ISLAMABAD: An additional $3.8 billion in loan volume can be created in the mortgage finance market by existing and new housing finance players, to serve around 0.5 million customers, according to the Bank Group world.
The International Finance Corporation (IFC), a member of the World Bank Group in its latest report “Pakistan Housing Finance, is there a business case for financial institutions? said that there is a high demand for housing units from the low income segment of Pakistan, however, the current supply is negligible. Only one percent of housing supply caters to 68 percent of the population earning a monthly income of up to US$188.
Most of the housing supply targets the affluent and affluent class in line with commercial viability and affordability. About 56% of housing units accommodate 12% of the population earning a monthly income above $625. Housing finance (HF) has the potential to grow in Pakistan, he added.
IFC undertook this study to highlight the volume of the mortgage finance market that could be tapped by expanding portfolios across different income segments in small, medium and large cities to help realize the full potential of the opportunity in the housing finance sector in Pakistan, the IFC. The study also focuses on the potential asset returns that could be earned on mortgage finance portfolios by banks/DFIs.
He further stated that despite a low national mortgage-to-GDP ratio, Financial Institutions (FIs) (with the exception of House Building Finance Company Limited (HBFC) are only limited to Tier 1 cities for their finance products. mortgage financing.
With the right products, systems and financing, mortgage financing can be extended to 26 cities (Tiers 1, 2 and 3), with the potential to reach around 500,000 additional customers in different income segments.
The report notes that the Pakistan Social and Living Standards Measurement (PSLM) and Bank/DFI surveys describe customer segments based on their monthly income: High: $6,250 and above Upper-middle: $3,125-6,250 Middle Middle : 688 USD and more 3,125 Low Medium: 250-688 US$.
The Government of Pakistan is currently providing a housing finance incremental grant under which dwellings of up to 250 square meters and flats/apartments with covered areas of up to 2,000 square feet are funded by the FIs for the new owners. .
The financing features subsidized pricing of up to 9% per annum for up to 10 years and a maximum loan amount of $62,500. The add-on grant program is complemented by the provision of low-cost housing to low-income groups by the Naya Pakistan Housing and Development Authority (NAPHDA), where housing finance is available from FIs for up to 16,875 USD for unit up to 125 square meters and apartment/apartment with covered area up to 850 square feet.
However, the housing finance opportunity is not limited to the income segments currently covered by the supplemental subsidy program. Even if the entire uplift grant allocation is used by banks to build a mortgage portfolio, an additional US$1.8 billion opportunity will remain untapped in the upper middle income segment. This segment will have better returns on assets (ROA) as well as lower default risk, the report notes.
Housing supply in Pakistan at all levels and locations in 26 targeted cities is over US$18,000 on average. A supply of affordable housing/apartments (up to 125 square meters) is as essential as affordable mortgage financing. Without an adequate supply of affordable housing, a “housing for all” program may be difficult to achieve.
Assuming a higher degree of credit risk compared to other lending segments, average returns on the low-income mortgage finance portfolio (currently also covered by the government’s premium grant scheme) could be as high as 2% per annum. . In addition to ROAs, such mortgage financing could also provide opportunities for product cross-selling and higher business growth. The return on investment of mortgage finance for income segments other than those targeted by the grant-up program could vary between 3.50% and 4.75%, as estimated from the analysis of FI returns on the existing consumer mortgage financing portfolio. This also includes developer funding returns. In addition, mortgage finance products could also be extended to cover internal FI employees, leading to greater staff motivation and retention.
The report noted housing challenges in Pakistan including the lack of affordable housing supply with land titling, registration, administration and record keeping. , limited capacity of financial institutions to offer and manage housing finance.
The urban population is about 25 percent. More than 208 million people, which is expected to double between 2030-40. The mortgage to GDP ratio is 0.3% in Pakistan, while in South Asia the average is 3.4%. The current housing deficit is over 10 million units and is expected to increase by 0.4 million units per year.
Copyright Business Recorder, 2022
