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RESEARCH THESIS ON
HOUSE BUILDING FINANCE SCHEME FOR LOWERINCOME CONSUMER OF ALLIED BANK LIMITED
BY
MUHAMMAD NAUMAN KHAN
M.BA (General)
INSTITUTE OF MANAGEMENT STUDIES
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UNIVERSITY OF PESHAWAR
Session: 2006-2007
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RESEARCH THESIS ON
HOUSE BUILDING FINANCE SCHEME FOR LOWERINCOME CONSUMER OF ALLIED BANK LIMITED
Thesis submitted to the institute of management studies, university of Peshawar, in
partial fulfillment of the requirements for the award of
The degree of
MASTER IN BUSINESS ADMINISTRATION
JULY, 2007
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RESEARCH THESIS ON
HOUSE BUILDING FINANCE SCHEME FOR LOWER INCOMECONSUMER OF ALLIED BANK LIMITED
APPROVAL SHEET
EXTERNAL SUPERVISOR
Signature: __________________________
Name: __________________________
Designation: __________________________
INTERNAL SUPERVISOR
Signature: __________________________
Name: __________________________
Designation: __________________________
COORDINATOR RESEARCHER & DEVELOPMENT DIVISION
Signature: __________________________
Name: __________________________
Designation: __________________________
Date: __________________________
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ACKNOWLEDGEMENTS
My thanks first of all is to the most beneficient, most merciful, almighty
ALLAH whose blessings made me able to work on my masters research and
compile something worthy to present.
Its only, due to the special prayers of my sweet parents that I am able to
complete successfully what I started. I will always be in debt to them for what
theyve done for me all life.
I am obliged to mention Mr. Mehboob-ur-Rasheed my supervisor,
institute of management studies. Their guidance in completion of the thesis was
very precious.
I owe great thanks to my teachers, for providing me the guidelines and
support at every step.
In the end, I would like to thanks Miss Nabeela Qayum, Mr.
Muhammad Arif Page Master Services, U.O.P. for composing and compiling
this research thesis.
Muhammad Nauman Khan
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CONTENTS
Acknowledgement......................................................................................................i
List of Contents........................................................................................................ii
List of Acronyms....................................................................................................iv
ACKNOWLEDGEMENTS..........................................................................................i
LIST OF ACRONYMS ...............................................................................................v
CHAPTER 1 ...............................................................................................1
INTRODUCTION TO THE REPORT......................................................................1
1.1 BACKGROUND .....................................................................................1
1.2 Objectives ................................................................................................2
1.3 Statement of the Problem ........................................................................2
1.4 Scope of the report ..................................................................................3
1.5 Significance of the study .........................................................................3
1.6 Methodology ...........................................................................................3
1.7 Sequence of the Study..............................................................................3
1.8 Annexure..................................................................................................4
1.9 Bibliography ............................................................................................4
CHAPTER 2 ...............................................................................................5
HOUSING LOANS IN PAKISTAN...........................................................................5
2.1 INTRODUCTION OF HOUSING LOAN IN PAKISTAN.....................5
2.2 ISSUES ...................................................................................................6
2.3 HOUSING STRATEGY .........................................................................7
2.4 LAND FOR HOUSING...........................................................................8
2.5 HOUSING DEVELOPMENT................................................................10
2.6 GENERAL HOUSING..........................................................................10
2.7 LOW-INCOME HOUSING...................................................................10
2.8 LOW-INCOME GROUP HOUSING.....................................................11
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2.9 GOVERNMENT SERVANTS HOUSING............................................11
2.10 KATCHI ABADIS...............................................................................12
2.11 RURAL HOUSING..............................................................................13
2.12 HOUSING FINANCE..........................................................................13
2.13 PRIVATE SECTOR.............................................................................15
2.14 INSTITUTIONAL STRENGTHENING..............................................16
2.15 RESEARCH AND DEVELOPMENT.................................................16
2.16 TARGETS AND FINANCIAL OUTLAY...........................................17
2.17 PICIC TO LAUNCH HOUSE FINANCING SCHEME......................18
2.18 PICIC HOUSING LOAN.....................................................................18
2.19 TYPES OF FACILITY.........................................................................18
2.20 ELIGIBILITY......................................................................................19
Chapter 3 ..................................................................................................22
HOUSING FINANCE IN PAKISTAN.....................................................................22
3.1 INTRODUCTION .................................................................................22
3.2 NATIONAL HOUSING POLICY.........................................................23
3.3 MEASURES ALREADY ADOPTED...................................................24
3.4 BANKS-HOUSING FINANCE.............................................................25
1.5 ANALYSIS............................................................................................26
1.6 AWARENESS OF THE HOUSING FINANCE SCHEMES.................28
1.7 ALLIED INDUSTRIES WITH HOUSING AND CONSTRUCTION. 29
Chapter 4 ..................................................................................................32
Methodology ..............................................................................................................32
4.1 NATURE OF THE RESEARCH...........................................................32
