Housing Finance


Policy makers are striving to turn marginalized housing finance into the mainstream banking activity. Banks, awash with liquidity and declining return on government papers, need new areas of business. And housing offers an unmatched potential.

To quote Citi Bank county manager Zubyr Soomro, it is the best time to kickstart the process of housing finance. A variety of factors have combined to create a window of opportunity. These listed by him are: macro-economic stability and low interest rate environment, increased flow of remittances and investment in the housing sector, rupee stability and appreciation and anti-money laundering efforts assisting in the documentation of the economy.

Housing finance is estimated at Rs. 2 billion per annum that accounts for around one per cent of the total volume of bank lending. For the medium term, sayfor3-4years, Zubyr Soomro reckons that an overall target of Rs. 180 billion could be set for housing finance. Perhaps, his forecast is based on Citi Bank's own experience and the initiatives taken by the State Bank to boost housing finance which is being reinforced by the World Bank support.

Housing finance is the core issue in the paradigm shift to meet the evolving of banking in Pakistan. "Gone are the days of plain vanilla deposit mobilization and lending to large borrowers or investing in government paper" says finance minister Shaukat Aziz. His advice to banks is to reduce cost of intermediation and to look for new an attractive avenues for lending. Housing is one of them and interest rate is a related issue.

Replying to questions at the Housing Finance Conference held on May 11 and 12, the governor of the State Bank, Dr. Ishrat Hussain, rejected a proposal for subsidized credit for housing as, he said, subsidized credit is misused Instead, he said efforts have been made to bring down interest rates.

Khalid Siraj, advisor to the SBP governor, did not favour any option to keep housing loan interest at ten per cent or to fix a ceiling on housing loans for banks. He recalled that banks preferred to pay penalty rather than follow the target for agricultural credit.

A report prepared by the World Bank consultants says that in the current economic scenario, a good part of economic revival depends on investment in housing sector. Housing can be a major avenue for bank financing and household investment and a lead factor in long-term economic growth.

In many countries, specially most of the developed economies, recovery from recession is pined on new housing sector starts, followed by automobile and then by inventory orders for major consumer items. Local banks have also started consumer financing as, they say, the capital market has begun to take care of the long-term funding of corporates. Union Bank chairman Shaukat Tareen says that his bank has extended housing loans, started a year ago, to the tune of Rs. 1 billion.

And what is no less significant is that an international strategic consensus has emerged among policy-makers and bankers that "the focus of housing finance development should be the mainstream of the banking system and capital markets who have the capacity to significantly enlarge asset-backed mortgage financing both in the primary and secondary markets," say State Bank officials.

Currently, the role of the financial system in funding housing investment is "at best marginal. "To quote Dr. Ishrat Hussin, housing is the largest single asset class in Pakistan with an estimated worth of Rs. 1700 billion. Yet, he says, housing finance is estimated to be less than one per cent of the GDP because there is no vibrant system of housing finance, "In USA, it is 53 per cent, in EU 36 per cent, in Malaysia 23 per cent and in Iran 3 per cent.

In rich countries as a whole, where investment in housing far exceeds that in stocks and shares, individuals are estimated to own $23 trillion in equities and a reckoned investment of $40 trillion in property. …

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