The Inter-American Development Bank today announced the approval of a $70 million loan to El Salvador to support a housing program with resources for the reconstruction of homes damaged by earthquakes earlier this year, the improvement of marginal neighborhoods, land titling and developing the local mortgage market.
The IDB loan will support the last phase of the reconstruction plan El Salvador presented to international donors in March, after earthquakes hit the country in January and February. During the emergency and rehabilitation phases the IDB granted El Salvador two loans totalling $40 million to finance temporary housing, the removal of debris and risk mitigation efforts.
Besides addressing problems caused by the earthquakes, El Salvador’s new program seeks to strengthen its housing industry, which had reached a remarkable level of development over the past decade, IDB project team leader Michael Jacobs said.
"This program can be seen as an effort to provide El Salvador the policy instruments needed to protect and improve a housing sector that has traditionally done a pretty good job," Jacobs said. "Each instrument is designed to address the problems of a different market segment, and as the different instruments are implemented they will help ensure that El Salvador’s housing policies continue to be second to none."
Several components of the program will be carried out by El Salvador’s central government agencies and by municipal governments, especially the municipality of San Salvador. The project is expected to benefit more than 50,000 families through the improvement of marginal neighborhoods, housing subsidies for low-income people, and land titling programs.
Under the program, $20 million will support a direct subsidies program to help poor families rebuild homes destroyed or damaged by the earthquakes. A $40 million component will finance infrastructure projects to improve low-income neighborhoods as well as strengthen municipalities’ housing programs.
The municipality of San Salvador will carry out an $11.1 million program that will improve low-income housing and poor neighborhoods in its jurisdiction.
These efforts will also address the need to reduce natural hazards such as landslides and floods by drafting risk maps of the participating municipalities. This information should aid local authorities in their evaluation of future housing development permits.
Other components of the program are aimed at problems in the informal market for housing, such as land titling in marginal settlements, the implementation of standards and procedures to make the land subdivision market more efficient, and the modernization of the Vice Ministry of Housing and Urban Development.
The program also includes support to the development of a secondary mortgage market in El Salvador in order to funnel more long-term resources to housing lenders and so reduce the risks of financial mismatches and cut the cost of loans for homebuyers.
The program will also provide resources to update the Fondo Social para la Vivienda, a state-run first-tier mortgage lender that serves middle income homebuyers, in order to improve its management systems, raise its efficiency and ensure its long-term sustainability.
The program supported by the IDB, which will be carried out in two phases, will have a total cost of $142.7 million. The IDB loan was granted for 25 years, with a four-year grace period, and a variable annual interest rate, which now stands at 6.97 percent. Interest costs will be partially covered with resources from the IDB’s Intermediate Financing Facility.
El Salvador’s Housing Sector
The sustained demand for new housing in urban areas of El Salvador stands at about 32,800 units a year. Nearly half of those homes are built and financed within the informal market, about 35 percent are financed by the Fondo Social para la Vivienda and the rest are financed by commercial banks.
Largely thanks to its competitive construction industry, its solid financial sector and targeted government support, El Salvador has managed to create a housing market where half of its population can finance home purchases with mortgages. This proportion is far higher than in most Latin American countries.
In the case of its lower income segments, El Salvador has developed a market for land subdivisions that allows people of modest means to buy plots with term financing in legally recognized urban developments.
The program supported by the IDB seeks to overcome some of the constraints in each of the segments of El Salvador’s housing market, as well as to address the impact of this year’s earthquakes, which damaged some 335,000 homes, about one quarter of the country’s housing stock.
El Salvador’s recovery plan included plans for $375 million for housing in its emergency, rehabilitation and reconstruction phases. Of the $1.3 billion pledged by international donors, some $190 million could be used for financing permanent housing.
The IDB has contributed financial and technical resources at all stages of the recovery plan. Its emergency loans supported the removal of debris, temporary housing and risk mitigation measures. Another $70 million loan approved in September will help El Salvador rebuild public buildings and infrastructure damaged by the earthquakes.