4.2 Rationale of the Questionnaire...............................................................32
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4.3 ANALYSIS............................................................................................34
Analysis of the questionnaire ......................................................................34
.....................................................................................................................43
Findings.......................................................................................................................44
RECOMMENDATIONS...........................................................................................45
CONCLUSION...........................................................................................................47
A MODEL HOUSING SCHEME FOR ABL..........................................................48
Eligibility .....................................................................................................48
Purpose.........................................................................................................48
Quantum of loan...........................................................................................48
Margin..........................................................................................................49
Interest Rate.................................................................................................49
Fixed Rate....................................................................................................49
Floating Rate: Based on KIBOR..................................................................49
Repayment period........................................................................................49
Security........................................................................................................50
Processing charge.........................................................................................50
Bibliography...............................................................................................................51
QUESTIONNAIRE......................................................................................52
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LIST OF ACRONYMS
GIS Global Information System
CIB Credit Investigation Bureau
HBFC House Building Finance Corporation
PSDP Public Sector Development Pakistan
DHA Defense Housing Authority
CDA Capital Development Authority
LDA Lahore Development Authority
GDP Gross Domestic Product
KIBOR Karachi Inter Bank Operation Rate
LIBOR London Inter Bank Operation Rate
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CHAPTER 1
INTRODUCTION TO THE REPORT
1.1 BACKGROUND
Housing sector in Pakistan continues to deteriorate. This is due to the
constant growth of housing deficit at an alarming rate of 270,000 units per
year. Pakistan, according to official statistics, needs 820,000 housing units
annually over the next twenty years, whereas the current production of housing
units is less than 300,000 units per year. Moreover, as per the recently releasedEconomic Survey 2005-06 by the government, the housing sector has been
steadily deteriorating due to the ineffective policies, which in turn has resulted
in a huge backlog of six million units.
The other factors that have contributed to the acute shortage of houses
are: population growth, inadequate attention towards construction of new
houses, migration from rural to urban areas and break up of the traditional joint
family system.
My mission is to highlight the importance of housing sector to the top
management of ABL. Housing industry has a great potential as one of the main
drivers of economic growth. It can not only become the biggest creator of jobs
but also can engage a large number of support industries, thus creating demand
for growth of the economy on the one hand and on the other, contribute to
efforts for the alleviation of poverty from the country.
In Pakistan, the shortage of houses is an old problem. Pakistan now
faces a deficit of 6.405 million housing units against the shortage of 2.8 million
the 80s. Governments in the past years tried to arrest the widening gap between
the demand and availability of houses in the country but did not succeed in
bridging the gap.
Recently, Prime Minister Shaukat Aziz announced a Housing for Allprogramme to provide housing for government employees in all districts of the
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country. Under the programme, Islamabad and provincial governments were
committed to allocate 100 acres of state land at affordable prices to the
government servants.
House financing is one of the ways for investment and development.
Being a developing country, Pakistan should have programs like this one and
all the banks should practice the same.
The topic has been selected because of its importance for the low
income people of our society.
1.2 OBJECTIVES
The study was based on the following objectives.
1. To define and explain house financing in Pakistan.
2. To discuss the house financing scheme in Pakistan with regard to
banking.
3. To light the facilities and products with respect to house financing
scheme for low-income group offered by to its customers.
4. To make analysis of the collected information.
5. To make findings and conclusion out of the data.
6. To design a plan for Allied Bank Limited, Pakistan on house financing
for low income group in Pakistan.
1.3 STATEMENT OF THE PROBLEM
The study was conducted with the main aim to formulate a scheme for
Allied Bank so that the bank can easily adopt it. The title of the report is
House building finance schemes for lower income consumers of Allied
Bank Limited.
In Pakistan, most of the population has experience middle class life.
Those who are below poverty line, they are not included in this report.
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Hence the group of people with monthly income of Rs. 9000-12000
have been included. His annual income is lower then his taxable income.
1.4 SCOPE OF THE REPORT
This report is containing material from House Building Finance
Corporation, Muslim Commercial Bank, PICIC, United Bank Ltd. and a model
housing scheme has been prepared at the end after recommendations.
1.5 SIGNIFICANCE OF THE STUDY
This study is important because.
1. As a research for information: This study has due importance because
of its valuable information for researches in studies and working on
house financing in banking as well as other financial institutions.
2. For Government Officials: Government needs some investment to be
done on the part of people as well as some organizations. Being the
developing country Pakistan, the officials should have keen interest in
house financing.
3. For Research: Being researcher one can get deep insight into the
problem of housing for low income group and devising a scheme /
model for banks.
1.6 METHODOLOGY
Data is collected on questionnaire. Sample size was taken 60. Quota
sampling has been applied, and 30, 30 copies have been distributed among
Bank employees and general public. It was then properly treated for analysis.
