1. Housing Finance in Pakistan
Syed Samar Hasnain
Executive Director - Development Finance Group & Islamic Banking
State Bank of Pakistan

2. 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
Market participants, financing structures and quality of housing portfolio
SBP initiatives to promote housing sector
Challenges and opportunities
Way forward

3. Pakistan is a medium sized, lower middle income country
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
Currency: Pak. Rupee.
GDP: US$ Billion in 2011
GDP Per Capita: US$ 1,145

4. Source: Access to Finance Survey
State of Financial Exclusion
The Financial Market Development Frontiers
The Formally Served
The Informally Served
The Financially Excluded
Source: Access to Finance Survey

5. Status of Financial Services in Pakistan
Population per branch stands at 16,607 people

6. Source: Access to Finance Survey
State of Financial Exclusion
The Financial Market Development Frontiers
The Formally Served
The Informally Served
The Financially Excluded
Source: Access to Finance Survey

7. 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Improper implementation of foreclosure laws; outdated building and zoning regulations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
Poor master planning and governance issues at national and local government levels
Multiple institutions and administrative procedures
Restrictive building codes
Unorganized real estate agencies
Unreliable utility connections Emerging building industry
Lack of housing finance particularly developer finance
Rising land prices and rapid urbanization

8. 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

9. Diversity in Housing Finance Market
Financial Institutions involved in Housing Finance
Commercial Banks 22
Islamic Banks 5
DFIs
MFBs
Islamic Banking Branches 7
Product Range
Construction
Outright Purchase
Renovation

10. Due to structural Impediments the sector is beset with anemic growth
Gross Outstanding

11. Mortgage Market of Pakistan
Non-Performing loans

12. Evolution of Housing Finance
Ist HFC
Capacity Building of Financial Institutions
HBFC
National Housing Policy 2001
Islamic Banks
Commercial Banks
1952
2001
1992
2007
HAG Recommendations
2004
2003
2006
2008
Infrastructure & Housing Finance Department
MFBs
SBP Role & Efforts
The MFIs Ordinance 2001 marked the beginning of a new era in microfinance, which allowed creation of micro-banking industry in Pakistan and allowed commercialisation of microfinance.
The MFIs Ordinance provides multi-institutional approach by encouraging not only setting up of new MFBs at District, Regional, Provincial, and National level with varying capital requirements, but also an opportunity to NGOs/MFIs to transform into a Microfinance Bank.
International Housing Finance Conference
Establishment of MRC
Housing Finance Reviews 12

13. 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

14. 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

15. Mortgage Refinance Company
SBP is facilitating the industry to put in place the missing market infrastructure
Develop the Primary Mortgage Market
Provide financial resources to enable primary mortgage lenders (PMLs) to grant more loans at fixed/hybrid rates and for longer tenure
Prepare PMLs for BASEL compliance by narrowing the gap between the maturity structure of the housing loans and the source of funds
Ensure loan standardization across primary lending institutions which is necessary for any future securitization
Develop the Capital Markets
Provide more private debt securities (Bonds) with different maturities and rates for investment of surplus funds
Promote ABS as a tool for raising funds from the capital markets

16. 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:
Corporatization of large-scale developers
Bankable financial statements
Credit rating (Entity and Instrument Ratings)
Fiscal issues relating to Book Value and Market Value, declared income and wealth etc.

17. Major changes relate to provisioning and classification
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
General as well as specific
Separation from Consumer Finance PRs

18. 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

19. Thank You