance
Co-Director - Institute for Urban Research
The Wharton School, University of Pennsylvania
Tel: 215-898-6355
Cell: 610-299-9714
[email protected]
KNOWLEDGE FOR ACTION
Susan M. Wachter
23
KNOWLEDGE FOR ACTION