1.7 SEQUENCE OF THE STUDY
1. Chapter I-Introduction: This chapter introduction of the report, data
source, statement of problem, its significance and methodology.
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2. Chapter II-Review of related literature: This chapter contains
documents/notes related with house financing in banking sector and
other industries related with house financing in Pakistan.
3. Chapter III-House Financing in Pakistan: Information related with
house financing in Pakistan have been included in this chapter.
4. Chapter IV-Research Methodology: This section contains, nature of
the research and rational of the questionnaire including the methodology
and other techniques.
5. Chapter V-Analysis: This portion contains detailed analysis of thequestionnaire and graphical representation of the responses of the bank
employees and general public.
6. Chapter VI-Conclusion and Recommendations: All the information
have been concluded and recommendation have been drawn here.
7. Chapter VII-A model housing scheme for Allied Bank Limited: A
housing scheme for Allied Bank Limited have been devised and a model
have been prepared.
1.8 ANNEXURE
Relevant sources have been included here.
1.9 BIBLIOGRAPHY
Bibliography has been given in the end including all the sources and
books etc.
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CHAPTER 2
HOUSING LOANS IN PAKISTAN
2.1 INTRODUCTION OF HOUSING LOAN IN PAKISTAN
Shelter is one of the basic necessities of life and occupies the biggest
portion of any human settlement. Housing ownership promotes social cohesion
and citizens participation in other development activities. In view of ever-
increasing demand for housing and a huge backlog, some innovative methods
need to be employed to make a major breakthrough in this area. The NationalHousing Policy 2001 is well articulated but its implementation has not been at
the desired levels. Except for some positive measures for housing financing by
the State Bank, not much progress has been made on other recommendations.
Due to the strong linkage of the housing sector to the economy, the
income multiplier is generally very high, and the private and informal sector
can play a vital role in national development. Housing construction also
generates direct employment including: (i) Absorbing rural labor and providing
opportunity for seasonal employment for farm workers, (ii) enhancing
participation of women workers, and (iii) activating small-scale and mostly
self-employed industries including building construction materials, equipment,
fittings and fixtures. Affordable housing for low-income groups also
contributes to poverty alleviation, income redistribution and promotes
individual productivity) and household savings.
In 1998, there were 19.3 million households in Pakistan, with average
household size at 6.6 persons and occupancy at 3.3 persons per room. The
overall housing stock comprised 39 percent Kucha houses mostly without
proper water supply, 40 percent semi-Pucca houses mostly without planned
sanitation or sewerage system, and 21 percent Pucca houses. As against the
current incremental demand for housing estimated at 570,000 units annually,
only about 300,000 units are being built annually, mostly in urban areas.
Accordingly, the housing backlog, estimated at 4.3 million units in 1998, has
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increased to around 8 million units in 2006. The majority of rural housing is
Kacha, with minimal water supply and sanitation or drainage services. About
half the urban population is living in slums and Katchi Abadis, with inadequate
housing and living conditions. The share of housing in the public sector
programs has progressively decreased from 10.9 percent in the 1960s to 5.9
percent in 1990s, with limited institutional finance continuing to be a major
constraint in housing production and maintenance of old dilapidated housing
stock. In addition, more than 80 per cent of the total population cannot afford
the financing terms provided by the House building Finance Corporation and
other housing finance institutions. Resultantly, the construction of low-income
housing has been much slower than the incremental needs.
2.2 ISSUES
The following are the major issues in the housing sector:
i. The households below poverty line have remained neglected.
ii. Inadequate supply of developed land and its skyrocketing prices,
particularly in large cities, is making housing ownership beyond the
affordability limits of the majority of population. Related barriers
include poor land administration with inadequate legal and regulatory
systems, and high cost of property transactions.
iii. Housing for rural population, constituting two-third of the total
population, has not received adequate emphasis.
iv. More than 30 per cent housing is in dilapidated condition requiring
improvement /replacement.
v. An overemphasis on Katchi Abadis regularization in urban areas has
encouraged further encroachments.
vi. Limited supply of housing finance, with weak mortgage collateral, does
not encourage institutional credit based housing development.
vii. Traditional approaches of reliance on the Government have not resulted
in an increase in housing construction to match the needs.
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viii. Low public confidence in the housing development industry.
ix. Most of the Local Governments lack required skills to effectively
manage the urban growth, provide basic utility service and maintain theinfrastructure especially in low-income areas/Katchi Abadis.
x. Lack of comprehensive planning at national, provincial, regional and
local level without effective coordination among various Government
departments, development agencies and other bodies has impeded
housing development.
