research thesis on house building finance scheme for lower income consumer of allied bank limited

8/4/2019 Research Thesis on House Building Finance Scheme for Lower Income Consumer of Allied Bank Limited

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RESEARCH THESIS ON

HOUSE BUILDING FINANCE SCHEME FOR LOWERINCOME CONSUMER OF ALLIED BANK LIMITED

BY

MUHAMMAD NAUMAN KHAN

M.BA (General)

INSTITUTE OF MANAGEMENT STUDIES


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UNIVERSITY OF PESHAWAR

Session: 2006-2007

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RESEARCH THESIS ON

HOUSE BUILDING FINANCE SCHEME FOR LOWERINCOME CONSUMER OF ALLIED BANK LIMITED

Thesis submitted to the institute of management studies, university of Peshawar, in

partial fulfillment of the requirements for the award of

The degree of

MASTER IN BUSINESS ADMINISTRATION

JULY, 2007


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RESEARCH THESIS ON

HOUSE BUILDING FINANCE SCHEME FOR LOWER INCOMECONSUMER OF ALLIED BANK LIMITED

APPROVAL SHEET

EXTERNAL SUPERVISOR

Signature: __________________________

Name: __________________________

Designation: __________________________

INTERNAL SUPERVISOR

Signature: __________________________

Name: __________________________

Designation: __________________________

COORDINATOR RESEARCHER & DEVELOPMENT DIVISION

Signature: __________________________

Name: __________________________

Designation: __________________________

Date: __________________________


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ACKNOWLEDGEMENTS

My thanks first of all is to the most beneficient, most merciful, almighty

ALLAH whose blessings made me able to work on my masters research and

compile something worthy to present.

Its only, due to the special prayers of my sweet parents that I am able to

complete successfully what I started. I will always be in debt to them for what

theyve done for me all life.

I am obliged to mention Mr. Mehboob-ur-Rasheed my supervisor,

institute of management studies. Their guidance in completion of the thesis was

very precious.

I owe great thanks to my teachers, for providing me the guidelines and

support at every step.

In the end, I would like to thanks Miss Nabeela Qayum, Mr.

Muhammad Arif Page Master Services, U.O.P. for composing and compiling

this research thesis.

Muhammad Nauman Khan

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CONTENTS

Acknowledgement......................................................................................................i

List of Contents........................................................................................................ii

List of Acronyms....................................................................................................iv

ACKNOWLEDGEMENTS..........................................................................................i

LIST OF ACRONYMS ...............................................................................................v

CHAPTER 1 ...............................................................................................1

INTRODUCTION TO THE REPORT......................................................................1

1.1 BACKGROUND .....................................................................................1

1.2 Objectives ................................................................................................2

1.3 Statement of the Problem ........................................................................2

1.4 Scope of the report ..................................................................................3

1.5 Significance of the study .........................................................................3

1.6 Methodology ...........................................................................................3

1.7 Sequence of the Study..............................................................................3

1.8 Annexure..................................................................................................4

1.9 Bibliography ............................................................................................4

CHAPTER 2 ...............................................................................................5

HOUSING LOANS IN PAKISTAN...........................................................................5

2.1 INTRODUCTION OF HOUSING LOAN IN PAKISTAN.....................5

2.2 ISSUES ...................................................................................................6

2.3 HOUSING STRATEGY .........................................................................7

2.4 LAND FOR HOUSING...........................................................................8

2.5 HOUSING DEVELOPMENT................................................................10

2.6 GENERAL HOUSING..........................................................................10

2.7 LOW-INCOME HOUSING...................................................................10

2.8 LOW-INCOME GROUP HOUSING.....................................................11

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2.9 GOVERNMENT SERVANTS HOUSING............................................11

2.10 KATCHI ABADIS...............................................................................12

2.11 RURAL HOUSING..............................................................................13

2.12 HOUSING FINANCE..........................................................................13

2.13 PRIVATE SECTOR.............................................................................15

2.14 INSTITUTIONAL STRENGTHENING..............................................16

2.15 RESEARCH AND DEVELOPMENT.................................................16

2.16 TARGETS AND FINANCIAL OUTLAY...........................................17

2.17 PICIC TO LAUNCH HOUSE FINANCING SCHEME......................18

2.18 PICIC HOUSING LOAN.....................................................................18

2.19 TYPES OF FACILITY.........................................................................18

2.20 ELIGIBILITY......................................................................................19

Chapter 3 ..................................................................................................22

HOUSING FINANCE IN PAKISTAN.....................................................................22

3.1 INTRODUCTION .................................................................................22

3.2 NATIONAL HOUSING POLICY.........................................................23

3.3 MEASURES ALREADY ADOPTED...................................................24

3.4 BANKS-HOUSING FINANCE.............................................................25

1.5 ANALYSIS............................................................................................26

1.6 AWARENESS OF THE HOUSING FINANCE SCHEMES.................28

1.7 ALLIED INDUSTRIES WITH HOUSING AND CONSTRUCTION. 29

Chapter 4 ..................................................................................................32

Methodology ..............................................................................................................32

4.1 NATURE OF THE RESEARCH...........................................................32

4.2 Rationale of the Questionnaire...............................................................32

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4.3 ANALYSIS............................................................................................34

Analysis of the questionnaire ......................................................................34

.....................................................................................................................43

Findings.......................................................................................................................44

RECOMMENDATIONS...........................................................................................45

CONCLUSION...........................................................................................................47

A MODEL HOUSING SCHEME FOR ABL..........................................................48

Eligibility .....................................................................................................48

Purpose.........................................................................................................48

Quantum of loan...........................................................................................48

Margin..........................................................................................................49

Interest Rate.................................................................................................49

Fixed Rate....................................................................................................49

Floating Rate: Based on KIBOR..................................................................49

Repayment period........................................................................................49

Security........................................................................................................50

Processing charge.........................................................................................50

Bibliography...............................................................................................................51

QUESTIONNAIRE......................................................................................52

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LIST OF ACRONYMS

GIS Global Information System

CIB Credit Investigation Bureau

HBFC House Building Finance Corporation

PSDP Public Sector Development Pakistan

DHA Defense Housing Authority

CDA Capital Development Authority

LDA Lahore Development Authority

GDP Gross Domestic Product

KIBOR Karachi Inter Bank Operation Rate

LIBOR London Inter Bank Operation Rate

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CHAPTER 1

INTRODUCTION TO THE REPORT

1.1 BACKGROUND

Housing sector in Pakistan continues to deteriorate. This is due to the

constant growth of housing deficit at an alarming rate of 270,000 units per

year. Pakistan, according to official statistics, needs 820,000 housing units

annually over the next twenty years, whereas the current production of housing

units is less than 300,000 units per year. Moreover, as per the recently releasedEconomic Survey 2005-06 by the government, the housing sector has been

steadily deteriorating due to the ineffective policies, which in turn has resulted

in a huge backlog of six million units.

The other factors that have contributed to the acute shortage of houses

are: population growth, inadequate attention towards construction of new

houses, migration from rural to urban areas and break up of the traditional joint

family system.

My mission is to highlight the importance of housing sector to the top

management of ABL. Housing industry has a great potential as one of the main

drivers of economic growth. It can not only become the biggest creator of jobs

but also can engage a large number of support industries, thus creating demand

for growth of the economy on the one hand and on the other, contribute to

efforts for the alleviation of poverty from the country.

