Asian Mortgage Market Outlook

Mortgage markets have evolved from a rudimentary form to a rich and complicated institution over the last many decades. Mortgage markets are no longer just a place where borrowers and lenders meet to finance real estate transactions, but also a place where banks are compelled to tightly manage the associated risk, where governments are frequently heavily involved and use the ground to implement and promote their social and economic policies, and so on.

Across the region, the poor and middle class are having difficulty finding affordable housing, but communities may take some simple actions to improve the situation.

Housing affordability is a significant problem in cities across Asia's developing countries. Prices as a percentage of income have risen to the point where most city inhabitants will never be able to realize their ambition of becoming a homeowner. That does not appear to be changing as cities continue to develop.

The housing affordability dilemma has far-reaching effects that affect the entire economy. People are less willing to relocate when housing becomes more expensive, resulting in lengthier commutes. As a result, the city performs less well as an efficient labour market. It also means that businesses invest in real estate rather than more productive assets and that banks prefer businesses with substantial real estate portfolios over those with the finest business ideas. As a result of high housing prices, labour and capital are misallocated, and cities' competitiveness is harmed.

Asia has seen extraordinary urbanization rates in human history during the last three decades. While rapid urbanization has aided economic development, it has also swamped many communities, particularly in terms of housing. While housing demand grew quickly, supply remained reluctant to respond, resulting in high home costs.

First and foremost, greater data translates into better policies. Cities rarely systematically collect housing pricing data. As a result, policymakers are unable to determine the scope of the problem or the impact of current housing regulations. Several governments in the region, like Malaysia and the Philippines, have realized the need for improved statistics and have launched new programs to collect more data on the housing market in a methodical manner.

Second, loosening supply limits will bring down-home costs. The quick rise in demand has met a poor supply response, resulting in skyrocketing housing prices. One of the primary causes is that cities have been slow to provide new low-cost developable land. Rigid land use regulations and coordination issues across administrative boundaries can cause the process to be delayed. In the best-case scenario, the expansion of affordable housing is connected to the allocation of new land.

Third, ensure that public transit is both affordable and efficient. Improved transportation, according to a recent study in the United States, can significantly reduce housing costs. Within-city transportation that is both efficient and economical allows people to travel around the city rapidly and increases the possible area for commuting to work. As a result, there is less of a need to reside in cities, and housing demand is reduced. As a result, improving public transit systems in Asian cities would not only assist to alleviate the major congestion problem but would also help to lower housing prices.

Finally, the rental sector should be promoted. Increasing homeownership has been a major emphasis of housing initiatives. While homeownership has some benefits, such as the accumulation of a tangible asset, it also has some drawbacks, such as overborrowing and limited labour mobility. In most Asian cities, the rental market is still limited, particularly for low-income individuals. As a result, developing a robust rental market with a healthy mix of public and private rental housing should be supported.

As Asia's cities expand, the housing affordability challenge must be addressed promptly. Many of the advantages of urbanization could be undone if housing is unaffordable. Unaffordable housing threatens the overall economy's competitiveness as well as long-term growth because cities are the hub of economic activity.