2.3 HOUSING STRATEGY
In addition to the backlog of 6 million housing units, the incremental
housing need during the MTDF will be 3 million housing units. Increasing the
house construction from 300,000 units in 2005 to 800,000 units by 2010 will
only cater to the incremental needs during 2005-10. A much larger mass
housing construction will be required if the housing backlog is to be reduced
during the MTDF. Accordingly, the strategy will be to undertake mass housingprogram with enhanced supply of institutional finance and long term fixed rate
financing options; increase availability of developed land; enhance proportion
of small-size plots for low income groups; undertake high rise condominium
development, where appropriate, to utilize land more effectively; build capacity
for land administration; discourage speculation in land; improve house
construction technology. Including standardization of components for mass
production; regularize notified Katchi Abadis complemented by policies to
restrain the emergence of new Katchi Abadis; increase community
participation in housing and service delivery; provide sufficient and affordable
credit for rural housing to meet the needs of shelter less poor: invest in human
capital to improve the quality of construction; and put in place legal and
regulatory framework to facilitate the development of housing both in urban
and rural areas.
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imageries, and aerial mosaics, to record correct and up-to-date information
regarding the inventory and land classification, settlement patterns, land values
and the extent of land available in all urban and rural areas for future planning
and development.
Land is required for any type and level of housing. The high income
group constituting only 20 per cent of total population is being serviced by the
private and public sectors. It is the balance 80 per cent that is being severely
hurt by the soaring land prices at varying degrees. Accordingly, the following
strategy is proposed:
i. Land Banks would be established at the federal and provincial levels.
The Banks will allocate lands for various housing projects/ new towns
with focus on low-income housing.
ii. All suitable federal and provincial state lands would be transferred to the
proposed Land Banks.
iii. The availability of land in the Land Banks would be increased by
purchasing cheap land in small and medium towns, and the proposed
urban development corridors with growth potentials determined through
the Provincial Spatial Development Plans.
iv. Funds for purchase of lands would be obtained from the proposed Low-
Income Housing Fund or loans from commercial banks. In case of loans,
the mark-up may be picked up by the Provincial Governments, at least
in the initial stages.
v. Proceeds from the sale of commercial areas in Government schemes and
valuable State Land would be used to buy land in advance through the
proposed Land Banks.
vi. Land would be used as a resource to generate funds by allocating plots
in advance of actual development of housing schemes, as is being done
by the private sector successfully.
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vii. Geographic Information Systems (GIS) would be established at Tehsil
level, with aggregated information at district and provincial levels.
2.5 HOUSING DEVELOPMENT
There is a whole range of housing catering to the various income
groups. As the land is a limited resource, it has to be used optimally to
conserve it for the future and for other uses like industry and agriculture.
Accordingly, the large plot sizes would be discouraged and the ratio of smaller
plots shall be increased substantially to cater to the needs of the low income
groups and to strictly control the formation of Katchi Abadis.
2.6 GENERAL HOUSING
i. High-income group housing would be left to the private sector. The
Government would focus on low and middle-income housing demand.
ii. High-income housing projects would provide for at least an equal
number of s mall sizes up to (up to 10 Maria) housing plots. This will
increase the supply of low-income plots substantially thereby lowering
their prices also.
iii. Recommendations of the National Housing Policy 2001 would be
strictly followed by the federal and provincial authorities.
2.7 LOW-INCOME HOUSING
Low-income Housing Funds would be created at the federal and
provincial level, which may be funded from private and Government sources as
follows:
25 per cent of the Non-utilization Fee for vacant plots after a specified
period. Non-utilization Fee to be substantially increased in view of the
rapid increase in the prices of the urban plots.
25 per cent of the transfer fee charged by the private developers,
cooperative societies, development authorities and Government
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departments. The Transfer Fee for vacant plots to be increased in view
of higher gains to the plot owners.
Allocations/grants from Federal and the concerned ProvincialGovernments.
Consideration to be given to allocating certain percentage of the sale
proceeds from the Privatization of public enterprises.
Private Donations
Assistance from development partners and bilateral internal donors for
2.8 LOW-INCOME GROUP HOUSING
i. Consideration to be given to using Zakat Fund.
ii. Determine additional ways and means to secure at least a small
percentage of high profits being gained by the plots speculators.
iii. In all the Government and private housing schemes, the ratio of small
plots would be increased (not less than 50 per cent). Small size plotswould be cross-subsidized from the sale proceeds of larger plots and
commercial areas.
iv. Research would be carried out to develop low-cost housing and
determine the optimum size of plots for low-income groups. The
development of socially integrated housing areas, both in urban and
rural areas, would be encouraged.
2.9 GOVERNMENT SERVANTS HOUSING
i. Housing schemes for Government servants of all grades, with emphasis
on the lower grades, would be pursued.
ii. Punjab Province has recently established Government Servants Housing
Foundation under an Act. It is about to launch its first model project in
Lahore, based on advance payments to be deducted at source. As a large
number belong to the category of low-income group, a substantial need
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of low-income housing will be met through this replicable model. Other
provinces could consider initiating similar programs.
iii. Additional programs of Workers Housing will be developed andimplemented on fast track basis, throughout Pakistan.
