1. National Housing Conference 2005
Presentation on 21st Century Housing Issues, Trends and Opportunities.
by Zaigham Mahmood Rizvi Chairman/CEO H.B.F.C.
National Housing Conference 2005
23rd September, 2005, Hotel Marriot, Karachi

2. Contents Housing – A Mega issue Global View
Regulatory & Titling Issues
Response to Social Housing Issue
Set the direction
Set the house in order
Sponsor a Shelter Foundation
Competitive Environment
Role of DFIs

3. Housing – A mega Issue

4. Housing Sector
MEGA ISSUES
NEED
MEGA SOLUTIONS

5. HOUSING – a Critical Issue
Growing rate of Housing Demand in Urban areas % p.a.
Housing Units in the country million. >> Ownership % m >> Rent free % m >> Rented % m
Units required for the population of 149 million million
Shortfall of Housing Units million
* Based on 1998 Survey.
* This estimates that backlog may now be increased to 7.0 m.

6. HOUSING – The Prime Issue
[Units per annum]
Additional Supply required ,000 ( Due to Population Growth )
To meet backlog in 20 years ,000
New Housing Need ,000*
Supply estimate ,000
Persistent Gap , 000
* Does not include depletion of stock, estimated at 2% per year. (50 years life)

7. Annual Demand for Housing Contributing Factors
Population Growth
Previous Backlog
Depletion.

8. Housing Stock in Pakistan
Total Housing Stock Million Units
Urban %
Rural % Total : %
Overall Housing Stock comprised of :-
Kuccha Houses %
Semi Pucca houses 40%
Modern brick houses 21% Total : %

9. Room Density Persons per Room
Pakistan & India
Turkey
China
U.S.A
Average 100 Countries 1.1
Source: U.N. (Habitat)

10. Retail Mega (Wholesale) Housing Solutions Housing Complex
Satellite Towns
Public Sector

11. MEASURES OF ECONOMIC GROWTH Vs ECONOMIC PROSPERITY
Gross National Product (GNP) to
Gross National Happiness (GNH)
Small & Medium Happiness (SMH)
which is
primarily possible through
Small & Medium Housing (SMH) Solution.

12. BUILDING NEW HOUSES IS THE ONLY SOLUTION
We need to substantially increase the HOUSING STOCK.
This is possible through “construction” finance and not “purchase” finance.
In Pakistan nearly 90% of housing is built for ownership and not for investment (equity built up through mortgage is not common).
Housing to become an investment avenue as opposed to plot. Today it is the reverse.
Investment in housing is possible only if “rentals” match the “mortgage” payments.
This is possible through increase in housing stock investment.
fiscal incentives on mortgage payments; and
effective tenancy laws.

13. Global View

14. Mortgage Debt / GDP: Developing Countries
Source: Mortgage-Backed Securities Markets in Asia published in 1999 by the ADB Raiffeisenbank
Source: Mortgage-Backed Securities Markets in Asia published in 1999 by the ADB, theInternational Housing Finance Program/Wharton Real Estate Center, and Raiffeisenbank. Data from years

15. Mortgage Debt / GDP: Developed Countries
Source: Mortgage-Backed Securities Markets in Asia published in 1999 by the ADB
Source: International Housing Finance Program/Wharton Real Estate Center.
Data from 1999 – 2000.

16. A comparison of housing units financed
Institution Life No. of C a s e s
HBFC, Pakistan years ,000
HDFC, India 27 years ,400,000
Singapore Govt Sector 30 years ,000

17. Regulatory & Titling Issues

18. Titling and Ownership Issues
No uniform document of ownership
No common Registrar.
No electronic “storage” and “retrievable” system (website/digital archiving)
No common system for transfer of ownership
No focal point in District Governments for verification of titles/documents/encumbrances.
Overly generous tenancy and rent control laws.
Lack of document centralization. At least 5 offices are to be visited to verify titles (Law Registrar, Excise Deptt, Revenue Deptt, etc) (Punjab Land Records and Information Management System –LRIMS)
Barriers to Site Permits, Environmental Clearance, Utilities connections.

