December 15, 2002	Sunday	Shawwal 10, 1423

KARACHI, Dec 14: Lenders want bankable projects and borrowers want affordable loans. And the enabling environment, particularly policy package of incentives for a kick-start for any sluggish business activity, has to be provided by the government.

The market-based housing finance has yet to take off with house-building finance agencies operating on the periphery of the financial market. But housing finance can become mainstream banking activity with the official support.

In the current economic scenario, a kick-start in the housing finance and estate development sector, that would spur growth in no less than 40 allied industries, has the potential to jump-start the economy. A higher growth would mean more revenues and less budget deficit.

What is needed is that the policymakers set the right priorities. Otherwise, they would move inch by inch, to be overtaken by march of events in reverse different direction.

For too long, policymakers looked at housing as an unproductive activity and the State Bank curbed housing loans. Now, the housing finance is seen as one of the mainstream banking activity and restrictions on volumes have been withdrawn. This shows how policymakers can stifle or boost the growth of any sector or for matter the economic growth as a whole.

Bankers used to dealing with large clients do not feel so comfortable in dealing with numerous middle class clients in hitherto untested business ventures. Habib Bank president Zakir Mahmood says HBL would venture into housing finance in the first quarter of next year but not in a very big way. MCB president Aftab Manzoor says that housing micro-finance business is being done by his bank through an NGO.

Bankers have to resolve the problem of mismatch between short-term deposits and long-term lending. NBP president Ali Reza says that a small ratio of deposits can be spared for housing finance that does not create a mismatch between resources and loans.

Yet, interest rate is another major issue. Borrowers, whose perspective was presented at the two- day Housing Finance Conference organized jointly by the World Bank and the State Bank, want low rates of lending, tax concessions and cut in stamp duty, to make loans affordable. They want banks not to penalize borrowers who want to retire their debts by lumpsum payments and deviate from repayment schedules. Borrowers in the UK also get insurance cover for loans.

The interest rate poses a problem in yet another way. Banks may prefer a floating interest rate for long-term lending. Yet borrowers would not know what the actually liability would be by the time mortgage loans are fully paid. With the foreclosure law empowering banks to repossess mortgaged property without recourse to judicial process, the borrower would be at the mercy of the lenders. The strong bargaining position of banks compared to smaller borrowers can be used to the disadvantage of the borrowers and to the benefit of the lender. This is a growing problem in the United States where rule of law and commercial contracts are reinforced by the writ of the constitution, regulatory authorities and independent judiciary.

Zubyr Soomro, country manager, Citibank, feels that issue of floating rate needs to be resolved in case of long-term lending for the comfort of the borrower. Borrowers are asking for loans for 15-25 years to make loans affordable.

No doubt, the Housing Finance Conference is creating an awareness among bankers about the need for diversifying their activity to housing and estate development. But both the borrowers and the lenders feel that government’s initial and brief intervention is vital for a big push. And what is perhaps required is to make a tactical retreat for a strategic advance.

Policymakers advise bankers to change their mindset and come out of the inertia to venture into housing finance. But they have also to constantly ask themselves the question whether their mindset is not a stumbling block to economic and social progress. Policymakers are totally and completely sold to “market fundamentalism” and “orthodoxy” that is not even practised in developed markets.

The market cannot resolve all socio-economic problem, and if it could so, there would be no need for a state, government or policymakers. Brief policy interventions are needed when market falters. In industrialized states, there is permanent subsidy on agriculture. Where is the free market from which the poor farming nations could benefit? And don’t the central banks intervene in foreign exchange markers to stabilize currency values?

In a presentation before the conference “Mortgage Financing: Borrowers Perspective”, coordinator Farooq Uzzaman Khan made a strong plea to make loans affordable for the borrowers by a variety of ways: low rate of interest, sharp cut in property registration fees, long-term loans, staggered repayments, tax incentives.

A critical challenge before the policymakers is to make the loans affordable, even if it involves subsidies and tax cuts for the initial period. With the representative government in place, the borrowers may have a better deal. In the past three years, the government has raised the volume of tax revenue by Rs100 billion, and it is time for the market to get a breather and for the economic growth to pick up. After all, fiscal deficit, trade gap and current account deficit, revenue collection, etc., in short are the outcome of the state of health of the economy and artificial measures cannot be sustained for long to promote macroeconomic stability.

The number of issues confronting the housing sector that include outdated rules, regulations, cumbersome procedures and lack of infrastructure provoked an apt remark from a participant. The governments are supposed to help resolve people’s problems. “Instead our government creates problems for the people.”

Business lauds good policies initiated by the outgoing government but complains bitterly about impediments at the implementation stage. Three years of reforms to improve the governance has left the fossilized administration untouched. The National Housing Policy 2001 remains an academic document despite the implementation committees set up at the federal and provincial levels. It is said that if the housing policy had been implemented, fifty per cent of the problems voiced at the Housing Finance Conference, would have been resolved.

Some how, the performance of Wapda and KESC, whose restructuring has eaten up billions of rupees from taxpayers’ money, was particularly targeted. KESC fails to honour its commitments to the housing projects. Both Wapda and KESC ask estate developers to fund capital expenditure on provision of electricity to their projects because these utility companies do not have funds. And the assets created by capital spending by developers become the property of the utility companies and is reflected in their balance-sheet, says chairman, ABAD, Hafeez-ur- Rehman.

In the current economic scenario, housing finance holds out a big promise. Will the opportunity be seized or missed? The ball lies in the court of the policymakers.

That the State Bank proposes to set up a working group to pick up proposals presented by the stakeholders at the conference that would make sense. The central bank has to look at two faces of the same coin, or two principle aspects of housing finance, bankable projects and affordable loans. And the decisions should take care of the twin demands.