{"id":71837,"date":"2019-10-29T12:50:02","date_gmt":"2019-10-29T12:50:02","guid":{"rendered":"https:\/\/www.zameen.com\/blog\/?p=71837"},"modified":"2019-12-05T05:33:11","modified_gmt":"2019-12-05T05:33:11","slug":"foreclosure-laws-naya-pakistan-housing-program-part-1","status":"publish","type":"post","link":"https:\/\/www.zameen.com\/blog\/foreclosure-laws-naya-pakistan-housing-program-part-1.html","title":{"rendered":"Foreclosure Laws Necessary for Stimulating House Financing, Especially for Naya Pakistan Housing Program (NPHP) \u2013 Part 1"},"content":{"rendered":"\n

This is the first of a series of articles exploring the centrality of adequate foreclosure laws to meet rising housing demand in the middle and lower income groups in Pakistan, with particular reference to the Prime Minister\u2019s Naya Pakistan Housing Program. These articles will culminate in a comprehensive Zameen Research report that will scrutinise existing house financing laws and examine models of regional countries and similar-sized economies that were able to successfully stimulate investment in their respective housing markets.  <\/em><\/strong><\/p>\n\n\n\n

The government\u2019s flagship Naya Pakistan Housing Program (NPHP) <\/a>is struggling to meet take-off deadlines because of reluctance of private sector financial institutions to commit to the present lending regime, which leaves them uncovered in case of defaults. <\/p>\n\n\n\n

Because of\nthe ambitious target of the program, 5,000,000 houses in five years for middle\nand lower income groups, the government is relying on Public-Private\nPartnerships (PPP) \u2013 in simplest terms, the public sector will secure lands\nnecessary for the project, while private sector lending will bring the liquidity.<\/p>\n\n\n\n

Yet the\nsuperior courts, in their recent banking jurisprudence, have repeatedly struck\ndown powers of private banks to secure their own interests without the\nintervention of \u2018independent adjudicatory bodies\u2019; hence the low appetite among\nbanks as well as non-banking financial institutions (NBFIs) for mortgage\nfinancing. <\/p>\n\n\n\n

For example, in the case of National of Pakistan v Saif\nTextile Mills (2014), the Supreme Court upheld the judgment of the Lahore High\nCourt, upon appeal, by maintaining that any action of a bank that amounted to\nbeing a judge in its own case constituted \u201cexploitative behaviour,\u201d which\nviolates the borrower\u2019s right to due process of law. <\/p>\n\n\n\n

Similarly,\nin Summit Bank vs Wasim and Co (2015), the Supreme Court ruled that the only\nlegal course for the bank, to recover outstanding liability, was to file a\nrecovery suit in relevant banking courts.<\/p>\n\n\n\n

In another\ncase, Kalb e Haider and Co vs National Bank of Pakistan (2016), the Honourable\nCourt observed that \u201cIt is a settled law that in such matters the banks cannot\ntake any unilateral action and have to resort to the legal process provided\nunder the law\u2026\u201d<\/p>\n\n\n\n

This legal\nprocess referred to in the judgments is the Due Process clause, which was\ninserted in the Constitution of Pakistan as recently as 2010 through the 18th<\/sup>\namendment. Simply put, should a customer default on a housing loan, banks\ncannot foreclose on the property by themselves but must instead follow \u201cdue\nprocess\u201d already laid down in the law, that is turn to banking courts to\nrecover amounts defaulted on.<\/p>\n\n\n\n

But it was\nprecisely the paralysis of the banking courts, where the large backlog of cases\nensures that any new complaints are lost in the system for years on end, which\nforced banks\u2019 commercial lending away from real estate. Due to this friction\nbetween the judiciary\u2019s interpretation of existing laws and banks\u2019 reluctance\nto invest in real estate without adequate foreclosure laws, the Pakistani real\nestate mortgage market is among the least developed in the region, especially\nin terms of housing for the middle and lower income groups \u2013 the principal\nbeneficiaries of NPHP. <\/p>\n\n\n\n

