1. HOUSING FINANCE IN PAKISTAN Central Bank’s Perspective
Syed Samar Hasnain
Director – (Infrastructure, Housing & SME Finance Department)
State Bank of Pakistan

2. 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

3. 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

4. Current State of Housing sector in Pakistan
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

5. Housing Market Segmentation
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.

6. Mortgage Market of Pakistan
Due to structural Impediments the sector is showing negative growth and high NPLs
Gross Outstanding
Non-performing loans

7. 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

8. 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

9. 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
Create 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 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:
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.

11. Challenges & Opportunities
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

12. 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

13. Thank You