Audio: https://clyp.it/jidb3dww
Guillermo García N.— Given the serious housing problem resulting from the earthquakes that struck on June 24, urgent solutions and the participation of multiple sectors are required. Access to financing has become a critical factor. Banks must make every effort and, within their means, support not only financing for builders but also the long-term financing that homebuyers need. But this is not enough, because private banks have limited resources. The problem is broader and more complex.
In the search for solutions, I would like to present to the National Government an innovative financial scheme for financing and state subsidies that would allow for the mass construction of housing. This financial scheme, which I have been working on, is called the Housing–Developer Bond.
Housing–Developer Bond: How is it structured and what is its objective?
The Housing–Developer Bond scheme is based on the issuance and granting of a National Public Debt Bond (DPN), whose sole purpose is to be used as a down payment for the purchase of a primary residence. Accordingly, the Bond’s sole purpose is to serve as a down-payment subsidy for the purchase of a home while the remaining balance is tied to a loan granted under the Law on the Policy of the Housing and Habitat Benefit System, or to financing from the banks’ own resources. This guarantees that the individual will be able to purchase a home and gives the builder certainty that the unit to be built has already been sold.
The Housing–Developer Bond functions as a direct subsidy mechanism for the buyer. The scheme is designed to develop a “growing virtuous cycle,” since these bonds, issued by the Ministry of Economy and Finance and backed by payment guarantees from multilateral institutions (CAF, UNDP, IMF, IDB), will be registered and traded on the Caracas Stock Exchange to ensure their liquidity.
How does it work?
The bonds are granted to all individuals with demonstrated total household income of up to four monthly salaries, who then transfer them to the builder or housing developer. Builders have the option of trading them on the stock exchange or holding them and earning the interest they pay. Since the Bonds will offer attractive dollar-denominated returns, financial institutions, insurance companies, mutual funds, and international investment funds will be the main buyers. Builders could also pledge them to banks as collateral to obtain loans. To guarantee the Bond’s value, a stabilization mechanism would be created to ensure that its principal is preserved, regardless of who holds it.
With this scheme, as I envision it, 200,000 housing units could be built annually, generating hundreds of thousands of jobs, significant and sustained economic growth, and improvements in the quality of life and workforce productivity.
On the other hand, it would allow the State, with the full participation of the private sector, to undertake a massive construction program without having to commit substantial short-term financial resources or guarantee long-term funding, both of which are among the greatest obstacles facing the construction and banking sectors.
From a financial engineering standpoint, this scheme is entirely feasible to implement.
What is needed here is the political will of the Venezuelan state, with the support of multilateral institutions, to move it forward and seek the committed cooperation of the private sector, serving as an ally in achieving the goals that will create opportunities and improve the well-being of the vast majority of Venezuelans who currently do not own a home.
If the Government truly wants to build housing, firmly and sustainably reduce the housing deficit, and meet the needs of all those who lost their homes in the earthquakes that struck the country, the participation of the private construction sector, which possesses the necessary expertise, is imperative. Otherwise, annual construction targets will continue to decline, the deficit will continue to grow, and the problem affecting a vast number of Venezuelans today will remain unresolved. I have raised this on other occasions: innovative solutions and incentives are needed for the private construction sector and for citizens so that real solutions to the problem can begin to be implemented. The Housing–Developer Bond is one such solution.
Consequently, I call on the Ministry of Finance, Minister Francisco Garcés, and Banavih to seriously evaluate this scheme, without dogmatism.