2.10 KATCHI ABADIS
i. The programs should be de-emphasized in favor of genuine low-income
housing areas with the objective that emergence of new Katchi Abadis is
stopped.
ii. Katchi Abadis regularization and improvement program should be
restricted strictly to the already notified Abadis.
iii. For Katchi Abadis on private lands, the role of the Government would
be to facilitate dialogue between the owners and the residents.
iv. Sindh model of Katchi Abadis regularization with the land title tied to
payment of dues (land and development cost) should be considered for
adoption by other provinces.
v. The experience of Khuda-ki-Basti in Hyderabad, being self-financing
and target group oriented, should be replicated. The development cost
can be made affordable through the involvement of the residents and
other measures.
vi. No Katchi Abadis should be regularized free of cost.
vii. Katchi Abadis on prime locations should be offered reasonable alternate
sites for relocation or accommodated on a portion of the location in
high-density development. The remaining areas should be sold to
generate funds for developing the low-income areas.
viii. The standards of services/ utilities being provided in Katchi Abadis
should be improved incrcmcntally.
ix. Community loans for house construction/ improvement should be
considered under the micro credit programs. ,
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2.11 RURAL HOUSING
i. A greater emphasis on rural housing to reduce the population influx to
big cities, with increase in house ownership.
ii. The program of the Punjab Government under Jinnah Abadis Act to
grant 5 Maria plots for housing for rural shelter less to be expanded with
initiation of similar program by the other Provinces.
iii. Incremental provision of water, sanitation, electricity, health and
education facilities to be ensured through a phased but integrated
program on sustainable basis by provincial governments.
iv. Affluent individuals belonging to the rural areas to be encouraged to
participate in Adopt a Village scheme for provision of basic facilities
and services. Once some models are developed, the idea can be
promoted through mass-media campaigns to reach potential sponsors in
cities and abroad. Overseas Pakistanis have done similar efforts on a
small scale, which can be turned into a movement with proper
advertising.
v. Small loan facilities to be made available at low-mark up for house
improvements and new construction.
vi. Research to be carried out to develop low-cost indigenous construction
models, with emphasis on construction quality.
vii. Rural housing service centers to be established to furnish information oncredit, low-cost technology and building material.
viii. Private Foundations and Rural Housing Cooperatives to be encouraged
to undertake development of villages with local participation on self-
help basis.
2.12 HOUSING FINANCE
Currently there is inadequate housing finance, management capacity,
and awareness. Weaknesses in the land titling and land information systems
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restrict the possibilities of mortgage finance to limited urban areas and are
largely responsible for the concentration of lenders to the upper-income groups
for whom the property collateralization is not the main risk-mitigating factor.
The lack of a long term fixed rate funding market acts a constraint as it
increases the risk for the lenders and restricts the menu of long term mortgage
products thus curtailing affordability of the middle and low income groups to
buy even a small plot and build house thereon. The main funding from the
existing banks for housing loans is derived from their deposit-base, which leads
to major financial risks relating to interest rates and liquidity. The interest rate
portion is managed by relying on floating rates and keeping fixed rate duration
for just a few years. Liquidity risk is currently low due to constraints levied by
the State Bank of Pakistan delineating a maximum exposure limit for the banks
vis-a-vis the home finance.
Until now the main crux of housing mortgagees was towards the
floating rate side. Given the recent run up in rates, the mortgages have been the
primary victims, as they have had to pay the cost of rising interest rates in theshape of enhanced monthly mortgage payments. In a fixed rate mortgage,
which is funded by short-term liabilities, an increase in interest rate primarily
affects the mortgagee financial institution because of re-pricing of liabilities.
Thus, it is prudent to develop long term fixed rate funding arrangements for
enabling banks to offer fixed rate mortgages. Institutional investors such as
Pension Funds and Insurance Companies can afford the alternate long-term
investment opportunities such as 15 or 20-year mortgage backed securities.
However, banks, especially the large ones with huge pools of funds in the
shape of demand and time depicts liabilities, are unwilling to forego the high
spread they are earning by financing their long-term housing loans through
short-term liabilities.
It is imperative that a properly functioning local housing bond market is
developed. This would allow the banks to match their assets with theirliabilities more efficiently, thus reducing both their interest rate, as well as
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liquidity risks. This would require a well thought out strategy for the bonds
duration, mark up rate and liquidity management after bonds issuance. It would
be important to facilitate the market through a refinancing structure which not
only alleviates the liquidity risk incurred by the primary lenders, but promotes
sound practices and standards in the lending activity through its refinancing
requirements and have an overall catalytic effect on the development of house
lending activity. The pooling of funding needs would result in larger, more
transparent mechanism, which would decrease the relative issuance cost and
help ensure liquidity n the secondary market for bonds.