19. Why People feel un-secure about Housing Societies.
Under the existing laws, an owner/developer of a society could be:-
A natural person
Company under Companies Ordinance 1984
Cooperative Societies Act, 1925
Societies Registration Act, 1860
Partnership Act, 1932
Trust Act, 1882.
None of these statues ensure that a buyer for valuable consideration shall be a real or absolute owner.
Each one has different regularity regime. None has specific statutes to deal with “housing societies” related issues.
No monitoring of the promoter/builder
No standardized/pre-approved format for advertisements.
“Zoning” review, verification etc.

20. Why Illegal Habitat/Squatters
Is it the cost of construction, or the cost of land which has made housing un-affordable to the masses? – LAND
What squatters do is to “zero” the cost of land or marginalize it through land grabbers.
Houses are being built on illegal habitat on incremental/progressive housing concept. Indicating that construction is somewhat affordable.
It is learned that a sizeable land in Karachi is either with land grabbers or with illegal habitat or both.
Why not to take bold decisions and allot land, under a well defined program for low cost housing.
Find some viable solutions like “Korangi Township” project of Azam Khan to rehabilitate squatters.
HBFC has requested to Sindh Government for 100 acres land in Karachi to develop low cost housing.

21. Response to Social Housing Issue

22. Social Housing Company
A Social Housing Company is being promoted by HBFC, SAIBAN, Acumen Fund etc to design and develop low cost housing projects.
The idea has been encouraged by the Prime Minister and is advancing under SBP platform.
Nearly 55% of urban population is living in Katchi Abadis.
Social Housing Company is to promote affordable housing facilities to low-income groups and less privileged of the society.
The Social Housing Company is to be sponsored by Institutions like HBFC, and other financial institutions and will associate with NGOs like SAIBAN, Khuda-ki-Basti.

23. Marketing and Technical Support
Social Housing Program Program Structure
Land for Housing
City Govt. to provide state land for housing OR
Provide investors to invest in projects.
Project Management
Social housing company to manage projects
Construction can be outsourced to developers.
Sales to be handled by Company.
Housing Finance
Provided by banks, facilitated by Company.
Other Support * Local urban development NGOs to provide technical and marketing support.
Government
Private Investors OR
Provide state land
Land for Housing
Land purchase Financing
Social Housing Company Project Manager
Banks
Urban Development NGOs
Marketing and Technical Support
Develop infrastructure, construct and sell housing units. Facilitate housing finance
Low Income Households

24. Housing Context Realities and Needs
Large back-log of low-income housing.
Annual demand of 80,000 units in Karachi and over 300,000 in rest of country.
Hardly any public or private sector affordable housing initiatives to meet low and lower-middle income housing demand.
Low-income housing demand is largely met through creation of “katchi abadis” on state land and sub-division of agriculture land by informal developers.
Opportunities to address this problem on a large-scale.
A beginning can be made in Karachi where large tracts of state land are available. These can be used for social housing programs.
Banks have sufficient liquidity to provide housing finance to low-income groups through a well-structured housing finance program.
“Saiban” a non-profit organization has developed a replicable, scalable and financially viable model for social housing through the Khuda-ki-Basti Housing Scheme.
Structure a public limited housing company manage to lower-income housing projects across Pakistan’s cities, in collaboration with city governments, banks and urban planning NGO’s.

25. SAIBAN / HBFC Project in Karachi
Based on successful implementation of Lahore project, a similar project is being planned in Karachi.
HBFC has approached CDGK/Sindh Govt. for allotment of 100 Acres of land for HBFC’s low cost housing project in Karachi.
Saiban, HBFC, Acumen Fund and some local corporates are likely to be sponsors of Karachi Project.

26. Small & Medium Housing (SMH) Low & Middle Income Groups

27. Income levels and Mortgage Affordability
Nearly 2/3rd of the people have income levels less than Rs.6,000 per months and their mortgage affordability is less than Rs. 5 Lac ( Small – upto Rs.5 lac);
Nearly 85% of the people can hardly afford mortgage up to Rs. 15 Lac (Lower Medium – between Rs. 5 – 15 lac);
Nearly 95% of the people fall below the Mortgage affordability of Rs. 25 Lac (Upper Medium - between Rs.15–25 lac);
Average per capita income of Pakistan is Rs. 3,500 per month;
Commercial banks focus on high net worth clients and maintain a large negative locations and negative profession list.