In Pakistan, the shortage of houses is an old problem. Pakistan now

faces a deficit of 6.405 million housing units against the shortage of 2.8 million

the 80s. Governments in the past years tried to arrest the widening gap between

the demand and availability of houses in the country but did not succeed in

bridging the gap.

Recently, Prime Minister Shaukat Aziz announced a Housing for Allprogramme to provide housing for government employees in all districts of the

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country. Under the programme, Islamabad and provincial governments were

committed to allocate 100 acres of state land at affordable prices to the

government servants.

House financing is one of the ways for investment and development.

Being a developing country, Pakistan should have programs like this one and

all the banks should practice the same.

The topic has been selected because of its importance for the low

income people of our society.

1.2 OBJECTIVES

The study was based on the following objectives.

1. To define and explain house financing in Pakistan.

2. To discuss the house financing scheme in Pakistan with regard to

banking.

3. To light the facilities and products with respect to house financing

scheme for low-income group offered by to its customers.

4. To make analysis of the collected information.

5. To make findings and conclusion out of the data.

6. To design a plan for Allied Bank Limited, Pakistan on house financing

for low income group in Pakistan.

1.3 STATEMENT OF THE PROBLEM

The study was conducted with the main aim to formulate a scheme for

Allied Bank so that the bank can easily adopt it. The title of the report is

House building finance schemes for lower income consumers of Allied

Bank Limited.

In Pakistan, most of the population has experience middle class life.

Those who are below poverty line, they are not included in this report.

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Hence the group of people with monthly income of Rs. 9000-12000

have been included. His annual income is lower then his taxable income.

1.4 SCOPE OF THE REPORT

This report is containing material from House Building Finance

Corporation, Muslim Commercial Bank, PICIC, United Bank Ltd. and a model

housing scheme has been prepared at the end after recommendations.

1.5 SIGNIFICANCE OF THE STUDY

This study is important because.

1. As a research for information: This study has due importance because

of its valuable information for researches in studies and working on

house financing in banking as well as other financial institutions.

2. For Government Officials: Government needs some investment to be

done on the part of people as well as some organizations. Being the

developing country Pakistan, the officials should have keen interest in

house financing.

3. For Research: Being researcher one can get deep insight into the

problem of housing for low income group and devising a scheme /

model for banks.

1.6 METHODOLOGY

Data is collected on questionnaire. Sample size was taken 60. Quota

sampling has been applied, and 30, 30 copies have been distributed among

Bank employees and general public. It was then properly treated for analysis.

1.7 SEQUENCE OF THE STUDY

1. Chapter I-Introduction: This chapter introduction of the report, data

source, statement of problem, its significance and methodology.

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2. Chapter II-Review of related literature: This chapter contains

documents/notes related with house financing in banking sector and

other industries related with house financing in Pakistan.

3. Chapter III-House Financing in Pakistan: Information related with

house financing in Pakistan have been included in this chapter.

4. Chapter IV-Research Methodology: This section contains, nature of

the research and rational of the questionnaire including the methodology

and other techniques.

5. Chapter V-Analysis: This portion contains detailed analysis of thequestionnaire and graphical representation of the responses of the bank

employees and general public.

6. Chapter VI-Conclusion and Recommendations: All the information

have been concluded and recommendation have been drawn here.

7. Chapter VII-A model housing scheme for Allied Bank Limited: A

housing scheme for Allied Bank Limited have been devised and a model

have been prepared.

1.8 ANNEXURE

Relevant sources have been included here.

1.9 BIBLIOGRAPHY

Bibliography has been given in the end including all the sources and

books etc.

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CHAPTER 2

HOUSING LOANS IN PAKISTAN

2.1 INTRODUCTION OF HOUSING LOAN IN PAKISTAN

Shelter is one of the basic necessities of life and occupies the biggest

portion of any human settlement. Housing ownership promotes social cohesion

and citizens participation in other development activities. In view of ever-

increasing demand for housing and a huge backlog, some innovative methods

need to be employed to make a major breakthrough in this area. The NationalHousing Policy 2001 is well articulated but its implementation has not been at

the desired levels. Except for some positive measures for housing financing by

the State Bank, not much progress has been made on other recommendations.

Due to the strong linkage of the housing sector to the economy, the

income multiplier is generally very high, and the private and informal sector

can play a vital role in national development. Housing construction also

generates direct employment including: (i) Absorbing rural labor and providing

opportunity for seasonal employment for farm workers, (ii) enhancing

participation of women workers, and (iii) activating small-scale and mostly

self-employed industries including building construction materials, equipment,

fittings and fixtures. Affordable housing for low-income groups also

contributes to poverty alleviation, income redistribution and promotes

individual productivity) and household savings.

In 1998, there were 19.3 million households in Pakistan, with average

household size at 6.6 persons and occupancy at 3.3 persons per room. The

overall housing stock comprised 39 percent Kucha houses mostly without

proper water supply, 40 percent semi-Pucca houses mostly without planned

sanitation or sewerage system, and 21 percent Pucca houses. As against the

current incremental demand for housing estimated at 570,000 units annually,

only about 300,000 units are being built annually, mostly in urban areas.

Accordingly, the housing backlog, estimated at 4.3 million units in 1998, has

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increased to around 8 million units in 2006. The majority of rural housing is

Kacha, with minimal water supply and sanitation or drainage services. About

half the urban population is living in slums and Katchi Abadis, with inadequate

housing and living conditions. The share of housing in the public sector

programs has progressively decreased from 10.9 percent in the 1960s to 5.9

percent in 1990s, with limited institutional finance continuing to be a major

constraint in housing production and maintenance of old dilapidated housing

stock. In addition, more than 80 per cent of the total population cannot afford

the financing terms provided by the House building Finance Corporation and

other housing finance institutions. Resultantly, the construction of low-income

housing has been much slower than the incremental needs.

2.2 ISSUES

The following are the major issues in the housing sector:

i. The households below poverty line have remained neglected.

ii. Inadequate supply of developed land and its skyrocketing prices,

particularly in large cities, is making housing ownership beyond the

affordability limits of the majority of population. Related barriers

include poor land administration with inadequate legal and regulatory

systems, and high cost of property transactions.

iii. Housing for rural population, constituting two-third of the total

population, has not received adequate emphasis.

iv. More than 30 per cent housing is in dilapidated condition requiring

improvement /replacement.

v. An overemphasis on Katchi Abadis regularization in urban areas has

encouraged further encroachments.

vi. Limited supply of housing finance, with weak mortgage collateral, does

not encourage institutional credit based housing development.

vii. Traditional approaches of reliance on the Government have not resulted

in an increase in housing construction to match the needs.

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viii. Low public confidence in the housing development industry.

ix. Most of the Local Governments lack required skills to effectively

manage the urban growth, provide basic utility service and maintain theinfrastructure especially in low-income areas/Katchi Abadis.

x. Lack of comprehensive planning at national, provincial, regional and

local level without effective coordination among various Government

departments, development agencies and other bodies has impeded

housing development.