In addition to a permanent long-term capital source, some financial
hedging instruments may be necessary to protect the lenders against the
financial risks. Promotion of the mark-up rate swap market would be of special
importance given (i) the likely obstacles in extending bonds maturities beyond
15 years, (ii) the practice of adjustable mortgage mark-up, and (iii) the
repayment risk incurred by the lenders. The creation of such derivatives
depends in particular on the liquidity of the private investment bonds market,
which would be used by swap sellers to hedge their positions.
As a measure of establishing a pass though mechanism for funding the
housing loans, a secondary mortgage company could be considered. The
government would need to facilitate by offering a credit enhancement
mechanism as well as equity participation, on the pattern of Cagamas of
Malaysia and Fannie Mae and Freddie Mac of USA, which enables the
interested financial institutions to generate off balance sheet housing loans.
2.13 PRIVATE SECTOR
Increased attention would be given to the private sector involvement in
the delivery of housing services and land development. For this purpose,
appropriate incentive systems and legal and regulatory frameworks would be
developed. A priority will be to make market entry easier through better
security of tenure, access to land and credit, and regulations to allow mixed use
of land, and affordable planning and building standards. Given the massive
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investment required in housing infrastructure, a greater focus is needed on the
creation of cost-effective and efficient public-private partnerships that include
mechanisms for attracting private capital for infrastructure provision.
2.14 INSTITUTIONAL STRENGTHENING
Provision of Housing for All requires strong and cost effective
institutions, acting as facilitators rather than developers, capable of using
modern technology, methods and techniques efficiently. Accordingly, emphasis
would be placed on strengthening housing sector institutions and related
research organizations including construction technology, to establish
replicable and sustainable models for mass housing. Housing is mainly in the
provincial domain. It is envisaged that the Provincial Governments will play
the lead role in enabling the sustained delivery of Housing for All. This
includes developing appropriate mechanisms and institutional frameworks, and
setting up provincial housing delivery goals and performance parameters in
support of the national housing delivery goals. Housing is also a local
community affair where end users are both the contributors and stakeholders
for all types of housing activities. Accordingly, the role of the local
governments would be important in enabling, promoting and facilitating the
provision of housing to all segments of the population within their respective
jurisdictions.
It is envisaged that the Federal Government would provide the overall
coordinating and monitoring mechanism through the Ministry of Housing and
Works. Provincial Governments will initiate all necessary legislative,
regulatory, and institutional strengthening measures, both at the Provincial and
local government level, for the effective implementation of the National
Housing Policy and to achieve the MTDF targets in the respective provinces.
2.15 RESEARCH AND DEVELOPMENT
The MTDF envisages the promotion of integrated construction approach
through a combination of design orientation, use of traditional and indigenous
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building materials and adoption of new construction techniques, making
housing construction cost-effective and ensuring up gradation of quality, by:
i. Standardization of principal building components and alliedspecifications to facilitate their maximum production making it cost
effective and affordable for the low and middle income groups.
ii. Introduction of building materials already developed such as
compressed mud-brick (Adobe) and Ferro-cement roofing system in
rural low-rise housing.
iii. Promotion of research and development on housing and constructionmaterials and effective coordination of research institutions for speedy
application.
2.16 TARGETS AND FINANCIAL OUTLAY
An investment of Rs. 950 billion is envisaged in the MTDF for the
development of housing, including Rs 920 billion investments by the private
sector and Rs. 30 billion in the public sector. The private sector will beinvolved in construction and improvement of at least 3 million housing units
during 2005-10 in urban and rural areas. In addition, the private sector would
also undertake area development schemes with necessary infrastructure to
provide developed residential plots, and construct about 25,000 houses/flats for
the public servants under house ownership schemes, mostly in urban area
during next five years. The PSDP allocations would be utilized mainly by the
Federal and Provincial Governments for undertaking infrastructure
development in ongoing housing programs and new area development schemes
for provision of developed residential plots with necessary amenities. In
addition, the Government would continue constructing public offices and
essential accommodation for Government servants and Constabulary Armed
Forces. Details are provided in Table 1 below. During the first year of MTDF
(2005-06), the federal PSDP allocation for housing is earmarked as Rs. 2
billion for housing on ownership basis, Federal Government Employees and
construction of office buildings. Whereas, the Provincial Governments are
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required to allocate Rs. 3 billion during 2005-06 in order to accelerate the
house construction activity throughout Pakistan.
2.17 PICIC TO LAUNCH HOUSE FINANCING SCHEME
Pakistan Industrial Credit & Investment Corporation (PICIC) has
lunched housing financing scheme to help bridge the gap between demand and
availability of housing units in the country.
Loans with a maximum limit of Rs 10 million will be provided to people
on easy terms. Consumer financing - a comprehensive treatment at PICIC .
Under the said scheme, loans will be extended for the purchase of
readymade houses or flats, renovation and expansion, house refinance (debt
consolidation/swapping), construction of house/flat and purchase of land.
