{"id":76125,"date":"2019-12-17T10:27:17","date_gmt":"2019-12-17T10:27:17","guid":{"rendered":"https:\/\/www.zameen.com\/blog\/?p=76125"},"modified":"2019-12-17T11:27:09","modified_gmt":"2019-12-17T11:27:09","slug":"housing-finance-providers-pakistan","status":"publish","type":"post","link":"https:\/\/www.zameen.com\/blog\/housing-finance-providers-pakistan.html","title":{"rendered":"Housing finance providers: Too little, but not too late"},"content":{"rendered":"\n

Jointly owned by the government of Pakistan and\nthe State Bank of Pakistan (90% and 9.69% ownership respectively), the House\nBuilding Finance Company (HBFC) is the only specialized housing finance company\nin Pakistan. The HBFC has been providing mortgages to borrowers across the\ncountry since 2007. <\/p>\n\n\n\n

However, it is only recently that the company\u2019s role has been revived as the incoming government flexes its muscles to launch the mammoth Naya Pakistan Housing Program (NPHP)<\/a>. The program, aimed at bridging the existing housing gap by 5 million houses during the PTI tenure, is a tall order. Therefore, housing finance is crucial for accomplishing it. This prompts one to wonder where the housing finance providers are.<\/p>\n\n\n\n

The HBFC\u2019s mandate has always been to provide\nfinancing for the housing needs of lower- and middle-income home buyers. Of\nsome 60,000 current mortgage borrowers, 42 percent are in the HBFC portfolio,\nmaking it the largest player in the mortgage market. In fact, the company has\nmaintained this share over the years. <\/p>\n\n\n\n

In total loan amount\u2014the latest numbers\npublished by the SBP do not show a bifurcation by banks\u2014the HBFC has over 20\npercent of the share (2016). Though, interestingly, if HBFC was considered to\nbe a category in itself, it contributed less to housing finance than Islamic\nbanks that had about 39 percent share in gross loan amount in 2016. <\/p>\n\n\n\n

Though HBFC\u2019s contribution seems big, the share\nof housing finance as a proportion of total development finance, in fact is\nvery small. Though latest numbers are not available, in Jun-16, housing finance\naccounted for only 4.6 percent of total development finance (FY11: 5.9%)\u2014which\ntypically includes finance to SMEs and agriculture sector as well as\ninfrastructure finance, microfinance and SBP\u2019s refinance facilities alongside\nhousing finance. Interestingly, housing finance holds the lowest share in\ntotal. <\/p>\n\n\n\n

Globally, when the financial system fails to\nprovide housing finance, specialized housing finance companies intervene to\nfill the gap. Research also shows that even where lending for housing occurs,\nthere is a general disinclination of institutions to lend to middle and\nlow-income households. <\/p>\n\n\n\n

Institutional housing finance<\/a> is usually low and leans toward higher income groups when the prevailing demand is overwhelmingly and disproportionately skewed toward low income groups. This creates the need for specialized institutes that can provide affordable financing for the income groups that remain unaddressed. <\/p>\n\n\n\n

In India, there are over 70 housing finance\ncompanies, regulated by the National Housing Bank which was created entirely\nfor the purpose of enabling and regulating the sector in 1988. Housing finance\ncompanies have a share of 40 percent in total loans disbursed for mortgage\nlending, even though scheduled commercial banks are still leading the game. But\nthe country now also has a new category of housing finance companies called\nAffordable housing finance companies (AHFCs) which cater to specific target\nsegments for housing finance. <\/p>\n\n\n\n

The progress in developing a vibrant mortgage\nmarket in Pakistan has been dull. HBFC has historically dealt with a lack of\ninstitutional capacity. Over the years, default rates have also remained persistently\nhigh. The company is also government owned and there is a clear conflict of\ninterest\u2014given that the regulator, the Central Bank, also has holdings in the\ncompany. These issues will have to be tackled. <\/p>\n\n\n\n

However, three developments have taken place\nover the last year or so which point toward a more hopeful future in the area\nof housing finance. One, HBFC is getting long-term refinancing alongside other\nfinancial institutions from the Pakistan Mortgage Refinance Company (PMRC). The\nPMRC has attained a $140million credit line from the World Bank to inject liquidity\nin the housing market, of which half has been earmarked for low cost housing. <\/p>\n\n\n\n

