Apr 19 - 25, 2010

House Building Finance Corporation (HBFC) is considering to build low cost housing units after buying cheaper land from the government which seems to be the only way to beat ever rising cost of housing units on the back of speculative investments by property developers.

Azhar Abbas Jafferi, Chairman and CEO HBFC told media in a press briefing that in view of rising housing needs of the low and middle income groups, HBFC has reached an agreement with NGO Saiban for developing low cost housing in its project at Lahore. In this respect an MOU is being executed for a pilot project of 50 units.

Meanwhile HBFC, which is in a much improved liquidity position, is also considering to initiate an awareness campaign to invite individuals and builders for house financing with a view to ignite a spark into developing and construction activity which resultantly activate over 82 allied industries and thus help activating economic activity in the downstream and sub sectors of the construction industry, said Azhar Jafferi.

The new CEO after assuming the office has noticeably reduced the losses by Rs357.197 million to a mere Rs28.36 million through strategic recovery campaigns and a cut in expenditures.

He said that to improve the financial health and liquidity to ensure perpetual cycle of lending a robust recovery drive was launched last year and against a target of Rs3.32 billion a total of Rs3.5 billion was collected in 2009 compared to Rs3.2 billion last year.

He however agreed that high rate of interest and economic slowdown has affected demand of housing loans but was confident that prudent lending and quality assets would help activate the property development in days to come.

Inordinately high mark-up rates exasperated the already much reduced affordability of the buyers. This notion is authenticated by the state bank in its report on housing finance.

According to SBP figures total mortgage outstanding principal of all the banks decreased by 11 per cent to Rs74 billion as compared to Rs84 billion in 2008. Similarly total number of borrowers also declined by 8.5 per cent to112,785 as compared to 123,100 as on December 21.2008, he said.

HBFC has managed to reduce the losses to mere Rs28.36 million in 2009 as compared to Rs385.55 million in 2008. Reduction of loss by Rs357.197 is a major achievement of the new management. This loss figure could have been much less had we not provided for all pending expenses/financial costs which were previously not booked.

He said this extraordinary turnaround has been possible by adopting a three pronged strategy keeping in view short, medium and long term objectives.

Recalling the background the CEO HBFC mentioned that liquidity position has been severely affected in the last many years by the rising non-performing loans (NPLs), which are 41 per cent of the total portfolio, as compared to an average 2-3 per cent of other banks. Consequently, after meeting all the regulatory requirements not much liquidity was available for going in a big way. Hence, it was imperative that loans should be sanctioned very prudently. When people do not pay back their loan installments, it reduces HBFC's capacity to give fresh loans, he added.

There is more than one reason for this high default rate. The foremost cause of default is that while lending to the borrowers in the past their repayment capacity was not given due weightage. Other reasons were not enough emphasis on recovery of loans; ineffective foreclosure laws; and in some cases the genuine problem of the borrowers owing to the high inflation in the country.

He described the year 2009 as very challenging year for the economy in general and housing industry in particular. He said that liquidity position of the organization has substantially improved and we are now fully geared-up to take-off and meet the substantially enhanced disbursement targets of 2010.

Realizing the housing needs of the low and middle income groups of the country, an in-principle agreement has been reached with Saiban (a renowned NGO), for developing low-cost housing in its project at Lahore. An MOU is being executed for a pilot project of 50 houses. He said that HBFC's management also took some other bold initiatives to revive the institution including preparation of long term restructuring plan; reactivation of board of directors; compliance of SBP inspection report; timely finalization of annual accounts; and gear up efforts to get Rs2 billion by MoF which were pending release of since 2007.