In Trinidad and Tobago, as in many other parts of Latin America and the Caribbean, buying a house is almost a luxury. Not mansions or villas. Just homes. The median price of a house is US$192,000, while the monthly median household income is US$1,600, according to a study conducted by the Inter-American Development Bank (IDB).
The prospect of homeownership is even more distant for many citizens. The country’s Housing Development Corporation estimated that more than half of the demand for public housing came from households whose income was less than $615 per month.
What explains the relatively high price for a standard home? The explanation for this lies partly in the relatively limited availability of land for private acquisition, since more than half of all national territory is in the hands of the State. There have been significant legislative advances regarding the regulatory framework which should make land development easier. However, the financing gap remains and the issue of insufficient financing continues to represent a key constraint to home ownership.
In March 2018, the private-sector investment arm of the IDB Group, IDB Invest, announced a housing collaboration agreement with the Mortgage Financing Company of Trinidad and Tobago (TTMF). The state company was founded in 1965 to provide citizens with mortgages and related tools to acquire a home. The collaboration was the start of an ambitious process of housing-finance assistance that seeks to increase the level of mortgage penetration in Trinidad and Tobago, which is well below the international average, according to a World Bank study.
"We are working for people who are buying houses for the first time, or for those who do not yet have the ability to buy a house. Today, there is a need for affordable housing, because the prices are very high and availability is limited in Trinidad and Tobago," says Michael Apel, lead investment officer at IDB Invest.
Nine months later, in December 2018, IDB Invest granted a partial credit guarantee to TTMF for $17.6 million to support the issuance of a guaranteed mortgage facility for a total of $58.9 million. The guarantee helped TTMF strengthen its operational attractiveness in the local market and supported the development of Caribbean capital markets.
"This type of structure is quite common in Europe, but in Latin America and the Caribbean, it is not so common," explains Bruno Carneiro, of the Portfolio Management Division of IDB Invest. "It is a structure that reduces the risk for the investor and allows more participants to finance housing, specifically in Latin America."
For such a guarantee to work, the first requirement is to establish the legal concept of "facility.” It is essential that the structure be well implemented, to assure investors that there are effective protections in case of default. The second requirement is to have a sufficient record of the performance of a good-quality housing portfolio – one that shows money has been lent responsibly and successfully for several years.
Photo Gallery: TTMF's program with IDB Invest
"This partial credit guarantee has very special characteristics," explains Rocío Medina-Bolívar, representative of the IDB Group in Trinidad and Tobago. "It is denominated in local currency and is used in the capital market, allowing more investment from the private sector to be mobilized. Therefore, it is a guarantee where everyone wins.”
The real fruits of the operation remain to be seen; the beneficiaries are the aspiring homeowners of medium and low income, ordinary people who are not aware of the complex financial structures working for them.
Medina-Bolívar and IDB Invest’s Apel agree that this is the start of a model that can be replicated in other Caribbean countries to help alleviate the region’s perpetual housing crisis.
"We are talking to a couple of institutions in Jamaica and other countries to see if we can do something similar," says Apel. "This is the first time we have conducted a capital-market operation in the Caribbean, so we want to take advantage of the moment."