With this refinancing, HBFC, being a beneficiary\nwill be able to extend mortgages to meet the expected demand coming from NPHP\nprojects. Though the existing refinancing will cover only a small share in the\ntotal incremental demand in housing, if all goes well, the World Bank may\nextend the credit line.  <\/p>\n\n\n\n

Two, HBFC has introduced several products to expand its portfolio. Its Ghar Pakistan Scheme is issued at a fixed rate mortgage (FRM) of 12 percent which is the first FRM offered in Pakistan. Given the high volatility of interest rates, this product is extremely attractive for Pakistani home-buyers. This will also lower the risk of default for HBFC which has been observed to rise when interest rates go up. <\/p>\n\n\n\n

\"HBFC
HBFC housing finance products
<\/figcaption><\/figure>\n\n\n\n

Three and most importantly, following its\nlow-cost housing policy of Mar-19, the SBP is allowing investments into specialized\nDevelopment Finance Institutes (DFIs) targeting housing finance. The SBP has\nrelaxed the capital requirement, and believes that lower regulatory burden will\nencourage new investors to come in.<\/p>\n\n\n\n

 According to the policy: \u201cBanks may establish\ntheir subsidiaries or new investors may be allowed to setup these DFIs with\nreduced paid-up capital of Rs 3 billion (instead of Rs6 billion for normal DFI)\nand lesser regulatory burden. Banks\u2019 subsidiaries setup under DFI mode would be\nable to take benefit from the branch network and systems of parent bank with\nnecessary firewalls\u201d. <\/p>\n\n\n\n

This could attract the private sector given the\nright regulatory structure in place. The SBP will have to decide who will be\nregulating these housing finance companies (HFCs) and safeguard itself from any\nfuture conflict of interests. <\/p>\n\n\n\n

Meanwhile, though the HBFCs recent products are\nencouraging, they need to be backed by an excellent underwriting and credit\nassessment department, a robust risk mitigating strategy and a sales and\nmarketing team which together would ensure the right borrowers are walking in\nthe door and willful defaults are minimized. Government\u2019s promises to implement\nforeclosure laws also need to be kept. <\/p>\n","protected":false},"excerpt":{"rendered":"

Jointly owned by the government of Pakistan and the State Bank of Pakistan (90% and 9.69% ownership respectively), the House Building Finance Company (HBFC) is the only specialized housing finance company in Pakistan. The HBFC has been providing mortgages to borrowers across the country since 2007. However, it is only recently that the company\u2019s role has been revived as the incoming government flexes its muscles to launch the mammoth Naya Pakistan Housing Program (NPHP). The program, aimed at bridging the existing housing gap by 5 million houses during the PTI tenure, is a tall order. Therefore, housing finance is crucial for accomplishing it. This prompts one to wonder where the housing finance providers are. The HBFC\u2019s mandate has always been to provide financing for the housing needs of lower- and middle-income home buyers. Of some 60,000 current mortgage borrowers, 42 percent are in the HBFC portfolio, making it the largest player in the mortgage market. In fact, the company has maintained this share over the years. In total loan amount\u2014the latest numbers published by the SBP do not show a bifurcation by banks\u2014the HBFC has over 20 percent of the share (2016). Though, interestingly, if HBFC was considered to be…<\/p>\n","protected":false},"author":97,"featured_media":76160,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[11053],"tags":[47092,47093,47089,47090,47091,47088,2630,17263,43961],"persona":[36016],"class_list":{"0":"post-76125","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-laws-taxes","8":"tag-affordability","9":"tag-affordability-of-housing-finance-projects","10":"tag-hbfc","11":"tag-hbfc-and-housing-finance","12":"tag-hbfc-and-housing-finance-products","13":"tag-house-financing","14":"tag-housing-finance","15":"tag-laws-taxes","16":"tag-lob","17":"persona-business-community","18":"cat-11053-id"},"acf":[],"yoast_head":"\nA Brief History of HBFC & The Housing Finance Products on Offer | Zameen Research<\/title>\n<meta name=\"description\" content=\"Analyzing the 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