28. Affordability Issues of Low Income Groups
It has three dimensions
FINANCIAL
SOCIAL
LEGAL

29. Affordability Issues of Low Income Groups S O C I A L
Large family units
For initial period of mortgage, spirits are high to sacrifice for the shelter. The spirit gradually fades over the years.
While longer tenors are desired for lowering mortgage installments, sustainability of income for longer tenors is rather unrealistic assumption.
Documented verification of income is difficult. Some time whole facility is gain fully employed but informally.
In case of any emergency the family circle being financially weak is enable to share burden.

30. Affordability Issues of Low Income Groups F I N A N C I A L
Propensity to save is negligible rather negative in most cases.
Sustainability of cash flows and affordability over years tenors of the loan, is generally an unrealistic assumption.
Any prolonged illness moreso in elders of the family adversely effect mortgage affordability.
Mortgage payments being small amounts, the bank transaction costs are prohibitive.

31. Affordability Issues of Low Income Groups L E G A L
Titling issues are complex in retail low cost housing.
Documentation is poor and difficult due to illiteracy.
Bribing to get documentation/ verification from various concerned departments becomes of significant portion of the loan amount.

32. Micro Housing Finance Rural Area
Cheaper Finance in costal areas for fishermen and needy
Shelter Finance in villages and rural areas.
Loan limit Rs.100,000/-
Future Program
Once SMH finance program is operational and functional, MICRO housing program will be reviewed for its institutional setup, delivery and monitoring mechanism.
The Institutional setup may consider through HBFC own outlets, or by setting up a Micro housing finance but through NGOs

33. Action Plan for 2005

34. Action Plan for 2005 Three Stages
Conceptual Set the Direction (Vision / Mission)
Business Efficiency (1st half 2005) Reform Program is on wheel.
Various reforms will take months for their implementation.
Business Growth
(2nd half 2005) Design Business Growth Model
and put that on motion to provide retails & wholesale Housing Solution for Small & Medium Housing sector.

35. Vision
To be the prime housing finance institution of the country, providing affordable housing solutions to low and middle income groups of population by encouraging new constructions in Small & Medium Housing (SMH) sector.

36. Mission
To be a socially responsible and commercially sustainable housing finance institution.
Target market – Low income and middle income groups of populations
Target areas – No negative list, all legalized residential locations.
Responding to housing needs of low income groups is a social responsibility, beyond that everything has to be 100% commercially sustainable.

37. Set the House in Order HBFC Reforms Program

38. Set the house in order HBFC Reforms Program
HBFC’s current Financial Picture
Cleaning of balance sheet and streamlining of Accounting procedures.
Up-gradation of HBFC’s branches/offices etc to make them customer friendly and market competitive.
Manualization and ISO Certification.
Disaster Recovery Program and Continuity of Business Program (Digital Archiving).
Enhancing human asset value
Development of an enabling environment for comprehensive computerized operations.

39. Set the house in order HBFC Reforms Program Cont…
Networking within HBFC offices (LAN), and between various offices of HBFC.
HBFC’s website to be made a dynamic, interactive website so that it becomes user friendly and supports HBFC in its business expansion program.
Tele-monitoring of Borrowers, being at distant and far off locations.
HBFC Representative Offices/Service Agent Programme.
“Sponsor a shelter Foundation” Public support program through Zakat and Donations for enhancing mortgaged payment capacity (affordability) of low income borrowers.

40. HBFC Service Agents (Expansion of outreach)

41. HBFC’s Representative Offices served through Service Agents
In the first phase 50 such towns and tehsils have been identified, through HBFC’s internal market survey, for locating these Representative offices, which presently do not have HBFC branches.
Service Agents/Franchisees will be selected from enterprising youngsters having an acceptable qualification and originating from those areas.
These persons will be provided a training on housing finance for which a training program is being worked out in collaboration with the Institute of Bankers.
The remuneration (service fee) for these entrepreneurs will be for applications processed through them and accepted by HBFC for its housing finance.
These entrepreneurs will also be responsible for recovery of such loans from their accounts, and will be earning a commission on the recoveries made by them.
more…

42. HBFC’s Representative Offices served through Service Agents
These outlets will be provided computers, UPS, printers and scanners on lease, the rentals for which will be the responsibility of the Agents.
These offices will be connected through Internet for communication with District/Zonal/Head Offices.
The Service Agents will be identifying HBFC’s clients, assessing their income potential, genuineness of documentation and will electronically submit their applications to the concerned HBFC District Office.
The Loan applications will be processed at the concerned District Offices and queries will be settled through internet/phone.
HBFC will subsidize their operational expenses for first year upto Rs.10,000 per month.
The above program will not only enable HBFC to expand its outreach at nominal cost, it will also create employment opportunity and entrepreneurship among unemployed people.