2.3 HOUSING STRATEGY

In addition to the backlog of 6 million housing units, the incremental

housing need during the MTDF will be 3 million housing units. Increasing the

house construction from 300,000 units in 2005 to 800,000 units by 2010 will

only cater to the incremental needs during 2005-10. A much larger mass

housing construction will be required if the housing backlog is to be reduced

during the MTDF. Accordingly, the strategy will be to undertake mass housingprogram with enhanced supply of institutional finance and long term fixed rate

financing options; increase availability of developed land; enhance proportion

of small-size plots for low income groups; undertake high rise condominium

development, where appropriate, to utilize land more effectively; build capacity

for land administration; discourage speculation in land; improve house

construction technology. Including standardization of components for mass

production; regularize notified Katchi Abadis complemented by policies to

restrain the emergence of new Katchi Abadis; increase community

participation in housing and service delivery; provide sufficient and affordable

credit for rural housing to meet the needs of shelter less poor: invest in human

capital to improve the quality of construction; and put in place legal and

regulatory framework to facilitate the development of housing both in urban

and rural areas.

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imageries, and aerial mosaics, to record correct and up-to-date information

regarding the inventory and land classification, settlement patterns, land values

and the extent of land available in all urban and rural areas for future planning

and development.

Land is required for any type and level of housing. The high income

group constituting only 20 per cent of total population is being serviced by the

private and public sectors. It is the balance 80 per cent that is being severely

hurt by the soaring land prices at varying degrees. Accordingly, the following

strategy is proposed:

i. Land Banks would be established at the federal and provincial levels.

The Banks will allocate lands for various housing projects/ new towns

with focus on low-income housing.

ii. All suitable federal and provincial state lands would be transferred to the

proposed Land Banks.

iii. The availability of land in the Land Banks would be increased by

purchasing cheap land in small and medium towns, and the proposed

urban development corridors with growth potentials determined through

the Provincial Spatial Development Plans.

iv. Funds for purchase of lands would be obtained from the proposed Low-

Income Housing Fund or loans from commercial banks. In case of loans,

the mark-up may be picked up by the Provincial Governments, at least

in the initial stages.

v. Proceeds from the sale of commercial areas in Government schemes and

valuable State Land would be used to buy land in advance through the

proposed Land Banks.

vi. Land would be used as a resource to generate funds by allocating plots

in advance of actual development of housing schemes, as is being done

by the private sector successfully.

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vii. Geographic Information Systems (GIS) would be established at Tehsil

level, with aggregated information at district and provincial levels.

2.5 HOUSING DEVELOPMENT

There is a whole range of housing catering to the various income

groups. As the land is a limited resource, it has to be used optimally to

conserve it for the future and for other uses like industry and agriculture.

Accordingly, the large plot sizes would be discouraged and the ratio of smaller

plots shall be increased substantially to cater to the needs of the low income

groups and to strictly control the formation of Katchi Abadis.

2.6 GENERAL HOUSING

i. High-income group housing would be left to the private sector. The

Government would focus on low and middle-income housing demand.

ii. High-income housing projects would provide for at least an equal

number of s mall sizes up to (up to 10 Maria) housing plots. This will

increase the supply of low-income plots substantially thereby lowering

their prices also.

iii. Recommendations of the National Housing Policy 2001 would be

strictly followed by the federal and provincial authorities.

2.7 LOW-INCOME HOUSING

Low-income Housing Funds would be created at the federal and

provincial level, which may be funded from private and Government sources as

follows:

25 per cent of the Non-utilization Fee for vacant plots after a specified

period. Non-utilization Fee to be substantially increased in view of the

rapid increase in the prices of the urban plots.

25 per cent of the transfer fee charged by the private developers,

cooperative societies, development authorities and Government

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departments. The Transfer Fee for vacant plots to be increased in view

of higher gains to the plot owners.

Allocations/grants from Federal and the concerned ProvincialGovernments.

Consideration to be given to allocating certain percentage of the sale

proceeds from the Privatization of public enterprises.

Private Donations

Assistance from development partners and bilateral internal donors for

2.8 LOW-INCOME GROUP HOUSING

i. Consideration to be given to using Zakat Fund.

ii. Determine additional ways and means to secure at least a small

percentage of high profits being gained by the plots speculators.

iii. In all the Government and private housing schemes, the ratio of small

plots would be increased (not less than 50 per cent). Small size plotswould be cross-subsidized from the sale proceeds of larger plots and

commercial areas.

iv. Research would be carried out to develop low-cost housing and

determine the optimum size of plots for low-income groups. The

development of socially integrated housing areas, both in urban and

rural areas, would be encouraged.

2.9 GOVERNMENT SERVANTS HOUSING

i. Housing schemes for Government servants of all grades, with emphasis

on the lower grades, would be pursued.

ii. Punjab Province has recently established Government Servants Housing

Foundation under an Act. It is about to launch its first model project in

Lahore, based on advance payments to be deducted at source. As a large

number belong to the category of low-income group, a substantial need

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of low-income housing will be met through this replicable model. Other

provinces could consider initiating similar programs.

iii. Additional programs of Workers Housing will be developed andimplemented on fast track basis, throughout Pakistan.

2.10 KATCHI ABADIS

i. The programs should be de-emphasized in favor of genuine low-income

housing areas with the objective that emergence of new Katchi Abadis is

stopped.

ii. Katchi Abadis regularization and improvement program should be

restricted strictly to the already notified Abadis.

iii. For Katchi Abadis on private lands, the role of the Government would

be to facilitate dialogue between the owners and the residents.

iv. Sindh model of Katchi Abadis regularization with the land title tied to

payment of dues (land and development cost) should be considered for

adoption by other provinces.

v. The experience of Khuda-ki-Basti in Hyderabad, being self-financing

and target group oriented, should be replicated. The development cost

can be made affordable through the involvement of the residents and

other measures.

vi. No Katchi Abadis should be regularized free of cost.

vii. Katchi Abadis on prime locations should be offered reasonable alternate

sites for relocation or accommodated on a portion of the location in

high-density development. The remaining areas should be sold to

generate funds for developing the low-income areas.

viii. The standards of services/ utilities being provided in Katchi Abadis

should be improved incrcmcntally.

ix. Community loans for house construction/ improvement should be

considered under the micro credit programs. ,

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2.11 RURAL HOUSING

i. A greater emphasis on rural housing to reduce the population influx to

big cities, with increase in house ownership.

ii. The program of the Punjab Government under Jinnah Abadis Act to

grant 5 Maria plots for housing for rural shelter less to be expanded with

initiation of similar program by the other Provinces.

iii. Incremental provision of water, sanitation, electricity, health and

education facilities to be ensured through a phased but integrated

program on sustainable basis by provincial governments.

iv. Affluent individuals belonging to the rural areas to be encouraged to

participate in Adopt a Village scheme for provision of basic facilities

and services. Once some models are developed, the idea can be

promoted through mass-media campaigns to reach potential sponsors in

cities and abroad. Overseas Pakistanis have done similar efforts on a

small scale, which can be turned into a movement with proper

advertising.

v. Small loan facilities to be made available at low-mark up for house

improvements and new construction.

vi. Research to be carried out to develop low-cost indigenous construction

models, with emphasis on construction quality.

vii. Rural housing service centers to be established to furnish information oncredit, low-cost technology and building material.

viii. Private Foundations and Rural Housing Cooperatives to be encouraged

to undertake development of villages with local participation on self-

help basis.

