{"id":72059,"date":"2019-10-30T13:04:13","date_gmt":"2019-10-30T13:04:13","guid":{"rendered":"https:\/\/www.zameen.com\/blog\/?p=72059"},"modified":"2019-12-05T05:33:01","modified_gmt":"2019-12-05T05:33:01","slug":"foreclosure-laws-naya-pakistan-housing-program","status":"publish","type":"post","link":"https:\/\/www.zameen.com\/blog\/foreclosure-laws-naya-pakistan-housing-program.html","title":{"rendered":"Naya Pakistan Housing Ordinance: Does the Government Plan to Address Foreclosure Laws?"},"content":{"rendered":"\n

On July 29th<\/sup>,\nthe \u2018Naya Pakistan Housing and Development Authority Ordinance\u2019 was presented before\nthe National Assembly to expedite the process of Prime Minister\u2019s flagship low-cost\nhousing program. It addresses several bottlenecks that are impeding housing\ndevelopment for the low-income population segment.<\/p>\n\n\n\n

Amongst other issues,\nsuch as land acquisition, registration of properties and record of titles, a\ncritical component of the Ordinance specifies foreclosure laws that will be\nimplemented in case a party defaults on its mortgage deed.  This is the need of the hour since the\ncurrent status of foreclosure laws in Pakistan does not give financial\ninstitutions the right to sell off the property in case of defaults. Before\ndwelling into the solution provided in this Ordinance, it is imperative that we\nunderstand the environment necessary to facilitate consumer housing finance.<\/p>\n\n\n\n

One of the salient\nfeatures of a thriving housing finance market is a strong regulatory and legal\nframework established to protect lenders from borrower default. Well-developed\nand efficient legal systems ensure that lending institutions are protected in\ncase borrowers are unable to meet their financial obligations.<\/p>\n\n\n\n

As is the case with\nnumerous emerging markets, the court system in Pakistan is also riddled with\ninefficiencies that substantially increase the risk of doing business for\nfinancial institutions. According to some estimates, in Pakistan, around 70\npercent of cases in banking courts are frivolous in nature, intended to delay\nlitigation decision and judgement. <\/p>\n\n\n\n

Moreover, an ever-increasing\nbacklog of banking court cases, and a legal system lacking the capacity to\ntackle them are among the many reasons that have contributed to an\nunderdeveloped mortgage market in Pakistan. Financial institutions are averse to\nlending due to the legal insecurity associated with debt recovery. <\/p>\n\n\n\n

In order to bypass\nlitigation delays in developing countries, many governments introduce non-judicial\nforeclosure policies that give lending organizations the power to sell a\nproperty by themselves without recourse to the legal system. Not only does this\npromote mortgage lending, it also improves the overall credit culture as\nborrowers are aware of the consequences of dishonoring debt obligations. <\/p>\n\n\n\n

\"Successful<\/figure><\/div>\n\n\n\n

In this regard, The\nFinancial Institution Recovery Ordinance, 2001, Section 15 introduced by the\ngovernment of Pakistan at that time authorized financial institutions to carry\nout foreclosures for a mortgaged property without going to court. However, in\n2014, this law was declared as \u2018ultra vires\u2019 (beyond the powers) of the\nConstitution by the Honorable Supreme Court of Pakistan. <\/p>\n\n\n\n

From the eye of an\nactivist, the decision seemed commendable as it protected borrowers from\npredatory practices of financial institutions to usurp property in cases of\ndefaults. From a business development perspective, though, this served as a\nfinal nail in the coffin for an already struggling mortgage market in Pakistan.\n<\/p>\n\n\n\n

It is not surprising\nthen, that the latest figures from State Bank of Pakistan show that the\noutstanding housing finance in the country is currently equivalent to only 0.5\npercent of the GDP. This figure, which is also commonly referred to as the Mortgage\nDepth Ratio, is low in comparison to not only developed but also regional\ndeveloping countries like India, Srilanka and Bangladesh. <\/p>\n\n\n\n

Given the latest push of the incumbent government to develop low cost housing under the Naya Pakistan Housing Program<\/a>, it is imperative for the Imran Khan administration to address this issue, amongst several others, to promote the entry of financial institutions in the affordable housing industry. <\/p>\n\n\n\n

Optics suggest that the\ngovernment understands the pivotal role that financial institutions have to\nplay in making this initiative a success, as government officials have been seemingly\nvery vocal in their support of foreclosure laws for their flagship Housing\nScheme. <\/p>\n\n\n\n

