Criticises them for reluctance to finance the housing industry
There’s a massive need of houses in Pakistan – around 11 million which is incrementally increasing by 700,000 houses every year. Incrementally means that if the need for houses increases by 700,000 in one year then it will be greater than that the next year.
One of the main reasons for this backlog has been the reluctance of banks to finance the housing industry, according to Zaigham Mahmood Rizvi, the chairman of Naya Pakistan Housing Program.
He was speaking at a webinar titled ‘The future Outlook of Housing Finance Industry in Pakistan in View of the Government’s Initiatives’. It was recently organised by the Institute of Bankers Pakistan in collaboration with the CFO Club.
There have been issues with the industry but banks have rather availed them than to face them, according to Rizvi. They have always had a passive attitude towards the industry.
“It needs to change. Otherwise, our children will be sitting just like us discussing only issues and not going forward,” he said. “There are no answers [right away] to issues unless we do it.”
Pakistan Mortgage Refinance Company CEO Mudassir Khan said that one could count up to 15 issues which the banks give as an excuse to give up on financing.
“Challenges will always remain. All things will never become right,” Khan said. “Motivation and will is needed to do it. We need to change the mindset.”
Banks have not used technology in this regard, according to Khan. Risk profiles of individuals could be made which would lower bank risks.
“Housing finance is the safest financing for banks,” Khan said. To reduce the risk associated with house financing, new insurance products could be offered that cover default, he said.
He criticised banks for associating house financing loans to KIBOR. KIBOR or Karachi Interbank Offered Rate is a daily reference rate based on the interest rates at which banks offer to lend each other in the Karachi money market.
“Affordability (of consumers to avail house financing) is a huge problem,” Khan said. “There is a need to shift to longer term fixed rates.”
Banks have excess liquidity and then they buy government instruments and sit on them as they are lucrative because of high interest rates in Pakistan, he noted.
Rizvi noted that India’s mortgages are 11% of its GDP. “Bangladesh has 5% in mortgages but we don’t even have 0.5% of our GDP in mortgages.”
He praised Syed Taha Afzal, the head of Askari Bank’s Consumer Finance, for tapping the housing finance industry in spite of the fact that big banks remain shy of the industry.
“Leading banks have negligible presence in the housing finance,” Rizvi said. “They need to come forward.”
Afzal said that banks do lend to consumers but when it comes to land, there are a lot of legal issues. Askari Bank has tapped house financing for individuals with lower and middle income.
Banks were reluctant to go to small cities to offer mortgage or house financing as they had low infrastructure there, he said.
Muhammad Afaq Khan, who heads Habib Bank’s Islamic Banking division, said that work has been ongoing towards standardized documentation of low-cost housing society under the Naya Pakistan Housing Program. When things start standardizing, development finance would flourish, he said.
He praised stakeholders like the Association of Builders and Developers (ABAD), Naya Pakistan Housing Development Authority, State Bank and others for collaborating for the first in the history of Pakistan under the Naya Pakistan Housing Scheme.