2.12 HOUSING FINANCE

Currently there is inadequate housing finance, management capacity,

and awareness. Weaknesses in the land titling and land information systems

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restrict the possibilities of mortgage finance to limited urban areas and are

largely responsible for the concentration of lenders to the upper-income groups

for whom the property collateralization is not the main risk-mitigating factor.

The lack of a long term fixed rate funding market acts a constraint as it

increases the risk for the lenders and restricts the menu of long term mortgage

products thus curtailing affordability of the middle and low income groups to

buy even a small plot and build house thereon. The main funding from the

existing banks for housing loans is derived from their deposit-base, which leads

to major financial risks relating to interest rates and liquidity. The interest rate

portion is managed by relying on floating rates and keeping fixed rate duration

for just a few years. Liquidity risk is currently low due to constraints levied by

the State Bank of Pakistan delineating a maximum exposure limit for the banks

vis-a-vis the home finance.

Until now the main crux of housing mortgagees was towards the

floating rate side. Given the recent run up in rates, the mortgages have been the

primary victims, as they have had to pay the cost of rising interest rates in theshape of enhanced monthly mortgage payments. In a fixed rate mortgage,

which is funded by short-term liabilities, an increase in interest rate primarily

affects the mortgagee financial institution because of re-pricing of liabilities.

Thus, it is prudent to develop long term fixed rate funding arrangements for

enabling banks to offer fixed rate mortgages. Institutional investors such as

Pension Funds and Insurance Companies can afford the alternate long-term

investment opportunities such as 15 or 20-year mortgage backed securities.

However, banks, especially the large ones with huge pools of funds in the

shape of demand and time depicts liabilities, are unwilling to forego the high

spread they are earning by financing their long-term housing loans through

short-term liabilities.

It is imperative that a properly functioning local housing bond market is

developed. This would allow the banks to match their assets with theirliabilities more efficiently, thus reducing both their interest rate, as well as

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liquidity risks. This would require a well thought out strategy for the bonds

duration, mark up rate and liquidity management after bonds issuance. It would

be important to facilitate the market through a refinancing structure which not

only alleviates the liquidity risk incurred by the primary lenders, but promotes

sound practices and standards in the lending activity through its refinancing

requirements and have an overall catalytic effect on the development of house

lending activity. The pooling of funding needs would result in larger, more

transparent mechanism, which would decrease the relative issuance cost and

help ensure liquidity n the secondary market for bonds.

In addition to a permanent long-term capital source, some financial

hedging instruments may be necessary to protect the lenders against the

financial risks. Promotion of the mark-up rate swap market would be of special

importance given (i) the likely obstacles in extending bonds maturities beyond

15 years, (ii) the practice of adjustable mortgage mark-up, and (iii) the

repayment risk incurred by the lenders. The creation of such derivatives

depends in particular on the liquidity of the private investment bonds market,

which would be used by swap sellers to hedge their positions.

As a measure of establishing a pass though mechanism for funding the

housing loans, a secondary mortgage company could be considered. The

government would need to facilitate by offering a credit enhancement

mechanism as well as equity participation, on the pattern of Cagamas of

Malaysia and Fannie Mae and Freddie Mac of USA, which enables the

interested financial institutions to generate off balance sheet housing loans.

2.13 PRIVATE SECTOR

Increased attention would be given to the private sector involvement in

the delivery of housing services and land development. For this purpose,

appropriate incentive systems and legal and regulatory frameworks would be

developed. A priority will be to make market entry easier through better

security of tenure, access to land and credit, and regulations to allow mixed use

of land, and affordable planning and building standards. Given the massive

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investment required in housing infrastructure, a greater focus is needed on the

creation of cost-effective and efficient public-private partnerships that include

mechanisms for attracting private capital for infrastructure provision.

2.14 INSTITUTIONAL STRENGTHENING

Provision of Housing for All requires strong and cost effective

institutions, acting as facilitators rather than developers, capable of using

modern technology, methods and techniques efficiently. Accordingly, emphasis

would be placed on strengthening housing sector institutions and related

research organizations including construction technology, to establish

replicable and sustainable models for mass housing. Housing is mainly in the

provincial domain. It is envisaged that the Provincial Governments will play

the lead role in enabling the sustained delivery of Housing for All. This

includes developing appropriate mechanisms and institutional frameworks, and

setting up provincial housing delivery goals and performance parameters in

support of the national housing delivery goals. Housing is also a local

community affair where end users are both the contributors and stakeholders

for all types of housing activities. Accordingly, the role of the local

governments would be important in enabling, promoting and facilitating the

provision of housing to all segments of the population within their respective

jurisdictions.

It is envisaged that the Federal Government would provide the overall

coordinating and monitoring mechanism through the Ministry of Housing and

Works. Provincial Governments will initiate all necessary legislative,

regulatory, and institutional strengthening measures, both at the Provincial and

local government level, for the effective implementation of the National

Housing Policy and to achieve the MTDF targets in the respective provinces.

2.15 RESEARCH AND DEVELOPMENT

The MTDF envisages the promotion of integrated construction approach

through a combination of design orientation, use of traditional and indigenous

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building materials and adoption of new construction techniques, making

housing construction cost-effective and ensuring up gradation of quality, by:

i. Standardization of principal building components and alliedspecifications to facilitate their maximum production making it cost

effective and affordable for the low and middle income groups.

ii. Introduction of building materials already developed such as

compressed mud-brick (Adobe) and Ferro-cement roofing system in

rural low-rise housing.

iii. Promotion of research and development on housing and constructionmaterials and effective coordination of research institutions for speedy

application.

2.16 TARGETS AND FINANCIAL OUTLAY

An investment of Rs. 950 billion is envisaged in the MTDF for the

development of housing, including Rs 920 billion investments by the private

sector and Rs. 30 billion in the public sector. The private sector will beinvolved in construction and improvement of at least 3 million housing units

during 2005-10 in urban and rural areas. In addition, the private sector would

also undertake area development schemes with necessary infrastructure to

provide developed residential plots, and construct about 25,000 houses/flats for

the public servants under house ownership schemes, mostly in urban area

during next five years. The PSDP allocations would be utilized mainly by the

Federal and Provincial Governments for undertaking infrastructure

development in ongoing housing programs and new area development schemes

for provision of developed residential plots with necessary amenities. In

addition, the Government would continue constructing public offices and

essential accommodation for Government servants and Constabulary Armed

Forces. Details are provided in Table 1 below. During the first year of MTDF

(2005-06), the federal PSDP allocation for housing is earmarked as Rs. 2

billion for housing on ownership basis, Federal Government Employees and

construction of office buildings. Whereas, the Provincial Governments are

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required to allocate Rs. 3 billion during 2005-06 in order to accelerate the

house construction activity throughout Pakistan.

2.17 PICIC TO LAUNCH HOUSE FINANCING SCHEME

Pakistan Industrial Credit & Investment Corporation (PICIC) has

lunched housing financing scheme to help bridge the gap between demand and

availability of housing units in the country.

Loans with a maximum limit of Rs 10 million will be provided to people

on easy terms. Consumer financing - a comprehensive treatment at PICIC .

Under the said scheme, loans will be extended for the purchase of

readymade houses or flats, renovation and expansion, house refinance (debt

consolidation/swapping), construction of house/flat and purchase of land.

The mark up on these loans would be about 12 percent (SBPs discount rate

plus 3.5 percent).

