KARACHI (February 21 2010): The Federal government has agreed to take 20 percent stake in the proposed Mortgage Refinance Company (MRC)-a joint initiative of State Bank of Pakistan (SBP) and the International Finance Corporation (IFC) of the World Bank (WB). This was stated on Saturday by SBP Governor Salim Raza at a conference on 'Housing Finance', organised by the Association of Builders and Developers of Pakistan (Abad) at a hotel here.
He said the discussions in this regard are underway with the WB for seeking financial support, both in the form of equity and credit line for MRC. Besides that, the regulatory authority is also seeking equity commitments from commercial banks, being the primary mortgage lenders. He said the MRC would also facilitate development of private debt market and open up investment opportunities for long-term institutional investors, such as pension and provident funds, and insurance companies, which are looking for diversification of their investment portfolios.
He said the MRC would initially commence mortgage refinancing with the financial assistance of WB, and subsequently it would be done through bonds and terms finance certificates (TFCs). The SBP Governor said that refinance facility would assist in improving liquidity of the financial system and enable banks and housing finance companies to prudently match maturity profile of their assets and liabilities.
He said that the central bank has embarked on a number of key initiatives to strengthen the market-based housing finance mechanism for the development of housing sector in the country. "The SBP is fully cognisant of issues related to the housing sector and it is taking a vanguard position for providing institutional arrangements and reforms for promotion of housing finance," he added.
Raza said the SBP and the WB have planned to collectively work towards the establishment of a housing observatory to address issues of non-availability of complete and reliable information on housing and housing finance to consumers, the housing industry and other stakeholders for investments or financing decisions.
He said the banks are being encouraged to establish business relationship with developers on the basis of their past performance and the commercial and financial viability of the real estate projects.
He said the SBP has provided a platform to Abad and the financial institutions to settle issues that lead to lack of appropriate financing for the developers from the formal financial system to develop a sustainable and acceptable financing model for large-scale developers. He reiterated that the SBP would continue to facilitate housing sector to escalate the mortgage to GDP ratio at the desired and acceptable level.
He said that after the emergence of commercial banks in mortgage business, the housing finance portfolio grew considerably from Rs 37 billion in 2004 to Rs 84 billion at the end of 2008. The housing finance portfolio experienced a dip of 11 per cent in 2009 and now stood at Rs 74 billion, he added.
Sindh Assembly Speaker Nisar Khoro said that restless efforts are required for sustainable development as Pakistan is a case of lots of opportunities. He said the HBFC and financial institutions are not playing their due role in terms of housing finance, and urged them to discharge their due liabilities to facilitate masses especially low income group at maximum. He assured full governmental support to the members of Abad as the incumbent government considers housing sector as backbone of the economy.
He said the Sindh government is getting involved private sector in the development projects and the public private partnership bill in this regard has recently been passed in the Sindh assembly, which would definitely encourage private sector to take a part for sustainable growth.
Engr Farooq-uz-Zaman, chairman, ABAD, in his address suggested to the authority concerned to build tax-free residential colonies adjacent to the developing industrial areas to facilitate low income group. Although the construction sector has been granted industry status, the sector is still deprived of industrial benefits, which needs to be rationalised for its revival, he lamented.
He said that the House Building Finance Company (HBFC) has disbursed only Rs 700 million in current year. However, the disbursement in Bangladesh and India in a same period stood at Rs 28 billion and over Rs 4 trillion, respectively. He said the government has decided to construct one million houses per annum to meet a shortage of 8.8 million houses across the country but the unfriendly policies have restrained the construction activities subsequently the industry has failed to produce maximum results.
He slammed the decision of removing capital value tax (CVT) exemptions on low cost housings and termed the decision as unjustifiable act. Further, he urged the government to take prompt measures to improve law and order situation, saying that both local and foreign investors are reluctant to invest in the country because of poor law and order, which needs to be improved for sustainable investment.
Nasreen Ali, director general, Board of Investment said Pakistan offers unparalleled investment potentials including high "return on investment" in almost every sector. She said the BOI is channelizing things to facilitate investors in removing all sort of bureaucratic and inter-departmental hurdles.
Firdous Shamim Naqvi, Director, Noble (Pvt) Limited, Farhan Fasihuddin, representative of IFC, Abrar Ameen, representative of Bank Al-Falah, Mohamamd Imran, representative of Bank Islami Pakistan, Irshad Mowjee, managing director, Razzaque Steel (Pvt) Limited and Dr Farooq Ahmed also spoke on the occasion.