Syed Samar Hasnain Executive Director - Development Finance Group & Islamic Banking State Bank of...
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Transcript of Syed Samar Hasnain Executive Director - Development Finance Group & Islamic Banking State Bank of...
Syed Samar Hasnain
Executive Director - Development Finance Group & Islamic Banking State Bank of PakistanEmail: [email protected]
Housing Finance in Pakistan
2
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 Pakistano Market participants, financing structures and quality of housing portfolio
SBP initiatives to promote housing sector
Challenges and opportunities
Way forward
Outline
Pakistan is a medium sized, lower middle income country
3
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
Some Basic Facts
4
Source: Access to Finance Survey
The Formally Served
The Financially Excluded
The Financial Market Development Frontiers
The Informally Served
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
11% 1% 32% 56%
%
State of Financial Exclusion
Population per branch stands at 16,607 people
Status of Financial Services in Pakistan
6
Source: Access to Finance Survey
The Formally Served
The Financially Excluded
The Financial Market Development Frontiers
The Informally Served
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
11% 1% 32% 56%
%
State of Financial Exclusion
• Weak property rights due to inefficient legal framework and land information systems
• Improper implementation of foreclosure laws; outdated building and zoning regulations
• Embryonic property development frameworko Poor master planning and governance issues at national
and local government levelso Multiple institutions and administrative procedureso Restrictive building codes
• Unorganized real estate agencies• Unreliable utility connections Emerging building industry• Lack of housing finance particularly developer finance• Rising land prices and rapid urbanization
7
Weak institutional support and economic fundamentals, coupled with high transaction cost, the sector faces a number of Structural Challenges
Key Housing Industry Issues
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
The situation is compounded by increased urbanization and changed demographics
8
Current State of Housing sector in Pakistan
9
• Financial Institutions involved in Housing Finance
• Commercial Banks 22 • Islamic Banks 5• DFIs 2• MFBs 2• Islamic Banking Branches 7
• Product Range• Construction• Outright Purchase• Renovation
Diversity in Housing Finance Market
10
2007 2008 2009 2010 2011 2012 2013 20140
10
20
30
40
50
60
70
80
90
76
84
77
67
5955
5154
6467
61
53
4642
35
41
1217 16
14 13 13 1213
Total Gross Outstanding (Rs Billion) Gross Outstanding (Rs Billion) - Share of All Banks & Other DFIs Gross Outstanding (Rs Billion) - Share of HBFC
Rs. B
illio
n
Gross Outstanding
Due to structural Impediments the sector is beset with anemic growth
11
2008 2009 2010 2011 2012 2013 20140
5
10
15
20
25
12
16
19 19 19
16 16
6
9
11 1211
9 9
6 77 7
87
6
Non-Performing Loans (Rs Billion) Share of All Banks & Other DFIs (Rs Billion) Share of HBFC (Rs Billion)
Rs. B
illio
n
Non-Performing loans
Mortgage Market of Pakistan
12
Ist HFC
Capacity Building of Financial Institutions
HBFC National Housing Policy 2001
Islamic Banks
Commercial Banks
1952 2001
1992
2007
SBP Role & Efforts
2003
2004
HAG Recommendations
2006
Infrastructure & Housing Finance Department MFBs
2008
International Housing Finance Conference
Establishment of MRC Housing Finance Reviews
Evolution of Housing Finance
13
• 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 – ABAD, AMB etc
SBP is actively Promoting Housing Finance
14
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
Housing Advisory Group
15
• Develop the Primary Mortgage Marketo 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 capital markets
SBP is facilitating the industry to put in place the missing market infrastructure
Mortgage Refinance Company
16
• 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 developerso Bankable financial statementso Credit rating (Entity and Instrument Ratings)o Fiscal issues relating to Book Value and Market Value, declared
income and wealth etc.
Given the huge housing gap, the industry needs to find solutions for large scale developer financing particularly for the low income housing
Large Scale Builder Finance Model
17
• PRs have been revisedMajor changes relate to provisioning and
classificationo General as well as specific
Separation from Consumer Finance PRs
Keeping in view peculiar nature of housing finance, there is a need to give special attention to HF PRs
Housing Finance PRs
• Adopting Innovative Approaches to Affordable Housing• Exploration of Credit lines for institutions offering Housing
Finance• Arranging a Credit Guarantee Scheme for low-Income
Housing Finance• Promotion of Microfinance Banks to support borrowers
with undocumented income• Strengthening the Regulatory Framework
18
Way Forward
Thank You