During the first phase of the disbursement, the housing financing facility

would be available in Karachi, Hyderabad, Lahore, Sialkot, Gujranwala,

Multan, Faisalabad, Peshawar, Quetta, Rawalpindi and Islamabad.

PICIC should also extend technical support to the borrowers by helping

them in preparation of feasibility reports on projects.

2.18 PICIC HOUSING LOAN

PICIC Housing Finance offers Home for everyone who enables home

ownership through easy installment plan, designed specifically customers

needs.

2.19 TYPES OF FACILITY

Constructed House/Flat

Renovation

Expansion

Refinance House/Flat New construction of House/Flat

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Purchase of Land

Mortgage Financing

2.20 ELIGIBILITY

Pakistani National holding NIC (Resident/Non Resident)

Salaried/Self Employed person

SIZE OF THE LOAN Upto Rs. 10 million

MARK-UP RATE Competitive

REPAYMENT PERIOD Upto 20 years repayable in easy installments

BORROWERSNominal

EQUITY

SECURITIES

Registered/Equitable Mortgage

Personal Guarantee/References whenever necessary

Documentation Mortgage and legal documentation charges to be borne

by the borrower:

Insurance Life Insurance at PICICs cost

Processing Fee Nil

Conditions apply

Documents Required

1. Indenture of lease

2. Indenture of Sub-lease

3. Declaration and Confirmation of Oral Gift

4. Sale Deed / Conveyance Deed

5. A, B & C Leases (DHA properties only)

6. Search certificate

7. Sale Agreement

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8. General / Special Irrevocable Power (if applicable)

9. Letter of administration in case of property having devolved to legal

heirs of the deceased owner of the property

10. Letter of Sub Division from the competent authority (if applicable)

11. NOC/permission to mortgage in favor of PICIC (applicable in case of

mortgage financing and Home Construction

12. Allotment Order / transfer Order (in case of property being purchased

from builder/developer)

13. Approved building plan

14. Site Plan

15. Construction Estimate (in case of construction)

16. Letter of dues from builder (in case of property being purchased from

builder/developer)

17. Copy of NOC for sale and advertisement from KBCA (in case ofproperty being purchased from builder/developer)

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If the property is already mortgaged following additional documents are

required:

1. Relinquishment Deed

2. Mortgage Deed/Redemption of Mortgage Deed

3. Revocation of power of attorney where the power of attorney is

registered

Property Evaluation fees:

For cases upto 5.0 million Rs. 3,000

For cases above 5.0 million Rs. 4,000

Documentation and Legal Consultation Fees:

For cases below Rs. 3 million Rs. 3,000

For cases below 5.0 million Rs. 5,000

For cases above Rs.5 million Rs. 8,000

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CHAPTER 3

HOUSING FINANCE IN PAKISTAN

3.1 INTRODUCTION

Roti, Kapra aur Makaan - The slogan mostly underscores the fact that

the housing is one of the most fundamental needs - as every family requires

roof of his own. It is of course but as natural as food and clothing, yet many are

caught in the struggle of having a house. According to the Population and

Housing Census of Pakistan, in the year 1998 there were over 19.3 million

Housing Units in the country. With the population at 149 million by the end of

June, 2003, the housing unit requirement on the basis of the World Banks

recommendation at the occupancy rate of 6 persons per house and the total

number of Housing Units required in the country should be around 24.8

million. The above formula shows that there is shortfall of over 5.0 million

Housing Units.

HOUSING UNITS BY TENURE

TENURE CENSUS 1998

All Areas Rural Urban

i) All types 19.3(100)

13.1(100)

6.2(100)

ii) Owned 15.5

(80.8)

11.4

(87.1)

4.2

(67.6)

iii) Rented 1.7(9.0)

0.3(2.3)

1.4(23.2)

iv) Rent Free 2.0(10.2)

1.4(10.6)

0.6(9.2)

According to the convener of the housing advisory group the country

needs an additional supply of 570,000 Housing Units per annum. While theactual annual supply does not exceed 300,000, thus there is net shortfall of

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270,000 Housing Units p.a and the backlog is increasing every year. To meet

this shortfall Housing Finance to the extent of Rs. 68 billion is required as

against Rs. 4/5 billion being outlaid at present. These alarming statistics have

created a red-light situation where million of peoples are homeless. In addition

to population growth of 3.2% during the last decade the country was burdened

with sheltering hundreds of thousands of refugees of the effected neighboring

country further encountered by the climatic extremes. Hence, it is a matter of

great concern and demands very serious attention to be paid on a national level.

Governments normally do not have enough funds resources to provide

readymade Houses to their badly needed citizens. But it is the endeavor of

every welfare State to create an environment, where construction and

ownership of home is facilitated. This paper has been prepared on the lines to

examine the role of Housing Finance to resolve the countrys Housing Problem

and its impact on the Economy.

3.2 NATIONAL HOUSING POLICY

The present government appreciating the gravity of situation and

realizing the importance of this sector for its potential to generate employment,

decided to revitalize it as a vehicle for economic revival. Accordingly, Ministry

of Housing and Works formulated a new National Housing Policy - 2001

approved by cabinet on 5-12-2001. The policy addresses all the issues relating

to land matters, house finance, construction, services sector, low cost and rural

housing, building material and infrastructure development, building and zoning

regulation, and institutional framework. It clearly sketches out the role of

Federal govt. up to the local government defining the desired roles to be played

by governing bodies on each level. The policy also seriously considers the

multifarious problems including housing shortage, lack of housing finance,

non-existence of foreclosure laws, lack of planning, outdated building and

zoning regulations, etc. The major emphasis of the policy is on resource

mobilization, land availability, incentives for home ownership, incentives to

developers and constructors and promotion of research and development

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activities to make construction cost effective. The main objective of the policy

is to create affordability to owning a housing unit, especially for the middle and

low-income groups.

3.3 MEASURES ALREADY ADOPTED

Banks exposure to housing finance has been enhanced from 5% to 10%

of their net advances.

CED on wires & cables withdrawn.

CED on cement reduced.

Bank allowed to deduct 3% of the income arising out of consumer loans

For creation of a reserve to off-set bad debts in this segment.

Broadened the scope of Credit Information Bureau at SEP.

Facilitating CIB in the private sector for consumer loans.

The per party limit has been raised from Rs. 5 million to Rs. 7.5 million.

The maximum loan period has been enhanced from 15yrs to 20 yrs.

Debt equity ratio in housing finance has been improved to 80:20 from

60:40.

Tax rebate on mark up to Rs. 500,000 (from previous Rs. 100,0007-) or

40% of the income which ever is less for those who construct their

houses their loans.

Maximum limit of HBFC raised to Rs. 5 million.

Provincial governments are rationalizing stamp duties and registration

fee on transfer and acquisition of housing property.

The legal framework for the loan recovery of financial institutions has

been further streamlined and strengthened through the promulgation of

Finance Institutions (Recovery of Finance) Ordinance, 2001.

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Through a more effective macro economic management the government

has succeeded in reducing the general interest rates in the country. This

will provide an opportunity for banks and other financial institutions to

provide more affordable mortgage loans.

HBFC has been put under a new and professional Board of Directors

and management with a mandate to restructure the instruction into a

commercially viable and self sustaining entity.

