Presentation on theme: "HOUSING FINANCE IN PAKISTAN Central Bank’s Perspective"— Presentation transcript:
1 HOUSING FINANCE IN PAKISTAN Central Bank’s Perspective Syed Samar HasnainDirector – (Infrastructure, Housing & SME Finance Department)State Bank of Pakistan
2 Pakistan is a medium sized, lower middle income country SOME BASIC FACTSPakistan is a medium sized, lower middle income countryGeneral FactsSize: 796,095 Sq. km.Nearly 200 million inhabitants100 million inhabitants are below the age of 25 yearsEconomic FactsCurrency: Pak. Rupee.GDP: US$ Billion in 2011GDP Per Capita: US$ 1,145
3 Source: Access to Finance Survey State of Financial ExclusionThe Financial Market Development FrontiersThe Formally ServedThe Informally ServedThe Financially ExcludedSource: Access to Finance Survey
4 Current State of Housing sector in Pakistan Housing Sector of PakistanCurrent State of Housing sector in PakistanThere is a large and widening gap in Housing market in PakistanWorld Bank estimated a shortfall of 8 million housing units in Pakistan in 2009According to estimates the annual incremental demand is 600,000 units, of which 50% is met by the private/public investmentThe ever widening housing demand and supply gap requires huge investmentWith 600,000 incremental demand and 500,000 units from the backlog, total annual housing needs comes to 1.1 millionAt 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
5 Housing Market Segmentation Demand for Housing in PakistanHousing Market SegmentationLow Income GroupMost of the gap in the housing market is for the low income/affordable segmentThe existing dwellings are non-standardized and of the low qualityThe development needs are currently not served by the formal sector.High Income Group and Middle Income GroupThis 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 productionDevelopers – Banks/ DFIsThis 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 citiesThis segment is gaining momentum.
6 Mortgage Market of Pakistan Due to structural Impediments the sector is showing negative growth and high NPLsGross OutstandingNon-performing loans
7 SBP is actively Promoting Housing Finance SBP is facilitating at multiple levels to address market failuresFormation of Housing Advisory GroupImplementation of HAG recommendationsDevelopment of secondary mortgage market in Pakistan by creating a Mortgage Refinance Company (MRC)Review of Prudential Regulations for Housing FinancePreparation of Housing Finance GuidelinesDevelopment of a Model for Builders/Developers FinanceCapacity Development of Financial Institutions in housing finance through seminars, workshops and training programsEffective coordination with key Stakeholders – ABAD, AMB etc
8 Housing Advisory Group Housing Advisory Group was instrumental in taking all stakeholders on boardHAG 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 CostsEstablishing an integrated land registration information systemIncreasing supply of land for affordable housingStructuring and streamlining Large Scale Developer’s FinanceFacilitate low-cost/low-income housing models and productsFacilitate Real Estate Investment Trusts (REITs)Provision of long term funding for housing loansHousing Observatory (housing market information system)Capacity building of the mortgage banking industry in Pakistan
9 Mortgage Refinance Company SBP is facilitating the industry to put in place the missing market infrastructureDevelop the Primary Mortgage MarketProvide financial resources to enable primary mortgage lenders (PMLs) to grant more loans at fixed/hybrid rates and for longer tenurePrepare PMLs for BASEL compliance by narrowing the gap between the maturity structure of the housing loans and the source of fundsEnsure loan standardization across primary lending institutions which is necessary for any future securitizationDevelop the Capital MarketsProvide more private debt securities (Bonds) with different maturities and rates for investment of surplus fundsPromote ABS as a tool for raising funds from the capital marketsCreate a Yield Curve to serve as a benchmark for other institutions
10 Large Scale Builder Finance Model Given the huge housing gap, the industry needs to provide solutions on large scale particularly for the low income housingSBP 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/developersKey stakeholders including the Association of the Builders and Developers (ABAD), Investment Bankers, Association of Mortgage bankers (AMB) and Rating Agency have been consultedKey challenges include:Corporatization of large-scale developersBankable financial statementsCredit rating (Entity and Instrument Ratings)Fiscal issues relating to Book Value and Market Value, declared income and wealth etc.
11 Challenges & Opportunities High cost of land in metropolitan cities hinders affordable housingNeed for development and uplift of Urban infrastructureSingle window clearance for approvals for buildingInvestment in experimentation in low-cost building technologies,Investment linked tax incentives for developers to increase the supply of affordable housingMore effective public private partnerships to tackle the shortage of housing especially in the low income groupDeepening of the debt market to ensure availability of long-term fundingDevelopment of new funding instruments
12 Way Forward Adopting Innovative Approaches to Affordable Housing Promoting Value Chain in Housing DevelopmentExploration of Credit lines for Institutions offering Housing FinancePutting in place a Housing Credit Fund or Refinance Window at SBP (Central Bank)Arranging a Credit Guarantee Scheme for low-Income Housing FinancePromotion of Microfinance Banks to support borrowers with undocumented incomeEstablishment of a Housing Observatory