Housing Finance in Pakistan
Syed Samar Hasnain
Executive Director - Development Finance Group & Islamic Banking
State Bank of Pakistan
Email: samar.husnain@sbp.org.pk
Outline
 Basic Facts about Pakistan
 State of Housing sector in Pakistan
 Demand and Market Segmentation of Housing sector
 Main issues in Housing sector development
 State of Housing Finance in Pakistan
o Market participants, financing structures and quality of housing portfolio
 SBP initiatives to promote housing sector
 Challenges and opportunities
 Way forward
2
Some Basic Facts
Pakistan is a medium sized, lower middle income country
General Facts
•
•
•
Size: 796,095 Sq. km.
Nearly 200 million inhabitants
100 million inhabitants are below the
age of 25 years
Economic Facts
•
•
•
3
Currency: Pak. Rupee.
GDP: US$ 202.8 Billion in 2011
GDP Per Capita: US$ 1,145
State of Financial Exclusion
The Financial Market Development Frontiers
The Formally
Served
The Informally Served
The Financially Excluded
11% 1%
0%
10%
32%
20%
30%
56%
40%
Source: Access to Finance Survey
50%
%
60%
70%
80%
90%
100%
4
Status of Financial Services in Pakistan
 Population per branch stands at 16,607 people
State of Financial Exclusion
The Financial Market Development Frontiers
The Formally
Served
The Informally Served
The Financially Excluded
11% 1%
0%
10%
32%
20%
30%
56%
40%
Source: Access to Finance Survey
50%
%
60%
70%
80%
90%
100%
6
Key Housing Industry Issues
Weak institutional support and economic fundamentals, coupled with high
transaction cost, the sector faces a number of Structural Challenges
• Weak property rights due to inefficient legal framework and
land information systems
• Improper implementation of foreclosure laws; outdated
building and zoning regulations
• Embryonic property development framework
o Poor master planning and governance issues at national
and local government levels
o Multiple institutions and administrative procedures
o Restrictive building codes
• Unorganized real estate agencies
• Unreliable utility connections Emerging building industry
• Lack of housing finance particularly developer finance
•7 Rising land prices and rapid urbanization
Current State of Housing sector in Pakistan
There is a large and widening gap in Housing market in Pakistan
• World Bank estimated a shortfall of 8 million housing units in Pakistan in
2009
• According to estimates the annual incremental demand is 600,000 units, of
which 50% is met by the private/public investment
The ever widening housing demand and supply gap requires huge investment
• With 600,000 incremental demand and 500,000 units from the backlog, total
annual housing needs comes to 1.1 million
• At an average price of Rs. 3 million per unit, total funding requirement is
estimated at Rs 3.3 trillion per year (around US$ 35 billion)
• Assuming only 10% housing needs as effective demand, total funding needs
are Rs.330 billion (around US$3.5 billion)
• At 70% LTV (Loan–to-Value Ratio), this translates into Rs. 231 billion per
annum housing credit requirement
The situation is compounded by increased urbanization and changed
demographics
8
Diversity in Housing Finance Market
• Financial Institutions involved in Housing
Finance
•
•
•
•
•
Commercial Banks
Islamic Banks
DFIs
MFBs
Islamic Banking Branches
• Product Range
• Construction
• Outright Purchase
• Renovation
9
22
5
2
2
7
Due to structural Impediments the sector is beset with
anemic growth
Gross Outstanding
90
80
70
84
77
76
67
64
67
61
59
60
55
Rs. Billion
53
54
51
50
46
42
41
40
35
30
20
16
17
12
14
13
13
13
12
10
0
2007
2008
Total Gross Outstanding (Rs Billion)
10
2009
2010
2011
2012
Gross Outstanding (Rs Billion) - Share of All Banks & Other DFIs
2013
2014
Gross Outstanding (Rs Billion) - Share of HBFC
Mortgage Market of Pakistan
Non-Performing loans
25
20
19
19
19
16
16
16
Rs. Billion
15
12
12
11
11
9
10
6
8
7
7
7
6
9
9
7
6
5
0
2008
2009
Non-Performing Loans (Rs Billion)
11
2010
2011
2012
Share of All Banks & Other DFIs (Rs Billion)
2013
2014
Share of HBFC (Rs Billion)
Evolution of Housing Finance
HBFC
National Housing Policy
2001
1952
2001
1992
Ist
HFC
Islamic
Banks
HAG
Recommendations
2007
2004
2003
2006
2008
Commercial
Banks
Infrastructure & Housing Finance
Department
MFBs
SBP Role & Efforts
International Housing
Finance Conference
Capacity Building of Financial
Institutions
Establishment of MRC
Housing Finance
Reviews
12
SBP is actively Promoting Housing Finance
• Formation of Housing Advisory Group
– Implementation of HAG recommendations
• Development of secondary mortgage market in Pakistan by
creating a Mortgage Refinance Company (MRC)
• Prudential Regulations for Housing Finance
• Model for Builders/Developers Finance
• Capacity Development of Financial Institutions in housing
finance through seminars, workshops and training programs
• Effective coordination with key Stakeholders – ABAD, AMB
etc
13
Housing Advisory Group
HAG recommendations are actively pursued by all stakeholders
including SBP:
• Reforming Legal Framework affecting Foreclosure, Transfer,
Tenancy, Rent Control and Credit bureaus etc.
• Rationalization of Transaction Costs
• Establishing an integrated land registration information system
• Increasing supply of land for affordable housing
• Structuring and streamlining Large Scale Developer’s Finance
• Facilitate low-cost/low-income housing models and products
• Facilitate Real Estate Investment Trusts (REITs)
• Provision of long term funding for housing loans
• Housing Observatory (housing market information system)
• Capacity building of the mortgage banking industry in Pakistan
14
Mortgage Refinance Company
SBP is facilitating the industry to put in place the missing
market infrastructure
• Develop the Primary Mortgage Market
o Provide financial resources to enable primary mortgage lenders
(PMLs) to grant more loans at fixed/hybrid rates and for longer
tenure
o Prepare PMLs for BASEL compliance by narrowing the gap
between the maturity structure of the housing loans and the
source of funds
o Ensure loan standardization across primary lending institutions
which is necessary for any future securitization
• Develop the Capital Markets
o Provide more private debt securities (Bonds) with different
maturities and rates for investment of surplus funds
o Promote ABS as a tool for raising funds from the capital markets
15
Large Scale Builder Finance Model
Given the huge housing gap, the industry needs to find solutions for
large scale developer financing particularly for the low income housing
• SBP has developed the financing model to facilitate large-scale
builders/developers’ access to formal financial sector. Guidelines
would be issued to banks/DFIs for providing financing to
builders/developers
• Key stakeholders including the Association of the Builders and
Developers (ABAD), Investment Bankers, Association of Mortgage
bankers (AMB) and Rating Agency have been consulted
• Key challenges include:
o Corporatization of large-scale developers
o Bankable financial statements
o Credit rating (Entity and Instrument Ratings)
o Fiscal issues relating to Book Value and Market Value, declared
income and wealth etc.
16
Housing Finance PRs
Keeping in view peculiar nature of housing finance, there is
a need to give special attention to HF PRs
• PRs have been revised
 Major changes relate to provisioning and
classification
o General as well as specific
 Separation from Consumer Finance PRs
17
Way Forward
• Adopting Innovative Approaches to Affordable Housing
• Exploration of Credit lines for institutions offering Housing
Finance
• Arranging a Credit Guarantee Scheme for low-Income
Housing Finance
• Promotion of Microfinance Banks to support borrowers
with undocumented income
• Strengthening the Regulatory Framework
18
Thank You