HBFC shall compete in the market for business and resources at par

with private. Sector institutions. Moreover, the HBFC has been amended

to enable it to provide Sharia compliant housing finance product, which

has since been introduced.

3.4 BANKS-HOUSING FINANCE

In order to meet the backlog and shortfall of the housing units in the

country in the next 20 years, the overall housing production has to be more

than 570,000 housing units annually.

IT is refreshing to note that favorable developments at the market place

are facilitating origination of housing loans in the primary mortgage market.

On the supply side bank are flushed with liquidity due to reduced borrowing

from government, de-dollarization of the economy and rising inflows of

remittances. Consequently interest rates have reached their lowest ebb.

In this scenario banks are looking for alternate lending opportunities and

develop asset based consumer products. Housing finance provides an attractive

opportunity as both profit margins and recovery rates on average are higher for

mortgage finance than project and corporate lending. On the demand side

marketing efforts by banks are creating awareness amongst general public for

early home ownership through housing finance. The increasing scope of House

Financing in Pakistan has made many local and foreign banks engaged in

House Financing activities. The potential of the industry promises sound futureof the capital resource.

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HOUSING LOAN PORTFOLIO

Banks Total

Disbursement

Total

Outstanding

# of

loans

Amount # of

loans

Amount

Nationalized 634 Rs. 1SS.8 633 Rs, 163.4

HBL-R5.1S9

NBP-Rs.97

Denationalized 43 Rs.63.1 41 Rs.55.1

MCB-Rs.63.1

Private Banks 1079 Rs. 3393,2 1044 1229.5

Union Banks Rs. 489

Askari Rs. 626

B.A.F. Rs.141

Foreign Banks L 18S2 Rs.2796 1350 1727.6

Citi Bank Rs. 1968

ABN Rs. 827

3945 4547.9 3065 3175,7

H.B.F.C 418,530 30,789.5 151,031 17,810.9

35,337.4 20,986.6

1.5 ANALYSIS

Name of

Bank

Percentage of

Share

Average Amount Per

Loan

Habib Bank Limited 4.16% 0.3 million

National Bank of Pakistan 2.13 %

Muslim Commercial Bank Ltd. 1.38% 1.46 million

Union Bank 10.75 % 1.29 million

Askari Bank Ltd. 13.76 %

B.A.F. 3.10% 1.49 millionCiti Bank 43.27 %

ABN Amro Bank 18.18%

Others 3.27 %

100.00 %

H.B.F.C. 0.07 million

Outright Purchase 65.8 %

Construction 17.99 %

Renovation 16.90 %

100.00 %

The above figures indicate the following very interesting facts, which

need to be evaluated by the policy makers for taking appropriate decision:

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a. That out of the total loan 62% market share is with the foreign banks

28% private banks as compared to only 6% with the Nationalized

Banks.

b. That the major players in the field are Citibank 43% followed by ABN

Amro 18%, Askari 14% & Union Bank 11%. Total 86%.

c. That the majority of the loans have been given for outright purchase i.e.

66% followed by loan for construction 18% renovation 17%.

d. That average loan per borrower:

Foreign bank/De-nationalized banks Rs. 1.50 million

Private Banks Rs. 1.29 million

Nationalized Banks Rs. 0.30 million

HBFC Rs. 0.07 million.

e. That the market leader which had a almost monopolist share originally

in the Housing Finance is still H.B.F.C. with total disbursement ofalmost Rs. 31.00 billion followed by all the banks clubbed together at

Rs. 4.5 billion.

f. The figure of Rs. 4.5 billion is a tremendous improvement in the Banking

Sector is a recent evolution, which is a consequence of Macro Economic

Conditions, National Housing Policy 2001 and the measures and steps

taken by the State Bank of Pakistan and other Agencies.

As part of this research paper a questionnaire was circulated among the

Major Players in the Banking Sector w.r.t. Housing Finance who enjoy an

almost 90% of the market share. This questionnaire was followed up with

telephonic reminders and meetings/discussion. Based on the above survey the

findings are tabulated under:

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MAJOR PRIVATE BANKS IN HOUSING SECTOR

NAME Limit for

Loan

Equity Time Frame Processing Fee Rate of Interest

Banks (Million Rs) Ratio Years Floating Fixed

Union Bank 0.3-7.5 70:30 1-20 yrs 5000 + others 9-11 % X

Soneri Bank 2.5 70:30 1-15 yrs 2500 or 0.5% of Loan -f others

11% 16%

Askari Bank 0.2-7.5 60:40 1-20 yrs 2500 or 0.5% of Loan + others

10-12 % 18%

PICIC 0.25 60:40 2-20 yrs 12.5 % 14%

Faysal Bank 0.3 - 7.5 60:40 3-20 yrs 15000-25000(Accumulated)

9.37 % 18%

City Bank 0.3-7.5 60:40 1-20 yrs 11000Accumulated

9.5 % 17%

ABN Amro 0.1 - 7.5 60:40 3-20 yrs 3000-5000-r others

10% 16%

HBFC 0.1-7.5 70:30 1-20 yrs 950DAccumulated

12.5 % 12.50%

Al-Falah 0.1-7.5 70:30 1-20 yrs 5000 20000 7%

1.6 AWARENESS OF THE HOUSING FINANCE SCHEMES

The above exercise was conducted in respect to the Institutions involved

in extending House Finance. Now this exercise is undertaken to find out the

knowledge and general perception of H-F amidst potential borrowers. The

survey has produced some very meaningful results. The restricted parameters

of the survey are that the target group selected were:-

a. Mostly educated

b. Bread earners of the family

c. 92% male

d. More than 90% above age of 40

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With these parameters, the survey needs to be understood and results

are:

OWN HOUSE: 64% do not own their own house

DEPENDENTS: 60% have 2-4 + 24% 5-6 + 16% >6

RENTAL PAYMENTS: 56% pay approx Rs. 10,0007-

24% pay approx Rs. 15,000

20% pay approx Rs. 20,0007-

SOURCES: 70% have purchased their own house.

30% have been gifted or inherited.

AWARENESS: 65% do not know about the various H-F sche

35% knew of it.

BEEN TO A BANK: 92% have not been to a bank for this.

PERCEPTION OF 80% felt that the packages offered by the various

PACKAGES: Financial Institutions are neither convenient nor

affordable.

MARKUP RATE: 72% did not know of the present markup charged

CONVENIENT 92% responded by saying that they would prefer

PACKAGE: Package/product of housing finance which is convenientlyobtained is economical and can stretch for a longer period of time.

1.7 ALLIED INDUSTRIES WITH HOUSING AND

CONSTRUCTION

Housing and construction sector is not only highly labour intensive, it

has also multiplier effects on Industrial activity in the country. Revival of this

sector will also generate momentum in almost 70 allied industries such as:

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CEMENT SANITARY FITTINGS

1. Crush Stone 1. Sink

2. Polly bag / Polly propane bag 2. Wash Basin

3. Lime stone 3. Bath tub

4. Printing of bag 4. Water Tanks

5. Transportations 5. Tap

6. Shower

7. Flash

WOOD INDUSTRY

1. Door Aluminums

2. Window Glass

3. Shuttering Silica

HARDWARE INDUSTRY FLOORING

1. Nails 1. Tiles

2. Screw 2. Mosaic

3. Angle 3. Marble

4. Brackets

5. Door closer

6. Door Lock

7. Hammer

8. Screw Driver

9. Curtain Railing

10. Curtain Rod

PIPE

1. PVC Pipe

2. Steel Pipe

3. Asbestos Pipe BLOCK

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PAINT INDUSTRY ELECTRICITY

1. Oil paint l. Wire

2. Wall paint 2. Switch3. Distemper 3. Regulator/Dimmer

4. Whitewash 4. Tube Light

5. Paint Brushes 5. Bulbs

6. Sand paper 6. Fancy Light

7. Paint Drum/Pot 7. Fan

8. Transportation 8. AC

9. Pant Dyes 9. Heater

10. Petrol Chemical 10. Electric Motor

11. Warmish

12. Sprit

13. Polish

House is the serious need for every one I this world which is impossible

with out the above industries.

