Mortgage Finance Mortgage Finance Opportunities and Challenges Opportunities and Challenges

ByByTaimur Afzal, ChairmanTaimur Afzal, ChairmanASSOCIATION OF MORTGAGE BANKERS (AMB)ASSOCIATION OF MORTGAGE BANKERS (AMB)

March 25th 2013 1

Obama’s State of Union Obama’s State of Union Address 2013Address 2013

March 25th 2013 2

Pakistan PopulationPakistan Population Population (2011) 187 Million

World's sixth most-populous country

Population Growth Rate 1.6 %

Urban population 35%

Second most urbanized nation in South Asia

Population below age of 25 Years 100 Million

Major Cities

◦ Karachi 21M Lahore 11 M RWP 3.5 M Faisalabad

3M

◦ Hyderabad 3M Multan 2.6 M GRW 2.5 M Peshawar 3.6

M

◦ Quetta 2M

March 25th 2013 3

Pakistan Economy Pakistan Economy

• GDP Rs. 20,600 Billion

• GDP Growth Rate 3.67%

• Employment by Sector

• Industry 13.7%

• Construction 7%

• Agriculture 45%

• Un-Employment rate 6%

Inflation Rate 11 % (2012)

March 25th 2013 4

Pakistan Banking Pakistan Banking Assets Assets

(Rs. in Billion)

Segment Advances NPLs Infection Ratio

Corporate Sector 2,760 419 15.2 SMEs Sector 276 95 34.6 Agriculture Sector 203 29 14.5 Consumer sector 250 43 17.5 Commodity financing 512 6 1.1 Staff Loans 84 2 1.9 Others 108 12 10.8 Total 4,196 607 14.5 March 25th 2013 5

Mortgage as %age of GDPMortgage as %age of GDP

GDP Pakistan = Rs. 20,600 Billion

Mortgage portfolio = Rs. 53 Billion

Staff House Finance = Rs. 77 Billion

Mortgage = 0.7 % of GDP

International Comparables

March 25th 2013 6

Potential of Housing Potential of Housing SectorSectorHousing Shortfall World Bank Estimation 8 million housing units (2009) Annual incremental demand 600,000 units.

Annual housing needs 1.1 million Units

(600,000 incremental demand and 500,000 units from the backlog)

Total Funding requirement Rs. 3.3 trillion per year

(average price of Rs. 3 million per unit)

Funding Demand Rs.330 billion

(Assuming only 10% housing needs as effective demand)

Mortgage Financing Requirement Rs. 231 billion per annum

(At 70% LTV)

March 25th 2013 7

Success Success StoryStory

March 25th 2013 8

INDIA – Growth of INDIA – Growth of MortgageMortgage

Mortgage to GDP ratio

2012 9%

2002 2%

Mortgages comprise the largest component in banks’ retail portfolio

Mortgages have grown from 1.5% of banks’ advances to 10% over the last 10 years

Projections 2020

Outstanding mortgages will increase 8 fold from Rs. 5 trillion currently to Rs. 40 trillion by 2020

Mortgage to GDP ratio projected at 20% by 2020

March 25th 2013 9

Growth Drivers in IndiaGrowth Drivers in IndiaGrowth driven by

◦ Economic growth

◦ Rising disposable income

◦ Affordable interest rates

◦ Increased urbanization

◦ Favorable demographics

◦ Housing as a priority sector

March 25th 2013 10

Growth Drivers in IndiaGrowth Drivers in India

National Housing Bank◦ Housing regulatory framework◦ Refinancing ◦ Focus on low to mid income segment◦ NHB Residex

Foreclosure laws◦ SARFAESI◦ Reduced NPA

Securitization◦ Mortgage registry

March 25th 2013 11

Growth Drivers in IndiaGrowth Drivers in India

Mortgage Guarantee/ Insurance

Tax incentives

Specialized Housing Finance Companies

Focused provisioning

March 25th 2013 12

SolutionSolution

March 25th 2013 13

What can be done ?What can be done ?

Macro Factors◦ Economic growth◦ infrastructure◦ Affordable interest rates◦ Real estate prices

Funding sources◦ Channelization of long term funds◦ Securitization◦ Refinancing◦ Mortgage insurance/ guarantee

March 25th 2013 14

What can be done ?What can be done ?Legal framework

◦ Foreclosure◦ Stamp /registration fees◦ Title documents

Regulatory issues◦ Mortgage specific regulations◦ Provisioning issues◦ Credit rationing

March 25th 2013 15

What can be done ?What can be done ?

Product development

◦ Target market diversity

◦ Tier 2 cities

◦ Developer-buyer financing model

◦ Focused product Public sector employees

Private sector employees

Rural customers

March 25th 2013 16

Year GDP

(Rs. In Billion)

Mortgage Portfolio

(Rs. In Billion)

Mortgage as %age of GDP

2012 20,600

53 0.26%

2015 23,000 460 2.00%

2020 28,000 1,120 4.00%

2025 33,000 1,980 6.00%

2030 38,000 3,800 10.00%

Vision 2030Vision 2030

March 25th 2013 17

Thank youThank you

March 25th 2013 18