Mortgage Finance Opportunities and Challenges By Taimur Afzal, Chairman ASSOCIATION OF MORTGAGE BANKERS (AMB) March 25th 20131

Obama’s State of Union Address 2013 March 25th 20132

Pakistan Population Population (2011) 187 Million World's sixth most-populous country Population Growth Rate 1.6 % Urban population35% Second most urbanized nation in South Asia Population below age of 25 Years 100 Million Major Cities ◦ Karachi 21M Lahore 11 M RWP 3.5 M Faisalabad 3M ◦ Hyderabad 3M Multan 2.6 M GRW 2.5 M Peshawar 3.6 M ◦ Quetta 2M March 25th 20133

Pakistan Economy GDP Rs. 20,600 Billion GDP Growth Rate 3.67% Employment by Sector Industry13.7% Construction 7% Agriculture 45% Un-Employment rate 6% Inflation Rate 11 % (2012) March 25th 20134

Pakistan Banking Assets (Rs. in Billion) SegmentAdvancesNPLs Infection Ratio Corporate Sector 2, SMEs Sector Agriculture Sector Consumer sector Commodity financing Staff Loans Others Total 4, Mortgage Financing Portfolio 53 B NPLs 17 B Inf. Ratio 31.4% Mortgage Financing Portfolio 53 B NPLs 17 B Inf. Ratio 31.4% March 25th

Mortgage as %age of GDP  GDP Pakistan= Rs. 20,600 Billion  Mortgage portfolio= Rs. 53 Billion  Staff House Finance= Rs. 77 Billion  Mortgage = 0.7 % of GDP  International Comparables March 25th 20136

Potential of Housing Sector Housing Shortfall World Bank Estimation 8 million housing units (2009) Annual incremental demand 600,000 units. Annual housing needs 1.1 million Units (600,000 incremental demand and 500,000 units from the backlog) Total Funding requirement Rs. 3.3 trillion per year (average price of Rs. 3 million per unit) Funding DemandRs.330 billion (Assuming only 10% housing needs as effective demand) Mortgage Financing Requirement Rs. 231 billion per annum (At 70% LTV) March 25th 20137

Success Story March 25th 20138

INDIA – Growth of Mortgage  Mortgage to GDP ratio 20129% %  Mortgages comprise the largest component in banks’ retail portfolio  Mortgages have grown from 1.5% of banks’ advances to 10% over the last 10 years  Projections 2020 Outstanding mortgages will increase 8 fold from Rs. 5 trillion currently to Rs. 40 trillion by 2020 Mortgage to GDP ratio projected at 20% by 2020 March 25th 20139

Growth Drivers in India Growth driven by ◦ Economic growth ◦ Rising disposable income ◦ Affordable interest rates ◦ Increased urbanization ◦ Favorable demographics ◦ Housing as a priority sector March 25th

Growth Drivers in India National Housing Bank ◦ Housing regulatory framework ◦ Refinancing ◦ Focus on low to mid income segment ◦ NHB Residex Foreclosure laws ◦ SARFAESI ◦ Reduced NPA Securitization ◦ Mortgage registry March 25th

Growth Drivers in India Mortgage Guarantee/ Insurance Tax incentives Specialized Housing Finance Companies Focused provisioning March 25th

Solution March 25th

What can be done ? Macro Factors ◦ Economic growth ◦ infrastructure ◦ Affordable interest rates ◦ Real estate prices Funding sources ◦ Channelization of long term funds ◦ Securitization ◦ Refinancing ◦ Mortgage insurance/ guarantee March 25th

What can be done ? Legal framework ◦ Foreclosure ◦ Stamp /registration fees ◦ Title documents Regulatory issues ◦ Mortgage specific regulations ◦ Provisioning issues ◦ Credit rationing March 25th

What can be done ? Product development ◦ Target market diversity ◦ Tier 2 cities ◦ Developer-buyer financing model ◦ Focused product  Public sector employees  Private sector employees  Rural customers March 25th

Year GDP (Rs. In Billion) Mortgage Portfolio (Rs. In Billion) Mortgage as %age of GDP , % , % ,000 1, % ,000 1, % ,000 3, % Vision 2030 March 25th

Thank you March 25th