HOUSING FINANCE IN PAKISTAN
Central Bank’s Perspective
Syed Samar Hasnain
Director – (Infrastructure, Housing & SME Finance Department)
State Bank of Pakistan
Email: samar.husnain@sbp.org.pk
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
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•
•
2
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%
3
Housing Sector of Pakistan
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
4
Demand for Housing in Pakistan
Housing Market Segmentation
Low Income Group
• Most of the gap in the housing market is for the low income/affordable segment
• The existing dwellings are non-standardized and of the low quality
• The development needs are currently not served by the formal sector.
High Income Group and Middle Income Group
• This segment have some access to formal financing and the quality of units is of
some standard.
• Significant potential for the formal sector to participate in commercially viable high
and middle income housing segments through development of housing schemes
and standardization which will lower the cost of production
Developers – Banks/ DFIs
• This segment is mostly unorganized but currently supplying some of the housing
demand for middle and high income and commercial property in most of the
major cities
• This segment is gaining momentum.
5
Mortgage Market of Pakistan
Due to structural Impediments the sector is showing
negative growth and high NPLs
Gross Outstanding
90
84
80
64
62
Total Gross
Outstanding
(Rs Billion)
77
76
70
60
Non-performing loans
67
20
67
61
55
55
50
46
36
30
20
10
19
17
11
12
16
14
13
13
0
2005 2006 2007 2008 2009 2010 2011 2012
6
19
16
42
40
19
19
NonPerforming
Loans (Rs
Billion)
59
53
51
25
Gross
Outstanding
(Rs Billion) Share of All
Banks &
Other DFIs
Gross
Outstanding
(Rs Billion) Share of
HBFC
15
12
12
11
Share of All
Banks &
Other DFIs
(Rs Billion)
11
9
10
66
7
2008
2009
7
7
8
Share of
HBFC (Rs
Billion)
5
0
2010
2011
2012
SBP is actively Promoting Housing Finance
SBP is facilitating at multiple levels to address market failures
• Formation of Housing Advisory Group
– Implementation of HAG recommendations
• Development of secondary mortgage market in Pakistan by
creating a Mortgage Refinance Company (MRC)
• Review of Prudential Regulations for Housing Finance
• Preparation of Housing Finance Guidelines
• Development of a 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
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Housing Advisory Group
Housing Advisory Group was instrumental in taking all
stakeholders on board
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
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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
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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
o Create a Yield Curve to serve as a benchmark for other
institutions
Large Scale Builder Finance Model
Given the huge housing gap, the industry needs to provide solutions on
large scale particularly for the low income housing
• SBP is working to develop financing models 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.
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Challenges & Opportunities
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High cost of land in metropolitan cities hinders affordable housing
Need for development and uplift of Urban infrastructure
Single window clearance for approvals for building
Investment in experimentation in low-cost building technologies,
Investment linked tax incentives for developers to increase the
supply of affordable housing
• More effective public private partnerships to tackle the shortage
of housing especially in the low income group
• Deepening of the debt market to ensure availability of long-term
funding
• Development of new funding instruments
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Way Forward
• Adopting Innovative Approaches to Affordable Housing
• Promoting Value Chain in Housing Development
• Exploration of Credit lines for Institutions offering Housing
Finance
• Putting in place a Housing Credit Fund or Refinance Window at
SBP (Central Bank)
• Arranging a Credit Guarantee Scheme for low-Income Housing
Finance
• Promotion of Microfinance Banks to support borrowers with
undocumented income
• Establishment of a Housing Observatory
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Thank You