Ladies and gentlemen,
I am extremely pleased to welcome all participants in the first conference on "Mortgage Loans" organised by Finmedia. This is a useful and timely event, and I am sure that it will offer the experts here present the opportunity of an update analysis on the mortgage market in Romania and establish the future steps for setting up an efficient and market-oriented financing system in the construction sector.
Financing of housing in terms of investment is important due to the boost it gives to the economy, as shown by the post-war experience of many countries. Moreover, the possibility of possessing a house has a great impact on the behaviour of individuals. Better living conditions and the obligation to repay long-term loans constitute strong reasons for the people to work to get incomes. This is a driving force behind economic growth. In a transition country like Romania is, this process helps accelerate the pace of economic restructuring by enhancing labour force mobility.
A house counts among the bare necessities of life. It is a costly investment anytime anywhere, and usually it is too expensive to be paid for in cash. This is the reason why the development of the construction sector is contingent upon the long-term financing mechanism, upon mortgage loans anticipating the future income of borrowers.
Several factors are necessary for the well-functioning of construction financing:
First, a legal framework to facilitate mortgage transactions.
Second, a mechanism to enable raising of enough funds to finance mortgage loans should be in place. With this end in view, different financing models have been developed in the advanced economies. The financing models range from general financing methods, including bank deposits and interbank loans, to dedicated financing methods encompassing mortgage bond issues, asset-backed securities, and contractual savings schemes. The current European trend is to increasingly resort to the capital market by rediscovering mortgage bonds, along with expansion of securitisation techniques of Anglo-Saxon origin.
Third, an adequate regulatory framework. Any government should get involved in a way or another in construction financing, taking into account the economic and social importance of this sector. It has to be borne in mind that construction financing is part of the general capital allocation system. Therefore, the rules and regulations on financing mechanisms should be designed and implemented in a way that does not distort the allotment of financing resources economy-wide.
Fourth, attaining macroeconomic stability is important for the well-functioning of the financing mechanism. A relatively stable macroeconomic framework is essential, as economic woes and particularly high inflation discourages long-term lending.
Ladies and gentlemen,
Some progress has been made lately in establishing the legal framework to facilitate mortgage transactions. Thus, Law No. 190/1999 on real-estate mortgage loan was passed. The NBR in association with the National Securities Commission have engaged in drawing up the methodological norms for applying the aforementioned law. However, the experience so far shows that some arguable aspects of the law need to be clarified and its scope enlarged, especially with reference to mortgage bonds.
As for the improvement of financing mechanisms, a recent draft law provides for the establishment of a collective saving and lending system similar to the Bausparkassen in Germany. The NBR is in favour of implementing such contractual saving scheme for constructions, providing amendments to ensure a uniform banking regulatory framework. Moreover, the NBR also considers that such a system may function within a lasting macroeconomic stability that ensures increase in real incomes and saving capability of households in the long run amid a relatively low inflation.
Special attention should be attached to mortgage bonds in order to assess if the application of this technique in Romania could be more advantageous compared with the bank deposit-based financing, at least in the case the volume of mortgage loans is still low. Should this be the case, the legislation in force, which does not contain provisions on mortgage bonds, would have to be amended. In the longer run, a mechanism for raising funds from the secondary market could be put in place, by adopting pieces of legislation allowing for securitisation of mortgage claims.
As concerns the macroeconomic factor, the recovery of the real estate sector depends on resumption of economic growth, curbing of inflation, increase in real wages and the establishment of a sense of working place stability for the vast majority of the people. The National Bank of Romania in its capacity as the central bank shall strive to achieve its main objective, i.e. price stability.
The financing strategy of financing real estate investment should be well integrated into the framework of financial system development. In this respect, fast development of long-term investment such as pension funds or life insurance companies, will play an important role in implementing an efficient mortgage loan system.
To sum up, progress in developing mortgage loans has been manifest in recent years. Further efforts should nevertheless be employed to devise coherent and efficient real estate financing policies. In this vein, co-operation between economic ministries, the Ministry of Public Finance and the central bank, should be strengthened for the wind of change to pick up.
I am confident that the aforementioned aspects will be hotly debated and I therefore wish you success.