Dilating Low-Income Housing Financing: Lessons for Emerging Market REITs

Abstract

Asymmetric movements of housing demand and supply has consequently led to extraordinary house price increments, thereby making housing unaffordable and unsustainable for significant proportion of urban settlers in many emerging economies. This deficit in low-income housing delivery strengthens the pertinence of looking elsewhere for solutions. With the emergence of REITs as a vast source of real estate financing, literature has identified the potential of this investment vehicle in financing low-income housing delivery in the form of social purpose REITs. Worryingly, studies on the applicability of these REITs in financing low-income housing is almost inexistent in emerging economies, outside China. The study is aimed at the examination of empirical literature on the use of social purpose REITs as vehicle for ameliorating low-income housing delivery with a view to extricating pertinent lessons for emerging market REITs. Content analysis was conducted using TEXTPACK; and the resulting synthesis of extant literature produced 4 main lessons for emerging market REITs. It was concluded that to dilate the financing of low-income housing delivery, REITs in emerging markets should adopt policies that encourage the establishment of social purpose REITs. Such policies should lend towards the implementation of tax credits to social purpose REITs and an exemption of low-income housing developers from development costs. Also, Public-Private Partnerships for housing delivery should be reviewed to incorporate strategies that ameliorate indemnificatory housing, while the mortgage system should be revamped to accommodate mortgage tranche and long-term debt capitalization.

Keywords: Low-income housing delivery, Social purpose REITs, housing finance, REITs, Emerging Markets

DOI: 10.7176/EJBM/12-18-05

Publication date:June 30th 2020