Government establishing Mortgage Refinancing Company

[LahoreEstate]

MOHAMMAD ALI
KARACHI (February 03 2010): In a move to get the confidence of the financial institutions of housing finance, the government of Pakistan (GoP) is planing to establish Mortgage Refinancing Company (MRC), which will initially be funded by World Bank (WB).

This was stated by Rizwan Pesnani, Director, Infrastructure & Housing Finance Department of State Bank of Pakistan (SBP) at a briefing session on "Housing Finance in Pakistan and Neighbouring Countries" held at Association of Builders and Developers (Abad) house here on Tuesday.

He told Business Recorder that the government was striving to make MRC operational in the ongoing calendar year, as the feasibility and business plan in this regard have almost been finalised. He further said the government had planned to provide 20 percent financial assistance to meet the mandatory requirement of Rs 6 billion for establishing MRC, while the remaining 80 percent capital was being expected to be injected by International Finance Corporation (IFC) and financial institutions.

"IFC and financial institutions are expected to contribute some 20 percent and 60 percent financing, respectively, for establishing MRC, which will be regulated by SBP" he maintained. To a question, Rizwan said the MRC would initially start mortgage refinancing with the financial assistance of WB and subsequently it would be done through bonds and Terms Finance Certificates (TFCs).

He said the initiative of establishing MRC had then become imperative for the development of both banking sector and construction industry as financial institutions were meeting its long term loan demands through deposits. He maintained the inept enforcement of recovery ordinance had restrained banks to commence disbursement of long term loans for housing sector fully and urged the concerned authority to take positive measures for its proper implementation.

Rizwan said the government was also pondering to establish 'Housing Observatory' to facilitate masses at maximum and termed it as primary step towards the ultimate goal.

Syed Farhan Fasihuddin, manager-housing finance advisory services, IFC, said that mortgage refinancing facility would also help capital market, which would be launched by 2011. He said the mortgage to GDP ratio was 70 percent in United States and in the same way the UAE had 80 percent, India 8 percent and China 14 percent, however, the country' mortgage to GDP ratio was presently 0.7 percent, which should be enhanced to substantial level.

In his keynote address, Zaigham Rizvi, consultant WB on housing finance in South Asia, said that WB was playing key role in creating awareness regarding housing finance in the region. He informed that the web portal of newly established South Asia Housing Finance Forum had been launched, which would definitely help in finding unique approaches to cater to the demands of the population.

Furthermore, Rizvi said, the loan disbursement in housing sector in India had reached to Rs 200 billion, however, the House Building Finance Corporation (HBFC) disbursed only Rs 700 million in 2009 and urged the concerned authority to start micro house finance to facilitate low and middle income groups. He also suggested the body of Abad to set up a research unit at Abad house for establishing strong contacts with urban planners.

Engr. Farooq-uz-Zaman, chairman Abad, appraised the backlog of houses has now reached at 8.8 million and the industry was constructing only 0.6 million houses with its full capacity. But the annual demand of houses was 1.5 million, he added. He said if the government provided enabling environment to the industry, the house construction capacity could be maximised, which would also generate 7.5 million new employment.

He further said that around 40 percent of total population was residing in the cities and it would be increased to 65 percent by 2030, hence the concerned authorities should enhance the affordability or bring the price of houses down to cater the rising demand of population.

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