Asia Mortgage - Mortgage Market In Asia

Introduction To Mortgage Market In Asia
According to the World Development Indicators database 2005 - World Bank, Asia is the largest continent, which accommodates 61% of the world's population. Presently the countries like China, Indonesia, Malaysia, and Thailand are the developing regions and the fastest growing region according to the report of the World Bank. The significant progress over the Asian region has drawn the worldwide attention. Today 31% of the population in Asian countries resides in urban regions. This percentage is estimated to increase to more than 50% by 2030 (CIA World Fact book 2003-04). This truly depicts sharp focus on the issue of housing finance for low and middle-income families. The Asian Development Bank (ADB) also recognizes the issues surrounding housing finances. One of the key initiatives of ADB is to promote affordable housing for low and middle-income families. Mortgage Market Size In Asia Among the top mortgage markets in Asia, the size of China's mortgage market is considered as the largest in Asian region. The mortgage market is estimated at US$1670.7 billion (13,800 billion RMB) as of June 2004. Japan, being a developed country, has the second largest mortgage market among the selected Asian countries.But the size of the Chinese and Japanese mortgage markets are small in comparison with the US and UK mortgage markets. The mortgage market in China is relatively smaller compared to its population size and in comparison with the mortgage market in Hong Kong. Types, Terms and Conditions of Mortgages In Asia The most common types of mortgages in Asian countries are adjustable rate mortgages (ARMs) and fixed rate mortgages (FRMs). The typical origination requirements for mortgages show that the maximum loan to value ratio (LVR) ranges from 70% to 80%. Vietnam has a lower LVR of 50% while the LVR can be extended to 85% in India. The maximum mortgage term ranges from 20 years in India, Indonesia and South Korea to 30 years in China, Japan, Malaysia and Vietnam. The term can be extended to 32 years in Singapore. Banks impose a payment-to-income ratio in mortgage evaluation. The range is very wide, from as low as 33% for Indonesia to as high as 75% in Vietnam. The banking practice for Malaysia and Indonesia follows Islamic banking regulations. In Vietnam it is interesting that although the maximum LVR is only 50% (or at most 60% in some cases), the payment-to-income ratio is very high. The payment-to-income ratio for Singapore is relatively low 40%, but this does not include payment from compulsory pension-fund contributions. Mortgage Rates In AsiaThe interest rates for FRMs are usually higher than that for ARMs. The mortgage rate for Vietnam is the highest at 9.5% (India has the second highest rate of 8.5%) while Japan has a very low mortgage rate of 2.375%. The short-term rate in Vietnam is 4.80%. In contrast, the short-term rate for Japan is only 0.011%. The mortgage rate in Hong Kong is currently about 2.5%, which is lower than the prime-lending rate. Interestingly, the mortgage yield spread in Japan, South Korea and Singapore are higher compared to Hong Kong. Mortgage yield spread in Vietnam, India and Malaysia are relatively high at more than 3%. Countrywide Mortgage Market Performance
Mortgage Market In China The growth of the mortgage market in China can be better understood from its construction industry. By the end of 2003, the value of mortgage market in China has reached more than 1,2000 billion RMB (US$1,452.8 billion). In the end of June 2004, the total value of outstanding mortgages increased to 13,800 billion RMB (US$1,670.7 billion).

Mortgage Market In India Mortgage Financing industry, which is primarily known as the housing finance industry in India was estimated approximately at US $ 18 billion. A significant change in the structure of the mortgage industry is being marked in the recent years. Presently the banks are gaining market share in direct housing finance segment. From estimation it is found that the share of commercial banks in the direct housing finance segment has increased from 27% in FY 2000 to 57% in the FY 2003.

Mortgage Market In Japan Japan, being a developed country, has the second largest mortgage market among the selected Asian countries. Japan has a very low mortgage rate of 2.375%.
The mortgage market as percentage of Gross domestic product in Japan has reached at 40.3 %.

Mortgage Market In Hong Kong The mortgage market in Hong Kong is one of the most developed in Asia. According to the residential mortgage survey (which includes 23 authorized institutions) Nov-2005, the residential mortgage lending has slightly changed at HK$7.8 billion.

Mortgage Market In Vietnam Vietnam is a developing country and the mortgage market is very small as mortgage loans for homebuyers are not very common.

Mortgage Securitization In Asia Mortgage securitization in Asia has become the focus of attention after the Asian financial crisis. Excessive lending has been suggested as the contributing causes for the Asian financial crisis in 1997 by the International Monetary Fund (IMF) (Collyns and Senhadji 2000). The high exposure of commercial banks and finance companies to real estate related loans appears to be connected to the financial and currency market crises in these Asian countries in 1997. In Korea, the development of a secondary mortgage market has received the strong endorsement of the Korean government in the post crisis period. The Mortgage-Backed Securitization Company Act and the creation of the Korea Mortgage Corporation (KoMoCo) in 1999 have paved way for an active mortgage securitization market in Korea. The Japanese secondary mortgage market commenced in the same year as Korea facilitated largely by the introduction of the Law on the Securitization of Specified Assets by a Special Purpose Company (SPC) laws, enacted in 1998 and amended in 2000. Sanwa Bank originated the first Residential Mortgage Backed Securities (RMBS) of US$450 million in May 1999. Conclusion To Asian Mortgage Market Presently the mortgage markets in some of the Asian countries are growing very fast. From estimation it is seen that size of the mortgage market is still small compared to the other developed and developing nations over the Globe. The mortgage GDP ratio is very insignificant in the Asian nations.