Housing Finance in

Pakistan

Syed Samar Hasnain

Executive Director - Development Finance Group & Islamic
Banking
State Bank of Pakistan
Email: samar.husnain@sbp.org.pk

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
o Market participants, financing structures and quality of housing
portfolio

SBP initiatives to promote housing sector

Challenges and opportunities
Way forward
2

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$ 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

11% 1%

0%

10%

The Financially Excluded

32%

20%

30%

56%

40%

Source: Access to Finance Survey

50%

60%

70%

80%

90% 100%

%
4

Status of Financial Services in Pakistan

Population per branch stands at 16,607 people

State of Financial Exclusion

The Financial Market Development Frontiers

The
Formally
Served

The Informally
Served

11% 1%

0%

10%

The Financially Excluded

32%

20%

30%

56%

40%

Source: Access to Finance Survey

50%

60%

70%

80%

90% 100%

%
6

Key Housing Industry Issues

Weak institutional support and economic
fundamentals, coupled with high transaction cost, the
sector
faces a rights
number
of Structural
Challenges
Weak
property
due
to inefficient
legal

framework and land information systems

Improper implementation of foreclosure laws;
outdated building and zoning regulations
Embryonic property development framework
o Poor master planning and governance issues at
national and local government levels
o Multiple institutions and administrative
procedures
o Restrictive building codes
Unorganized real estate agencies
Unreliable utility connections Emerging building
industry
Lack of housing finance particularly developer

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

Diversity in Housing Finance Market

Financial Institutions
Housing Finance

Commercial Banks
22
Islamic Banks
5
DFIs
2
MFBs
2
Islamic Banking Branches 7

Product Range
Construction
Outright Purchase
Renovation
9

involved

in

Due to structural Impediments the sector

is beset with anemic growth
Gross Outstanding

Total Gross Outstanding (Rs Billion)

Gross Outstanding (Rs Billion) - Share of HBFC

10

Gross Outstanding (Rs Billion) - S hare of All Banks & Other DFIs

Mortgage Market of Pakistan

Non-Performing loans

Rs. Billion

Non-Performing Loans (Rs Billion)

11

Share of All Banks & Other DFIs (Rs Billion)

Share of HBFC (Rs Billion)

Evolution of Housing Finance

National Housing
Policy 2001

HBFC

Islamic
Banks

2001

1952

1992

I HFC
st
st

HAG
Recommendat
ions
200

2004

2003

Commerci
al Banks

2006

Infrastructure & Housing

Finance Department

200
8

MFBs
MFBs

SBP Role & Efforts

International
Capacity Building of
Housing Finance
Financial Institutions
Conference

Establishment of
MRC

Housing Finance
Reviews
12

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
13
ABAD, AMB etc

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 Developers 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
14

Mortgage Refinance Company

SBP is facilitating the industry to put in
place the missing market infrastructure

15

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
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

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:
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
16
Value, declared income and wealth etc.

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
o General as well as specific
Separation from Consumer Finance PRs

17

Way Forward
Adopting Innovative Approaches to Affordable
Housing
Exploration of Credit lines for institutions
offering Housing Finance
Arranging a Credit Guarantee Scheme for lowIncome Housing Finance
Promotion of Microfinance Banks to support
borrowers with undocumented income
Strengthening the Regulatory Framework

18

Thank You