Affordable Housing as a Sustainable Business Model
The International Finance Corporation (IFC) and the World Bank Group have identified housing as a basic human need as well as a crucial contributing factor to sustainable economic growth, with the IFC citing that at least three jobs are created for every home built. The World Bank currently ranks the Southeast Asian region as the third largest market in the world, ahead of Japan, the United States and the European Union; whilst the World Economic Forum has predicted that ASEAN will have the world’s fifth largest economy by 2020, driven by a combined population size of over 640 million people or 8.5% of the global population.
Rapid economic development and urbanisation in emerging markets lead to strong growth in demand for affordable homes amidst higher income levels and an increasing propensity to spend amongst consumers. However, with a relatively faster pace of asset price inflation, affordable housing supply crunch typically plagues emerging economies. In fact, in ASEAN member markets where Olive Tree aims to participate, property developers have focused on building middle to high end residential and commercial property products to maximise absolute returns.
However, the acute supply deficit presents an attractive opportunity for Olive Tree to achieve sustainable returns for our shareholders. Affordable housing as an asset class has proven to be relatively defensive during economic downturns, with quality well-built and well-priced developments enjoying relatively inelastic end-consumer demand.
*Footnote: Affordable housing is defined by Olive Tree using the World Bank affordability standard where monthly mortgage repayments on the purchased home does not exceed 40% of monthly household income. Affordable housing refers to both commercially-developed affordable homes and social/subsidised housing guided by government policies.