With the introduction of\nNaya Pakistan Housing Authority Ordinance, we now finally have an understanding\nin how the government aims to address foreclosure concerns for its housing\nscheme. In Chapter VII of this Ordinance, it is stated that all disputes\nbetween financial institutions and the relevant borrowers will be directed to\nan \u2018Adjudicator\u2019 for resolution, whose role has been defined in section 41 as\nfollows:<\/p>\n\n\n\n

  1. Adjudicators will be\npersonnel appointed by the Housing Authority to hear and decide cases referred\nto them by the Chairman or Registrar of the Authority.<\/em><\/strong><\/li>
  2. They may conduct inquiry\nand execute their decisions in any referred case \u2018as if (they are) a civil\ncourt under the Code of Civil Procedure, 1908 (Act V of 1908)\u2019.<\/em><\/strong><\/li>
  3. They have the authority\nto recover amounts due from the mortgagor in case he\/she fails to repay house\nfinance<\/em><\/strong><\/li>
  4. They can ask enforcement\ninspectors of the Authority to execute decisions as directed.<\/em><\/strong><\/li><\/ol>\n\n\n\n

    Moreover, if a party does\nnot find the Adjudicator\u2019s decision as satisfactory, they can file an appeal in\nthe Appellate Tribunal constituted by the Housing Authority for this specific\npurpose. In case the party is still displeased, they can direct the matter to\nthe Supreme Court, which may or may not grant the permission to appeal this\ndecision. <\/p>\n\n\n\n

    The ordinance also\nspecifically denies jurisdiction to courts to entertain any matter that the\nAuthority officials are empowered to resolve. In essence, it endeavors to\nminimise court involvement in matters pertinent to the Housing Authority, which\nmeans foreclosure decisions taken by the Adjudicators will stay enforced since\nthey possess civil court authority. The impression here is that banking courts,\ntherefore, will not have a role in determining the merits of foreclosure in\ncase it is directed under this scheme. <\/p>\n\n\n\n

    While this Ordinance is\nstill in its early stages, and questions remains about its enforcement, the\nclauses for dispute resolution provided in it clearly indicate the government\u2019s\nstrict intention to enforce foreclosure in cases of default. This is welcome\nsign for the financial institutions that want to step into the housing finance\nindustry through the Naya Pakistan Housing Scheme. More than anything, the\nimplementation of this ordinance will help prevail the perception that willful\ndefaults in mortgage financing will have consequences, and will likely give\nconfidence to creditors that they are protected. <\/p>\n\n\n\n

    If approved, it should\nprovide a significant impetus to the real estate sector through the development\nof mortgage finance in Pakistan. But much more needs to be done to further\nincentivize housing finance. <\/p>\n\n\n\n

    For further insights into the history of foreclosure laws and its potential impact, please read \u2018Foreclosure laws necessary for stimulating house financing, especially for Naya Pakistan Housing Program (NPHP) \u2013 Part 1<\/a>\u2019<\/p>\n","protected":false},"excerpt":{"rendered":"

    On July 29th, the \u2018Naya Pakistan Housing and Development Authority Ordinance\u2019 was presented before the National Assembly to expedite the process of Prime Minister\u2019s flagship low-cost housing program. It addresses several bottlenecks that are impeding housing development for the low-income population segment. Amongst other issues, such as land acquisition, registration of properties and record of titles, a critical component of the Ordinance specifies foreclosure laws that will be implemented in case a party defaults on its mortgage deed.  This is the need of the hour since the current status of foreclosure laws in Pakistan does not give financial institutions the right to sell off the property in case of defaults. Before dwelling into the solution provided in this Ordinance, it is imperative that we understand the environment necessary to facilitate consumer housing finance. One of the salient features of a thriving housing finance market is a strong regulatory and legal framework established to protect lenders from borrower default. Well-developed and efficient legal systems ensure that lending institutions are protected in case borrowers are unable to meet their financial obligations. As is the case with numerous emerging markets, the court system in Pakistan is also riddled with inefficiencies that substantially increase…<\/p>\n","protected":false},"author":97,"featured_media":72062,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[11053],"tags":[38774,4452,19524,30884,43961,10649,26741,10184,41491],"persona":[32414,32411,35639],"class_list":{"0":"post-72059","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-laws-taxes","8":"tag-foreclosure-laws","9":"tag-laws","10":"tag-laws-and-taxes","11":"tag-laws-and-taxes-in-pakistan","12":"tag-lob","13":"tag-naya-pakistan-housing-program","14":"tag-naya-pakistan-housing-project","15":"tag-nphp","16":"tag-nphs","17":"persona-laws","18":"persona-property-investment","19":"persona-property-management","20":"cat-11053-id"},"acf":[],"yoast_head":"\nForeclosure Laws in 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