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El Salvador to improve housing conditions with IDB assistance

El Salvador will improve housing conditions for low- and middle-income families and boost the housing sector’s ability to efficiently and equitably meet demand with a $70 million loan approved by the Inter-American Development Bank (IDB).

The program will finance individual subsidies to help families acquire new homes or improve their existing properties. It will also provide collective subsidies to improve informal urban neighborhoods and help establish a legal framework to regulate the sale of low-cost lots, providing legal security to residents of informal urban communities.

The loan includes actions to strengthen the public institutions that manage the country’s housing sector and a subprogram to support the Municipality of San Salvador’s efforts to meet housing demand among low-income groups, as well as other investments to minimize the housing risks faced by low income families.

The program will also directly improve housing conditions and quality of life for 32,000 households with incomes less than four times the minimum wage (equivalent to a total of US$830 per month). It will help raise property values in the targeted neighborhoods by 35 percent, provide residential drinking water and sewage systems for 7,400 families living in informal urban neighborhoods, improve primary and secondary roads, and finance measures to ensure that 40,000 lots are formally recorded and titled.

The social housing subsidies will help bridge the gap so that low income families can improve their homes and gain access to new properties in the formal market. Three different kinds of subsidies will be offered:

  • Subsidies for families with incomes up to two times the rural minimum wage (less than US$300), to be supplemented by contributions and/or savings but not by home loans.
  • Emergency subsidies for families living in high-risk areas and earning less than four times the minimum wage (less than US$830).
  • Subsidies for families with incomes between two and four times the minimum wage for the commercial sector (between US$415 and US$830), to be supplemented by savings and loans from financial institutions.

Additionally, collective subsidies will be financed for investments in basic infrastructure, development of community spaces, urban facilities, risk mitigation works, and property titling.

The program will also help establish the legal framework governing the housing development subdivision market, including regulation, supervision, recording and titling of existing lots, as well as information, education, and transparency about the companies operating in this market. In addition, the activities of the Office of the Deputy Minister for Housing and Urban Development, the Social Fund for Housing, and the secondary mortgage market will be strengthened.

The Municipality of San Salvador subprogram will meet housing demand among low-income groups in the country’s capital and will focus on collective subsidies for neighborhood improvements which will benefit 1,400 households. Also, support will be provided for communities vulnerable to natural disaster risks through small-scale preventive works and/or infrastructure strengthening.

A previous IDB loan, also for $70 million, financed the first stage of the multi-phase housing program through investments similar to those of the second stage, including resources to subsidize the reconstruction of homes damaged by natural disasters.

The Ministry of Public Works, Transportation, Housing and Urban Development, through the Office of the Deputy Ministry for Housing, will be the new program’s main executing agency. The Social Fund for Housing, the Banco Multisectorial de Inversiones, and the Municipality of San Salvador will act as coexecuting agencies. The IDB’s loan is for a 25-year term, with a 4-1/2-year grace period, at a variable interest rate based on Libor.