The mark up on these loans would be about 12 percent (SBPs discount rate
plus 3.5 percent).
During the first phase of the disbursement, the housing financing facility
would be available in Karachi, Hyderabad, Lahore, Sialkot, Gujranwala,
Multan, Faisalabad, Peshawar, Quetta, Rawalpindi and Islamabad.
PICIC should also extend technical support to the borrowers by helping
them in preparation of feasibility reports on projects.
2.18 PICIC HOUSING LOAN
PICIC Housing Finance offers Home for everyone who enables home
ownership through easy installment plan, designed specifically customers
needs.
2.19 TYPES OF FACILITY
Constructed House/Flat
Renovation
Expansion
Refinance House/Flat New construction of House/Flat
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Purchase of Land
Mortgage Financing
2.20 ELIGIBILITY
Pakistani National holding NIC (Resident/Non Resident)
Salaried/Self Employed person
SIZE OF THE LOAN Upto Rs. 10 million
MARK-UP RATE Competitive
REPAYMENT PERIOD Upto 20 years repayable in easy installments
BORROWERSNominal
EQUITY
SECURITIES
Registered/Equitable Mortgage
Personal Guarantee/References whenever necessary
Documentation Mortgage and legal documentation charges to be borne
by the borrower:
Insurance Life Insurance at PICICs cost
Processing Fee Nil
Conditions apply
Documents Required
1. Indenture of lease
2. Indenture of Sub-lease
3. Declaration and Confirmation of Oral Gift
4. Sale Deed / Conveyance Deed
5. A, B & C Leases (DHA properties only)
6. Search certificate
7. Sale Agreement
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8. General / Special Irrevocable Power (if applicable)
9. Letter of administration in case of property having devolved to legal
heirs of the deceased owner of the property
10. Letter of Sub Division from the competent authority (if applicable)
11. NOC/permission to mortgage in favor of PICIC (applicable in case of
mortgage financing and Home Construction
12. Allotment Order / transfer Order (in case of property being purchased
from builder/developer)
13. Approved building plan
14. Site Plan
15. Construction Estimate (in case of construction)
16. Letter of dues from builder (in case of property being purchased from
builder/developer)
17. Copy of NOC for sale and advertisement from KBCA (in case ofproperty being purchased from builder/developer)
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If the property is already mortgaged following additional documents are
required:
1. Relinquishment Deed
2. Mortgage Deed/Redemption of Mortgage Deed
3. Revocation of power of attorney where the power of attorney is
registered
Property Evaluation fees:
For cases upto 5.0 million Rs. 3,000
For cases above 5.0 million Rs. 4,000
Documentation and Legal Consultation Fees:
For cases below Rs. 3 million Rs. 3,000
For cases below 5.0 million Rs. 5,000
For cases above Rs.5 million Rs. 8,000
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CHAPTER 3
HOUSING FINANCE IN PAKISTAN
3.1 INTRODUCTION
Roti, Kapra aur Makaan - The slogan mostly underscores the fact that
the housing is one of the most fundamental needs - as every family requires
roof of his own. It is of course but as natural as food and clothing, yet many are
caught in the struggle of having a house. According to the Population and
Housing Census of Pakistan, in the year 1998 there were over 19.3 million
Housing Units in the country. With the population at 149 million by the end of
June, 2003, the housing unit requirement on the basis of the World Banks
recommendation at the occupancy rate of 6 persons per house and the total
number of Housing Units required in the country should be around 24.8
million. The above formula shows that there is shortfall of over 5.0 million
Housing Units.
HOUSING UNITS BY TENURE
TENURE CENSUS 1998
All Areas Rural Urban
i) All types 19.3(100)
13.1(100)
6.2(100)
ii) Owned 15.5
(80.8)
11.4
(87.1)
4.2
(67.6)
iii) Rented 1.7(9.0)
0.3(2.3)
1.4(23.2)
iv) Rent Free 2.0(10.2)
1.4(10.6)
0.6(9.2)
According to the convener of the housing advisory group the country
needs an additional supply of 570,000 Housing Units per annum. While theactual annual supply does not exceed 300,000, thus there is net shortfall of
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270,000 Housing Units p.a and the backlog is increasing every year. To meet
this shortfall Housing Finance to the extent of Rs. 68 billion is required as
against Rs. 4/5 billion being outlaid at present. These alarming statistics have
created a red-light situation where million of peoples are homeless. In addition
to population growth of 3.2% during the last decade the country was burdened
with sheltering hundreds of thousands of refugees of the effected neighboring
country further encountered by the climatic extremes. Hence, it is a matter of
great concern and demands very serious attention to be paid on a national level.
Governments normally do not have enough funds resources to provide
readymade Houses to their badly needed citizens. But it is the endeavor of
every welfare State to create an environment, where construction and
ownership of home is facilitated. This paper has been prepared on the lines to
examine the role of Housing Finance to resolve the countrys Housing Problem
and its impact on the Economy.