Enacting\nlaws in favour of non-judicial foreclosures will require legislation in\nparliament. But because of the treasury-opposition standoff in the House, the\ngovernment has tried to circumvent any parliamentary debate by forming the Naya\nPakistan Housing Authority (NPHA) through a presidential ordinance, which was\npromulgated on May 24.<\/p>\n\n\n\n

The\nOrdinance takes a step towards provision of non-judicial foreclosure by creating\nthe position of an adjudicator to resolve disputes between borrowers and\nlending institutions. The adjudicator will have the authority to recover\namounts from mortgagors in cases of default. In case a defaulting party is not\nsatisfied with the adjudicator\u2019s decision, the case can be forwarded to an\nappellate tribunal constituted by the Authority. In case of further problems\nthe matter can be directed to the Supreme Court, which will then decide whether\nor not to allow appeal. <\/p>\n\n\n\n

Yet the\nOrdinance is neither here nor there. Ordinances have a life of 120 days. They\ncan be extended by another 120 days upon approval by relevant committees of the\nnational assembly, but unless approved by parliament in this time frame they\nsimply lapse. NPHA was kept alive, barely three days before lapsing on\nSeptember 20, for another 120 days. So far there is little to suggest that the\nOrdinance will have anything resembling smooth parliamentary passage.<\/p>\n\n\n\n

Since there\nis overwhelming demand for housing, particularly in income segments targeted by\nNPHP, and there is adequate liquidity in the financial system to meet such\ndemand if a proper environment is created, it can be safely said that the\nentire project hinges in streamlining foreclosure laws in time. And unless the\ngovernment is able to iron out political differences with the opposition, which\nis blocking legislation because of political, completely unrelated, reasons,\nthere is a very real danger of the entire project collapsing.<\/p>\n\n\n\n

Part 2 will examine\nprevious policy initiatives to stimulate the housing sector, why they failed,\nand what provisions were incorporated by other, similar economies that catered\nto middle- and low-income housing demand.<\/em><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

This is the first of a series of articles exploring the centrality of adequate foreclosure laws to meet rising housing demand in the middle and lower income groups in Pakistan, with particular reference to the Prime Minister\u2019s Naya Pakistan Housing Program. These articles will culminate in a comprehensive Zameen Research report that will scrutinise existing house financing laws and examine models of regional countries and similar-sized economies that were able to successfully stimulate investment in their respective housing markets.  The government\u2019s flagship Naya Pakistan Housing Program (NPHP) is struggling to meet take-off deadlines because of reluctance of private sector financial institutions to commit to the present lending regime, which leaves them uncovered in case of defaults. Because of the ambitious target of the program, 5,000,000 houses in five years for middle and lower income groups, the government is relying on Public-Private Partnerships (PPP) \u2013 in simplest terms, the public sector will secure lands necessary for the project, while private sector lending will bring the liquidity. Yet the superior courts, in their recent banking jurisprudence, have repeatedly struck down powers of private banks to secure their own interests without the intervention of \u2018independent adjudicatory bodies\u2019; hence the low appetite among banks…<\/p>\n","protected":false},"author":97,"featured_media":71857,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[11053],"tags":[41292,38774,41293,43961,26741,26742,10184,236],"persona":[32414,32411,35639],"class_list":{"0":"post-71837","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-laws-taxes","8":"tag-foreclosure-for-naya-pakistan-housing-scheme","9":"tag-foreclosure-laws","10":"tag-foreclosure-laws-and-naya-pakistan-housing-scheme","11":"tag-lob","12":"tag-naya-pakistan-housing-project","13":"tag-naya-pakistan-housing-scheme","14":"tag-nphp","15":"tag-property","16":"persona-laws","17":"persona-property-investment","18":"persona-property-management","19":"cat-11053-id"},"acf":[],"yoast_head":"\nForeclosure laws and Naya Pakistan Housing Scheme - 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