Banks mort­gage fi­nanc­ing steady de­spite low in­ter­est rates

The Pak Banker - - FRONT PAGE - Muham­mad Yasir

Pak­istan com­mer­cial banks, con­ven­tional and Is­lamic banks con­tri­bu­tion to re­bound­ing real es­tate sec­tor is below ex­pec­ta­tion but re­mained study with merely Rs 2.1 bil­lion ad­vances were re­ceived by builders and con­sumers on the ac­count of mort­gage fi­nanc­ing. Ac­cord­ing to State Bank of Pak­istan (SBP) sta­tis­tics, the ad­vances of bank­ing in­dus­try to real es­tate sec­tor grew to Rs 54.4 bil­lion by end of De­cem­ber 2015 as com­pared with Rs 52.3 stood by end of 2014 show­ing a yearly growth of 4 per­cent de­spite of the fact the in­ter­est rates are his­tor­i­cal low in Pak­istan.

Pak­istan's real es­tate sec­tor has been con­sid­ered as haven for in­vestors dur­ing 2015 as com­mod­ity prices col­lapsed and lo­cal stock mar­ket re­turned only 2.1%. In this sce­nario, the real es­tate mar­ket as mea­sured up in dou­ble dig­its in three ma­jor metropoli­tan ar­eas, that is, Karachi, La­hore and Is­lam­abad as showed by re­search wing of Zameen.com.

Ac­cord­ingly,. Karachi, Pak­istan's largest metropoli­tan area out­per­formed La­hore and Is­lam­abad where prices of 500 and 250 yard plots were up on av­er­age by 25%. DHA City prices were up on av­er­age by 67% while Bahria Town fell by 14% dur­ing 2015 due to some in­vestor con­cerns though de­vel­op­ment works in Bahria Town con­tinue. La­hore, the se­cond largest metropoli­tan area, pro­vided good re­turns, where 500 and 250 yard plots were up on av­er­age by 8% dur­ing 2015. Con­trary to Bahria Town's per­for­mance in Karachi, Bahria Town La­hore was up by sig­nif­i­cant 14% while DHA La­hore re­mained more or less flat dur­ing 2015.

Is­lam­abad real es­tate pro­vided re­turns in line with La­hore, where prices of 500 yards and 250 yards were up on av­er­age by 7.5%. Sec­tor F-11 pro­vided high­est re­turn and was up on av­er­age by 13.5% while Bahria Town prices re­mained more or less flat. Dur­ing 2014, Bahria Town pro­vided sig­nif­i­cant neg­a­tive re­turns of 23%. This un­der­per­for­mance of Bahria Town is be­cause of ex­tra­or­di­nary price es­ca­la­tion that it wit­nessed dur­ing 2013 where prices of plots were up by over 100%, the re­search re­port said.

The trend sig­nals am­ple cash liq­uid­ity cou- pled with in­vestors' con­fi­dence in the econ­omy but the con­tri­bu­tion of the bank­ing sys­tem is min­i­mal to­wards the boom­ing sec­tor.

Ac­cord­ing to SBP data, the weighted av­er­age in­ter­est rates of dif­fer­ent banks fall from 9.5 per­cent to 13 per­cent de­pend­ing on the amount and pe­riod of ad­vances and fi­nanc­ing which shows that boom in the prop­erty mar­ket was fu­eled by cash re­serves of the in­di­vid­u­als in the un­doc­u­mented cash econ­omy rather than bank­ing sys­tem. All the three metropoli­tan ar­eas of the coun­try have pro­vided phe­nom­e­nal re­turns to in­vestors with Karachi out­per­form­ing both La­hore and Is­lam­abad since 2011.

Av­er­age plot prices in Karachi have in­creased by 250% since Jan­uary 2011, while plot prices in La­hore and Is­lam­abad are up by 153% and 146% re­spec­tively. This shows that ris­ing prop­erty price trend is not a short term phe­nom­e­non as it has been sus­tained over a longer pe­riod of more than five years.

Com­mer­cial banks should re­vamp strat­egy of con­sumers bank­ing to at­tract con­sumers to en­hance their con­tri­bu­tion to the real es­tate and con­struc­tion sec­tor which will not only stir the econ­omy but it will gen­er­ate em­ploy­ment in dif­fer­ent as­so­ci­ated sec­tors such as ce­ment, steel, paint and etc,.

The govern­ment should also de­sign mega low-hous­ing projects in dif­fer­ent cities to at­tract con­sumers for avail­ing of their need of hous­ing through easy loans. Ac­cord­ing to an es­ti­mate, the num­ber of short­age of nearly 9 mil­lion hous­ing units is per­sist­ing in Pak­istan.

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