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CHAPTER 4

METHODOLOGY

4.1 NATURE OF THE RESEARCH

The research is contained on survey hence can be called as descriptive

research. Quota sampling has been applied, and 30, 30 copies have been

distributed among Bank employees and general public. It was then properly

treated for analysis. The material has been collected through personal

observation and questionnaires. The data have been collected with the help ofthe following techniques.

1. Primary Data

Primary data has been collected on questionnaire. It has been a valuable

source for collecting the clients opinion and their expertise.

2. Secondary Data

Books, newspaper and Internet sources have been the source for

secondary data. All the data have been properly studied, analyzed and

treated for concluding remarks and devising a scheme for Allied Bank

Limited.

4.2 RATIONALE OF THE QUESTIONNAIRE

The questionnaire contained 10 questions, including open-ended,

multiple choice and close-ended questions.

Question 1 was about to note down the available ways to finance a

property purchase.

Question 2 was about different types of charges included in house

financing / loans taking from financial institutions and banks.

Question 3 asks about the relevant documents and other formalities

required whileapplying for a loan.

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Question 4 needs information about approving one for loan, keeping in

view different Factors.

Question 5 asks about repaying schedule, devised by the bank and some

opinions from

the clients.

Question 6 was about making claims and options have been given.

Question 7 was about the main factors that affect the value of property.

Question 8 was about the main factors that affect the value of propertyof thecustomers.

Question 9 asks about need to consider than deciding the amount to

insure homeof the customers.

Question 10 was about the willingness of insuring house.

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4.3 ANALYSIS

ANALYSIS OF THE QUESTIONNAIRE

This questionnaire is designed for the customer who interested in house

financing. This activity was carried out in PICIC Commercial Bank Hayatabad

Peshawar.

Total No. of questionnaire was 20, in which 15 were consider to be fit

for the analysis.

In the below table the first row shows the options of the question and thesecond row show answers given by the customers.

Q. No.1: What are the ways available to you to finance property purchase?

Bank 8

Loan through family 5

Other financial institutions 2

This graph shows most of the people want loan from banks, because

loan through family creates problem of ownership. Loan through family and

friend is good when there is joint family system.

0

2

4

6

8

Bank Loan through family Other f inancial

institutions

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Q. No.2: What are the charges involved in taking a loan from the bank?

Legal fee 15

Processing fee 15

Pre-payment fee 15

Other 15

All the above mention charges are involved for every one. That is why

every customer ticks all the options.

0

2

4

6

8

10

12

14

16

Legal fee Processing fee Pre-payment fee Other

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Q. No.3 What are the documents you need to have to produce to the

bank when applying for a housing loan?

Legal documents 15

Tax documents 15

Option to purchase 15

Agreement document 15

Others 15

All the option is selected by every customer. Because every customer

has to summit all these documents.

Legal

documents

20%

Tax documents

20%

Option to

purchase

Agreement

document

20%

Others

20%

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Q. No.4: What are the main factors for banks to consider when

deciding whether to approve your housing loan application?

Customer assets and liabilities 15

Customer employment history 15

Customers property current market value 15

Age of the customer 15

Income of the customer 15

The bank has to over view the above mentioned points before decidingapproval of loan

0

4

8

12

16

Customer

assets and

liabilities

Customer

employment

history

Customers

property current

market value

Age of the

customer

Income of the

customer

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Q. No. 5: What are the possible solutions offered by banks to help you

keep to you repayment schedules?

Restructuring the loan 5

Interest servicing 2

Lower repayments 8

Capital reduction 0

Most of the customers want to low the repayment and restructure the

loan

0

2

4

6

8

Restructuring the

loan

Interest servicing Lower repayments Capital reduction

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Q. No. 6: How do you go about making claims?

Though court 15

Others 0

If there are some calms from banks after paying yours installment the

customer will clam it through court.

15

00

5

10

15

20

Though court Others

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Q. No.7: What are the main factors that affect the value of your

property?

Tenure 8

Location 1

Surrounding features 3

Current demand of the property 3

Its means the main factor that affect the value of your property is tenure

of the property surrounding features and location is also important.

8

1

3 3

0

2

4

6

8

10

Tenure Location Surrounding

features

Current demand of

the property

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Q. No. 9: Do you want to insure your house?

Yes 6

No 8

Most of the people dont want to insure there houses because the

insurance prices of banks are too high.

6

8

0

2

4

6

8

Yes No

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Q. No. 10: Are you ready to pay the extra insurance amount?

Yes 2

No 13

All most every one not ready to pay such an extra amount.

2

13

0

5

10

15

Yes No

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FINDINGS

1. From the analysis of my research thesis I found that the people want

loan from bank instead of family and other financial institution because

family creates ownership problem and loan through bank is secure

method therefore all banks should have house financing scheme.

2. The crucial factors which are to be consider by the bank is to overview

customers assets and liabilities, employment history, property current

market value. Age of the customers, and income of the customer.

3. If customers are not satisfied from the bank they claim in the banking

court for legal relief.

4. From the analysis of the thesis I have found that the most affected

factors that affect the value of your property is tenure, location,

surrounding features, current demand of property etc.

5. People want to insure their home at low cost. Most of the people dont

insure because of high interest rate.

6. Housing finance should not be limited to big cities.

7. People trust more on those financial institutions which have fixed rate of

interest instead of floating rate.

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RECOMMENDATIONS

1. Housing Finance should be not being restricted to few cities like

Karachi, Lahore and Rawalpindi. Few localities like DHAs, Army

Schemes, Cantts, LDA and CDA. Selected borrowers like Bank

employees, multinational reps, Business class personnel. It should be

broad based in all respect.

2. The PICIC Housing Authority should make immediately segment wise

task force i.e. Financial, Utility, Legal, Builder and Housing Societies to

ensure proper and timely implementation.

3. There should be either fixed rates instead of floating rates or some cap

into the floaters.

4. Housing finance market should be broad based rather than concentrated

in a few pre-selected specialized institutions. The demand for housing

finance in Pakistan is too large to be met by a few institutions.

5. Another caution point is that there is a need to improve significantly the

enabling environment i.e. the property market, the property registration

and retrieval system, legal and judicial system and the real estate

market.

6. The benefit of the reduction of excise duty on cement should be passed

on to the consumers. The government should initiate action to break the

cartel of the cement manufacturers.

7. Lands and utilities providing agencies should willingly and actively

participate in this cause otherwise no matter how lucrative the Housing

Finance package offered by banks will die sooner or later.

8. Loans should be provided by banks to developers of residential and

commercial projects based on their reputation, good will and feasibility.

