Mortgage Finance Opportunities and ChallengesByTaimur Afzal, ChairmanASSOCIATION OF MORTGAGE BANKERS (AMB)March 25th 2013*

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Obamas State of Union Address 2013March 25th 2013*

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Pakistan PopulationPopulation (2011) 187 MillionWorld's sixth most-populous countryPopulation Growth Rate 1.6 %Urban population35%Second most urbanized nation in South Asia Population below age of 25 Years 100 MillionMajor CitiesKarachi 21M Lahore 11 M RWP 3.5 M Faisalabad 3MHyderabad 3M Multan 2.6 M GRW 2.5 M Peshawar 3.6 MQuetta 2MMarch 25th 2013*

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Pakistan Economy GDP Rs. 20,600 BillionGDP Growth Rate 3.67%Employment by SectorIndustry13.7%Construction 7% Agriculture 45%Un-Employment rate 6%Inflation Rate 11 % (2012)March 25th 2013*

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Pakistan Banking Assets March 25th 2013*

(Rs. in Billion)SegmentAdvancesNPLsInfection RatioCorporate 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

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Mortgage as %age of GDP

GDP Pakistan= Rs. 20,600 BillionMortgage portfolio= Rs. 53 BillionStaff House Finance= Rs. 77 BillionMortgage = 0.7 % of GDPInternational ComparablesMarch 25th 2013*

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Chart1

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0.03

0.06

0.09

0.17

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0.26

0.29

0.32

0.39

0.41

0.814

0.876

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Pakistan1%

Indonesia2%

Bangladesh3%

Sri Lanka6%

India9%

Thailand17%

China20%

Korea26%

Malaysia29%

Singapore32%

Taiwan39%

Hong Kong41%

USA81%

UK88%

Potential of Housing SectorHousing ShortfallWorld 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 DemandRs.330 billion(Assuming only 10% housing needs as effective demand)

Mortgage Financing Requirement Rs. 231 billion per annum(At 70% LTV)

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Success StoryMarch 25th 2013*

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INDIA Growth of MortgageMortgage to GDP ratio 20129% 2002 2% Mortgages comprise the largest component in banks retail portfolioMortgages have grown from 1.5% of banks advances to 10% over the last 10 yearsProjections 2020Outstanding mortgages will increase 8 fold from Rs. 5 trillion currently to Rs. 40 trillion by 2020

Mortgage to GDP ratio projected at 20% by 2020March 25th 2013*

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Mortgage as a % of GDP

Mortgage as a % of GDP

Sheet1

Mortgage as a % of GDP

20022%

20064%

20099%

2012P11%

2015P14%

2018P17%

2020P20%

Growth Drivers in IndiaGrowth driven byEconomic growthRising disposable incomeAffordable interest ratesIncreased urbanizationFavorable demographicsHousing as a priority sector

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Growth Drivers in IndiaNational Housing BankHousing regulatory frameworkRefinancing Focus on low to mid income segmentNHB ResidexForeclosure lawsSARFAESIReduced NPASecuritizationMortgage registry

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Growth Drivers in IndiaMortgage Guarantee/ InsuranceTax incentives Specialized Housing Finance CompaniesFocused provisioning

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SolutionMarch 25th 2013*

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What can be done ?Macro FactorsEconomic growthinfrastructureAffordable interest ratesReal estate pricesFunding sourcesChannelization of long term fundsSecuritizationRefinancingMortgage insurance/ guarantee

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What can be done ?Legal frameworkForeclosureStamp /registration feesTitle documents

Regulatory issuesMortgage specific regulationsProvisioning issuesCredit rationing

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What can be done ?Product developmentTarget market diversityTier 2 citiesDeveloper-buyer financing modelFocused product Public sector employeesPrivate sector employeesRural customersMarch 25th 2013*

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Vision 2030March 25th 2013*

Year GDP (Rs. In Billion) Mortgage Portfolio(Rs. In Billion) Mortgage as %age of GDP2012 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%

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Thank you

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