House financing business, having tremendous scope for
investment and business opportunities for the financial sector was so
far the exclusive domain of the House Building Finance Corporation (HBFC)
This important area of economic activity was almost
paralyzed some three years back due to various reasons mainly due to
extremely depressed economic conditions within the country as well as
global economic recession. The scheme launched by the government to dig
out the hidden and undocumented wealth proved fuel to the fire
consequently adversely affected the construction and the real estate
sector throughout the country.
However, after the new housing policy announced by
the government after realization the role of real estate sector in the
growth of economic activity this sector has started picking up
The State Bank of Pakistan which encouraged the role
of the commercial banks in the construction and the real estate sector,
large commercial banks are showing their keenness to extend house
financing to such a level which was never witnessed in Pakistan which
indicates that a boom in the real state sector is in the offing.
Bank Alfalah, according to informed sources, is
coming out with an aggressive marketing campaign in this sector with the
first ever financing range of Rs10 million.
The Bank Alfalah focusing the large cities as the
target markets of their products for housing finance. Initially the
House financing will be launched in the designated branches of Karachi,
Hyderabad, Multan, Lahore, Faisalabad, Islamabad and Peshawar. The
scheme would be gradually extended to other cities keeping in view the
experience gained in initial branches. This house financing scheme will
be available to the salaried, self-employed and high network
Another attractive aspect of this scheme is that
affordability by keeping the mark up rate on the lower side which
include SBP discount rate plus 2 per cent i.e. 9.5 per cent.
Similarly, other commercial banks are also intended
to arrive in the real estate sector indicating a boom is to strike back
in this sector in near future. The HBFC, according to informed sources,
is also actively considering to enhance the present limit of Rs2 million
to Rs5 million shortly.
Availability of funds and simplification of
procedures which have already been made are the basis for reactivating
the housing sector in the country.
DEMAND FOR NEW HOUSING UNITS
The significance of housing sector for generating
economic activity is reflected in the fact that the annual demand for
new housing units in the country is estimated over 700,000, however, due
to financial constraints the maximum number of housing units built every
year never exceeded to 400,000 leaving a gap of 300,000 housing units
per annum. As a result of this carried out backlog, according to an
estimated, the country needs at least 6 million new houses to meet the
To meet such a huge demand for house financing, the
only organization active in this area is House Building Finance
Corporation (HBFC) which according to general public opinion miserably
failed to deliver the goods and produce the desired results in the past.
FORCE MAJEURE LAW
The Ministry of Law and Parliamentary Affairs has
approved the Force Majeure law for recovery of the loans from the
willful defaulters. Under the law, speedy trial courts will also be
constituted for early settlement of the disputes.
The State Bank of Pakistan has provided the copies of
the bye laws to commercial banks which are intended to enter the housing
finance sector. Appreciating the efforts of the Ministry of Law and the
State Bank of Pakistan, Hafeezur Rehman Butt, Chairman Association of
Builders and Developers of Pakistan said that the approved law by the
ministry is likely to greatly help encouraging the commercial banks in
the house financing sector in near future. He was, however, of the
opinion that arrival of the large banks like National Bank, United Bank,
Habib Bank and Muslim Commercial Banks are extremely important to make
it a success story.
Elaborating his point of view ABAD Chairman said that
since these banks have a large network spread all over the country, they
can easily meet the demand of the consumers from large urban centers to
remote areas of the country.
One of the major reasons for defaults and stuck up
loans in the past is said to be the high lending rates. In the current
scenario when the commercial banks are sitting on the huge piles of
money and looking for the borrowers, there was a general trend of
gradual decline in the lending rates in Pakistan also. Hafeezur Rehman
Butt suggested that instead of fixing the minimum lending rates, it
should be left to the market forces to decide. When the commercial banks
and other financial institutions will operate in this area, the state of
healthy competition would naturally help bring the lending rate at an
affordable level. It is believed that in the backdrop of effective law
and protective policies for offering secure loans, the different
commercial banks are likely to come in a big way in this sector which
would ultimately help lowering the lending rates.