That is a Developer Finance System

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9. Funds lying with SBP to the tune of US $15 million or Rs. 900 million

under this head since 1994. This amount should be disbursed to the

banks at reduced rates.

10. Title of documents of property should be computerized and made

available on demand in the shortest possible time.

11. Foreclosure laws should be implemented without recourse to courts

within 90 days.

12. Training of Banks Staff on various aspects like: - underwriting,

developer financing, documentation, foreclosure etc. May study housingfinance projects from Srilanka and Thailand / Malaysia.

13. CIB information for customers is shared between banks through the

Central bank.

14. Extensive publicity in shape of advertisements in print and media w.r.t.

the housing finance available and its procedures and benefits. Especially

those which are none interest bearing schemes.

15. Broadly speaking a rapid growth in housing finance business will accrue

significant benefits to the economy in the form of employment

opportunities, support to a variety of sectors, a higher economic growth,

and fulfillment of an important social need of own Makaan.

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CONCLUSION

As is now evident from the above findings that housing finance is the

critical input required for the promotion of construction industry leading in turn

to the economicrevival.

Housing and allied construction sector is not only highly labor intensive

but it has also multiplier effects on industrial activity in the country. Revival of

this sector will also generate momentum in almost 70 allied industries Thus the

housing and construction sector can safely be regarded as the mother of

industrial activity in the country.The National Housing Policy 2001 embodies measures to ensure the

development of the housing sector by use of a number of instruments such as

availability of concessionary Housing Finance, access to land cross-subsidy

and removal of bureaucratic and legal bottlenecks to facilitate the entire

process of home ownership.

Measures adopted by the Government/SBP particularly in the provision

of housing finance at affordable rates will provide a significant boost to

housing and construction sector.

The low share of Housing Finance to GDP does not represent any lack

of demand rather it reflects the absence of properly organized approach to

housing finance which has hitherto suffered form rather high interest rates and

somewhat lack of competition in the financial sector.

There are some other significant constraints in the housing sector that

either increase the cost of transaction or increase risks for the lender to

unmanageable levels. These can be identified as poor record / retrieval of

property rights, high stamps duties, bureaucratic delays, corruption,

disorganized state of the real estate market etc.

It is worldwide-recognized fact that the construction industry of a

country plays a vital and significant role in the development of its economy and

prosperity.

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A MODEL HOUSING SCHEME FOR ABL

A shelter which you can call your own has been eluding you so far? Not

any more. With the ABL Housing Scheme, almost any one can now fulfill his

long cherished dream of owning a house or a flat of his/her choice at most

attractive terms.

ELIGIBILITY

Any individual aged 21 years or above having regular income.

PURPOSE

Purchase of land, purchase or construction of house/flat or purchase of

old house/flat.

Renovation/extension/repair/furnishing of house/flat.

Taking over of existing Housing Loan form other Bank/Financial

Institution.

The loan is now extended to those cases also where flats are being

constructed by promoters/developers where immediate mortgage of the

property may not be possible.

QUANTUM OF LOAN

Maximum of Rs. 100.00 Lac loan depending on the cost of house/flat,

applications age, income, repayment capacity etc. Loans of higher amount

may be considered on the basis of merit of the case. The maximum quantum of

loan shall be as follows:

Nature of applicant Location of house /flat

Metro Urban Semi-UrbanRural

i) In case of individual 80 80 80

ii)Incase of co- borrower 100 100 100

Enhancement of loan up to 10% may be allowed for furnishing of house/flat

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MARGIN

Margin may be as low as 10%

INTEREST RATE

Facility of both fixed and floating rates interest available.

FIXED RATE

Period of Loan Rate of Interest

Up to 5 years 10.50% p.a.

Above 5 years but up to 10 years 11.00% p.a.

Above 10 years 11. 25% p.a.

FLOATING RATE: BASED ON KIBOR

Period of Loan Rate of Interest

For all periods At KIBOR Minus 2.25% subject toa minimum of 11.50%

Further reduction of 0.50% p.a. in the rate of interest (both for fixed and

floating) is allowed if the loan is taken by a woman having own income or

taken by a married couple jointly and another 0.25% p.a. reduction is allowed

on providing liquid security covering at least 50% of the loan amount.

In case, a borrower opt for life insurance cover under the scheme a

further reduction of 0.25% p.a is allowed in the interest rate. Thus the effective

rate may be as low as 10.50% p.a

REPAYMENT PERIOD

Loan is repayable within a maximum of 20 years, hi case of salaried

person repayable within superannuation and in case of professional and self-

employed person within the age of 65 years.

Loan is repayable in Equated Monthly Installment which includes part

of principal and interest and worked out considering loan amount, interest for

initial moratorium period, rate of interest and period of repayment.

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Facility of variable EMI depending on the repayment capacity is

available.

One can switch over from fixed rate to floating rate of interest and vice-

versa during the tenure of the loan at nominal fee.

Advance payment of EMI or pre-payment of loan is permissible with

penalty, other than bullet repayment due to death or retirement of the borrower.

SECURITY

Mortgage (either equitable or registered) of house/flat for which the loan

is given and hypothecation of movable assets financed by the Bank for

furnishing the house/flat. If mortgage of house/flat is not possible, the loan

shall be covered by liquid/tangible security of adequate value acceptable to the

Bank.

In case of professional or self employed persons additional security shall

be required either in the form of Banks won Term Deposit, LIC Policy (by

surrender value), NSC, Relief Bond etc to the tune pf 10 to 20% of loan or

Personal Guarantee of one or two persons having worth of 125% of the loan

and acceptable to bank.

PROCESSING CHARGE

No processing charge Insurance

Insurance of house property is mandatory whereas life insurance cover

for the borrower is optional. The Bank is offering a very attractive package of

home insurance under the scheme.

Keeping in view the existing house financing scheme, kibor rates and

State Bank of Pakistan regulation the above mention house financing scheme is

proposed for ABL. This proposes scheme will attract the customers and

maximize the low market share of ABL in the sector of housing loans.

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BIBLIOGRAPHY

1. The Millionaire Next Doorby Stanley and Danko.

2. Your Money or Your Life by Dominguez and Robin.

3. The Total Money Makoeverby Dave Ramsey.

4. The Wealthy Barberby David Chilton.

5. The Richest Man in Babylon by George Clason.

6. The Joy of Simple Livingby Jeff Davidson.

7. Yes You Can Achieve Financial Independenceby James Stowers.

8. Never Eat Aloneby Keith Ferrazzi.

9. Living Simply with Children.

10. Getting Things Doneby David Allen.

11. www.housebuildingfinancecorporation.com

12. Alfalah Housing Loans.

13. PICIC Housing Loans.

14. Askari Commercial Bank Housing Loans.

15. This report containing material from house building finance corporation,

Muslim Commercial Bank, PICIC, United Bank Limited and Housing

Scheme Models, Bank Articles.

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7. What are the main factors that effect the value of your property?

a) Tenure

b) Location

c) Surrounding featuresd) Current demand of the property

8. What do you need to consider than deciding the amount to insure yourhome?

a) More insure the house

b) Keep in mind the contests of your house

c) Potential cost

d) Cost of construction

9. Do you want to insure your house?

a) Yes

b) No

10. Are you ready to pay the extra insurance amount?

a) Yes

b) No