Home finance
Against the background that housing finance is difficult to come by, it is welcome development that the Pakistan Mortgage Refinance Company ( PMRC) has started its operations with initial funds of Rs6 billion to boost the housing sector. PMRC Chief who is the key person behind the development of schemes told the media that the company would issue mortgage bonds like corporate bonds in the domestic market. He also expressed the hope that the World Bank will approve a $140 million loan for the PMRC soon, which would help strengthen the balance sheet of the company. The PMRC would provide loans at a fixed rate to banks which will then provide housing loans to end users at the same rate.
As things stand today, the banks take risk as they provide longterm housing loans while they have short-term deposits. Most of the deposits in the banks are meant for less than one year which is the main hurdle for long-term loans. At present, the PMRC has Rs6bn funds with Rs1.2bn contributed by the federal government and the rest was contributed by nine commercial banks. Reportedly, the PMRC is also in contact with the International Finance Corporation (IFC) and Asian Development Bank (ADB) to get support for the mortgage housing development.
A report prepared by SBP shows that the housing-to-GDP ratio in Pakistan was 0.7 per cent, which touched its peak at 1pc in 2005. This is the lowest ratio around the world, and also in the region with India standing at around 7.8pc. The report said that in case Pakistan targeted to achieve a share of mortgage debt to the country's GDP at 5pc within the next four years, the financial market would need Rs450 to Rs500bn as long-term funds supported the target. On an average, about 2.5pc of the conventional commercial banks total advances is mortgage finance, with an average maturity period of about 10 years. The average retention of mortgage loan is about 12 years. The entire mortgage portfolio is funded by shortterm deposits, creating a severe tenure mismatch.
Affordable housing has always been a big issue in Pakistan. Lately, banks and financial institutions in Pakistan are taking interest in mortgage finance. The SBP's Quarterly Housing Finance Review has revealed that the housing finance is continuously increasing and posted a healthy growth of some Rs 4.9 billion during the first half of the last calendar year. With the current surge, the overall housing finance portfolio of all banks and DFIs reached Rs 65.70 billion in June 2017 compared to Rs 60.80 billion in December of the previous year, showing an increase of 8 percent.
It may be added here that HBFCL remains the largest shareholder, in terms of gross outstanding, with 24 percent as the outstanding loans of HBFCL amounting to Rs 15.46 billion at the end of first half of the last calendar year. However, based on category, Islamic banks remain the largest players with 38 percent share in gross outstanding. Overall Islamic and private banks are major contributors to gross outstanding of housing finance. The share of private banks and Islamic Banks (IBs) in the gross outstanding stood at 30 percent and 38 percent, respectively as on June 30, 2017. Fourteen Islamic Banking Divisions (IBDs) and five IBs have 12 percent and 88 percent share, respectively in housing finance portfolio of Islamic Banking Industry. With the new initiative now launched it is hoped that the home finance market in Pakistan will expand rapidly in coming years and affordable housing will come within the reach of the common man.