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Housing to get boost with cheaper financing

Updated November 14, 2017

KARACHI: The Pakistan Mortgage Refinance Company (PMRC) on Monday started its opertions with initial funds of Rs6 billion to boost the housing sector.

State Bank of Pakistan (SBP) Deputy Governor Jameel Ahmed inaugurated the company’s first office to offer mortgage borrowers long-term funding at an affordable fixed rate.

PMRC Chief Operating Officer Dr Mohammad Saleem—who is the key person behind the development of schemes— told Dawn that the company would issue mortgage bonds like corporate bonds in the domestic market.

“We hope that the World Bank will approve a $140 million loan for the PMRC in January or February next year,” said Dr Saleem, adding that it would help strengthen the balance sheet of the company.

“Only a strong balance sheet will enable the PMRC to issue mortgage bonds which would attract bigger long-term funds for the housing sector,” he said.

The PMRC would provide loans at a fixed rate to banks which will then provide housing loans to end users at the same rate, he said.

Currently, the banks take risk as they provide long-term housing loans while they have short-term deposits. Most of the deposits in the banks are meant for less than one year which is the main hurdle for long-term loans.

At present, the PMRC has Rs6bn funds with Rs1.2bn contributed by the federal government and the rest was contributed by nine commercial banks.

The PMRC, said Dr Saleem, is also in contact with the International Finance Corporation (IFC) and Asian Development Bank (ADB) to get support for the mortgage housing development.

An earlier report prepared with SBP data, showed that the housing-to-GDP ratio in Pakistan was 0.7 per cent, which touched its peak at 1pc in 2005. This is the lowest ratio around the world, and also in the region with India standing at around 7.8pc.

The report said that in case Pakistan targeted to achieve a share of mortgage debt to the country’s GDP at say 5pc within the next four years, the financial market would need Rs450 to Rs500bn as long-term funds supported the target.

On an average, about 2.5pc of the conventional commercial banks total advances is mortgage finance, with an average tenor of about 10 years. The average retention of mortgage loan is about 12 years.

The entire mortgage portfolio is funded by short-term deposits, creating a severe tenor mismatch.

President National Bank of Pakistan and ex-chairman of PMRC board of directors Saeed Ahmad said he was very keen to see affordable housing in Pakistan and assured his support to the PMRC for starting its operations.

Chairman of PMRC Board of Directors Rehmat A. Hasnie and CEO Mr Rupan also spoke on the occasion.

Published in Dawn, November 14th, 2017