KARACHI: Realising its role for development of housing sector, the State Bank has stated that a mortgage refinance company (MRC) is now in its final phase of being incorporated.

The SBP disclosed the details in its recently issued Housing Finance Quarterly. It said the Housing Advisory Group (HAG) Recommen­dations initiated in 2007 were a commendable way for the housing sector in Pakistan.

The SBP said it has been making efforts to ensure effective implementation of these recommendations, and as a result, Mortgage Refinance Company (MRC) is now in its final phase of being incorporated.

The SBP reported that housing backlog reached 7.5 million in 2009 while it has been increasing annually at the rate of 0.35m which means the backlog reached about 9m in 2014.

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Establishment of Housing Observatory is being pursued on priority basis, said the report, adding that Developer Finance guidelines are issued to structure and streamline the Large Scale Developer Finance (LSDF).

Although Pakistan has laws for land registration and transfer, the process is cumbersome at times, because of number of institutions involved. The reforms in the property titling and land administrative procedures, including improvements of the legal provisions, standardisation of processes, and computerisation of all relevant revenue records will help enhance financing from the formal sector, said the report.

Since 1990s, almost all governments have been struggling to move this housing sector which has great potential to kick start more than 40 allied industry but failed due to many reasons, including corruption in private sector, cheating, land-grabbing with the help of government officials and ineffective role of courts due to prolonging of cases.

Also, the governments have stopped providing land to the general public, instead only builders and developers buy lands and sell them with unlimited and unchecked profits to the people.

“Majority of builders and developers are working as sole proprietorships or in partnerships with limited capital and informal corporate governance structures, which gives rise to illegal construction, unreliable building permits, and legally unprotected advance purchase of units,” said the SBP report.

The unstructured and unsupervised nature of business of real estate brokers/agencies, which could serve as natural arrangers for provision of financial services, is also a significant constraint to provision of housing and housing finance. Consequently, it is difficult for financial institutions to verify the character, capital and capacity of potential clients.

Risk assessment and portfolio valuation is also fragile, which is another factor for lenders’ caution. As a result, financial institutions are reluctant to enter this market, which in turn causes scarcity of finance and constraints in the supply of housing.

At present, commercial banks, a microfinance bank and the House Building Finance Company Limited (HBFCL) are catering to the housing finance needs. The HBFCL is the only specialised housing bank in the country providing housing finance since 1952, while commercial banks entered the mortgage business in 2003.

Although HBFCL share in the total housing finance has reduced in absolute terms, it is still the only institution with mandate to cater to the lower-middle and low-income groups.

Published in Dawn, September 9th, 2014