43. Sponsor a Shelter
FOUNDATION

44. “Sponsor a Shelter Foundation” Public support program through Zakat and Donations for enhancing mortgaged payment capacity of low income borrowers.
HBFC being a housing finance institution, specializing for low and middle income groups of the population, is fully conscious of the fact that due to property price escalation during the last three years, even low cost housing has gone beyond the affordability of low income people.
Therefore, to support these people and to enhance their mortgage affordability, a program of “Sponsor a Poor for seeking Shelter” is being launched where a poor borrower will be required to make a part of the mortgage payment, whereas the balance will be through contribution of Zakat and/or individual/corporate Donations.
It has been checked with the religious scholars that such a support program is perfectly eligible for Zakat.
Initial response is positive from various corporates, philanthropists and overseas Pakistanis to make their Zakat contributions/donations for the purpose more..

45. “Sponsor a Shelter Foundation” Public support program through Zakat and Donations for enhancing mortgaged payment capacity to low income borrowers.
HBFC is in very comfortable position to ensure that the recipient is a very deserving case and the contributions are being applied toward reduction of loan obligations. Since the objective is a very noble one, of providing shelter to the poor and needy, it is expected to receive good response.
The Zakat contributions, as per the choice of the contributor, could be borrower specific or general in the pool.
The Zakat Foundation of the Govt. as well as various welfare funds available with the Govt could also participate in the program.
Through this program we believe that HBFC will be able to play a major role in meeting its social responsibilities, with the public participation, and without any financial obligation on part of the Govt.
Corporates – Donations will be Tax deductible.

46. Competitive Environment

47. Housing Creditors
House Building Finance Corporation – Public Sector Organization
The biggest public sector organization providing housing finance since 1952 across the country including Northern areas and Azad Kashmir.
Housing Finance Companies (HFCs) – Private Sector.
Out of 7 HFCs permitted to start business, only 1 has survived with a mortgage portfolio of merely Rs.300 million i.e. IHFL.
Commercial Banks
Since March 2003, housing finance market has experienced a turn around. As many as 24 banks are active in providing housing finance.

48. Housing Finance in the Country
Institutions Cases/year Focus on
HBFC Building
Other Banks 20,000* Purchase
* Guesstimate

50. Role of DFI’s

51. Role of DFI’s
Housing Sector Development is stated to have direct linkage effect on nearly 72 construction material industries (CMI). Some of these are:
* Cement, Bricks, Steel,
* Wood/Carpentry, Plastic, Aluminum
* Hardware, Sanitary wares, Tiles
* Pre-Cast Slabs for walls and roofs
For lowering CMI’s Product Costs, standardization remains to be a challenge for both the financiers and the industry.

52. DFI’s to Promote and Syndicate Mega Housing Projects
Work closely with Builders, CMIs, Architects and Design Consultants.
Financial Engineering to develop and float innovative financing products
Lead and support syndicates to ensure transparency, risk management and credit enhancement
Float and manage RIETS/Bonds etc, in association with housing banks
Float and manage real estate mutual funds
Work closely with the housing banks and the governmental agencies for simplification of enforceable/marketable titles
Work with fiscal authorities for promoting mortgage friendly tax incentives

53. DFI’s to promote low cost housing through CMIs
Basic challenge for low-cost housing is low cost construction materials and reduced priced land
Primary challenge is to design low cost construction materials – DFI’s to promote research for this in association with CMIs
Another challenge is to promote standardization. Variety is less important than low cost bulk production.
Low cost of advertising by direct industry to industry sales.
Transfer of technology for low cost housing and standardization of low cost CMIs to be promoted between ADFIAP member countries.
DFI’s to become a link between CMIs, Builders, Architect/Design Firms and Governmental agencies for promoting
AFFORDABLE HOUSING FOR LOW/MIDDLE INCOME POPULATION

54. http://www.hbfc.com.pk info@hbfc.com.pk
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