Mortgage Finance

Opportunities and Challenges

By
Taimur Afzal, Chairman
ASSOCIATION OF MORTGAGE BANKERS (AMB)

March 25th 2013 1

Obama’s State of Union Address 2013

March 25th 2013 2

 Pakistan Population
 Population (2011) 187 Million
 World's sixth most-populous country
 Population Growth Rate 1.6 %
 Urban population 35%
 Second most urbanized nation in South Asia
 Population below age of 25 Years 100 Million
 Major Cities
◦ Karachi 21M Lahore 11 M RWP 3.5 M Faisalabad 3M
◦ Hyderabad 3M Multan 2.6 M GRW 2.5 M Peshawar 3.6 M
◦ Quetta 2M

March 25th 2013 3

 Pakistan Economy
• GDP Rs. 20,600 Billion

• GDP Growth Rate 3.67%

• Employment by Sector

• Industry 13.7%

• Construction 7%

• Agriculture 45%

• Un-Employment rate 6%

 Inflation Rate 11 % (2012)

March 25th 2013 4

 Pakistan Banking Assets
Staff Loans, 2% Others, 3%

Commodity
financing, 12%

Consumer sector
6%

Agriculture Corporate Sector,

Sector, 5% 66%

SMEs Sector, 7%

(Rs. in Billion)
Infection
Segment Advances NPLs
Ratio
Corporate Sector 2,760 419 15.2
SMEs Sector 276 95 34.6
Mortgage Financing
Agriculture Sector 203 29 14.5 Portfolio 53 B
Consumer sector 250 43 17.5 NPLs 17 B
Commodity financing 512 6 1.1 Inf. Ratio 31.4%
Staff Loans 84 2 1.9
Others 108 12 10.8
Total 4,196 607 14.5 March 25th 2013 5
 Mortgage as %age of GDP
 GDP Pakistan = Rs. 20,600 Billion

 Mortgage portfolio = Rs. 53 Billion

 Staff House Finance = Rs. 77 Billion

 Mortgage = 0.7 % of GDP

 International Comparables

March 25th 2013 6

Potential of Housing Sector
Housing Shortfall
 World Bank Estimation 8 million housing units (2009)
 Annual incremental demand 600,000 units.

 Annual housing needs 1.1 million Units

(600,000 incremental demand and 500,000 units from the backlog)

 Total Funding requirement Rs. 3.3 trillion per year

(average price of Rs. 3 million per unit)

 Funding Demand Rs.330 billion

(Assuming only 10% housing needs as effective demand)

 Mortgage Financing Requirement Rs. 231 billion per annum

(At 70% LTV)

March 25th 2013 7

Success Story

March 25th 2013 8

 INDIA – Growth of Mortgage
 Mortgage to GDP ratio Mortgage to GDP ratio projected
at 20% by 2020
2012 9%
2002 2%
 Mortgages comprise the largest
component in banks’ retail portfolio
 Mortgages have grown from 1.5% of
banks’ advances to 10% over the last
10 years
 Projections 2020
Outstanding mortgages will increase 8 fold
from Rs. 5 trillion currently to Rs. 40
trillion by 2020

March 25th 2013 9

Growth Drivers in India
 Growth driven by
◦ Economic growth

◦ Rising disposable income

◦ Affordable interest rates

◦ Increased urbanization

◦ Favorable demographics

◦ Housing as a priority sector

March 25th 2013 10

Growth Drivers in India
 National Housing Bank
◦ Housing regulatory framework
◦ Refinancing
◦ Focus on low to mid income segment
◦ NHB Residex

 Foreclosure laws
◦ SARFAESI
◦ Reduced NPA

 Securitization
◦ Mortgage registry

March 25th 2013 11

Growth Drivers in India
 Mortgage Guarantee/ Insurance

 Tax incentives

 Specialized Housing Finance Companies

 Focused provisioning

March 25th 2013 12

Solution

March 25th 2013 13

What can be done ?
 Macro Factors
◦ Economic growth
◦ infrastructure
◦ Affordable interest rates
◦ Real estate prices
 Funding sources
◦ Channelization of long term funds
◦ Securitization
◦ Refinancing
◦ Mortgage insurance/ guarantee

March 25th 2013 14

What can be done ?
 Legal framework
◦ Foreclosure
◦ Stamp /registration fees
◦ Title documents

 Regulatory issues
◦ Mortgage specific regulations
◦ Provisioning issues
◦ Credit rationing

March 25th 2013 15

What can be done ?
 Product development
◦ Target market diversity

◦ Tier 2 cities

◦ Developer-buyer financing model

◦ Focused product
 Public sector employees

 Private sector employees

 Rural customers

March 25th 2013 16

 Vision 2030
Mortgage
GDP Mortgage as
Year Portfolio
(Rs. In Billion) %age of GDP
(Rs. In Billion)
2012 20,600 53 0.26%
2015 23,000 460 2.00%
2020 28,000 1,120 4.00%
2025 33,000 1,980 6.00%
2030 38,000 3,800 10.00%

4000
40,000
3500

Mortgage Portfolio
35,000
30,000 3000
25,000 2500
GDP

20,000 2000
15,000
1500
10,000
1000
5,000
500
0
2012 2015 2020 2025 2030 0
2012 2015 2020 2025 2030

March 25th 2013 17

Thank you

March 25th 2013 18