3.2 NATIONAL HOUSING POLICY
The present government appreciating the gravity of situation and
realizing the importance of this sector for its potential to generate employment,
decided to revitalize it as a vehicle for economic revival. Accordingly, Ministry
of Housing and Works formulated a new National Housing Policy - 2001
approved by cabinet on 5-12-2001. The policy addresses all the issues relating
to land matters, house finance, construction, services sector, low cost and rural
housing, building material and infrastructure development, building and zoning
regulation, and institutional framework. It clearly sketches out the role of
Federal govt. up to the local government defining the desired roles to be played
by governing bodies on each level. The policy also seriously considers the
multifarious problems including housing shortage, lack of housing finance,
non-existence of foreclosure laws, lack of planning, outdated building and
zoning regulations, etc. The major emphasis of the policy is on resource
mobilization, land availability, incentives for home ownership, incentives to
developers and constructors and promotion of research and development
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activities to make construction cost effective. The main objective of the policy
is to create affordability to owning a housing unit, especially for the middle and
low-income groups.
3.3 MEASURES ALREADY ADOPTED
Banks exposure to housing finance has been enhanced from 5% to 10%
of their net advances.
CED on wires & cables withdrawn.
CED on cement reduced.
Bank allowed to deduct 3% of the income arising out of consumer loans
For creation of a reserve to off-set bad debts in this segment.
Broadened the scope of Credit Information Bureau at SEP.
Facilitating CIB in the private sector for consumer loans.
The per party limit has been raised from Rs. 5 million to Rs. 7.5 million.
The maximum loan period has been enhanced from 15yrs to 20 yrs.
Debt equity ratio in housing finance has been improved to 80:20 from
60:40.
Tax rebate on mark up to Rs. 500,000 (from previous Rs. 100,0007-) or
40% of the income which ever is less for those who construct their
houses their loans.
Maximum limit of HBFC raised to Rs. 5 million.
Provincial governments are rationalizing stamp duties and registration
fee on transfer and acquisition of housing property.
The legal framework for the loan recovery of financial institutions has
been further streamlined and strengthened through the promulgation of
Finance Institutions (Recovery of Finance) Ordinance, 2001.
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Through a more effective macro economic management the government
has succeeded in reducing the general interest rates in the country. This
will provide an opportunity for banks and other financial institutions to
provide more affordable mortgage loans.
HBFC has been put under a new and professional Board of Directors
and management with a mandate to restructure the instruction into a
commercially viable and self sustaining entity.
HBFC shall compete in the market for business and resources at par
with private. Sector institutions. Moreover, the HBFC has been amended
to enable it to provide Sharia compliant housing finance product, which
has since been introduced.
3.4 BANKS-HOUSING FINANCE
In order to meet the backlog and shortfall of the housing units in the
country in the next 20 years, the overall housing production has to be more
than 570,000 housing units annually.
IT is refreshing to note that favorable developments at the market place
are facilitating origination of housing loans in the primary mortgage market.
On the supply side bank are flushed with liquidity due to reduced borrowing
from government, de-dollarization of the economy and rising inflows of
remittances. Consequently interest rates have reached their lowest ebb.
In this scenario banks are looking for alternate lending opportunities and
develop asset based consumer products. Housing finance provides an attractive
opportunity as both profit margins and recovery rates on average are higher for
mortgage finance than project and corporate lending. On the demand side
marketing efforts by banks are creating awareness amongst general public for
early home ownership through housing finance. The increasing scope of House
Financing in Pakistan has made many local and foreign banks engaged in
House Financing activities. The potential of the industry promises sound futureof the capital resource.
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HOUSING LOAN PORTFOLIO
Banks Total
Disbursement
Total
Outstanding
# of
loans
Amount # of
loans
Amount
Nationalized 634 Rs. 1SS.8 633 Rs, 163.4
HBL-R5.1S9
NBP-Rs.97
Denationalized 43 Rs.63.1 41 Rs.55.1
MCB-Rs.63.1
Private Banks 1079 Rs. 3393,2 1044 1229.5
Union Banks Rs. 489
Askari Rs. 626
B.A.F. Rs.141
Foreign Banks L 18S2 Rs.2796 1350 1727.6
Citi Bank Rs. 1968
ABN Rs. 827
3945 4547.9 3065 3175,7
H.B.F.C 418,530 30,789.5 151,031 17,810.9
35,337.4 20,986.6
1.5 ANALYSIS
Name of
Bank
Percentage of
Share
Average Amount Per
Loan
Habib Bank Limited 4.16% 0.3 million
National Bank of Pakistan 2.13 %
Muslim Commercial Bank Ltd. 1.38% 1.46 million
Union Bank 10.75 % 1.29 million
Askari Bank Ltd. 13.76 %
B.A.F. 3.10% 1.49 millionCiti Bank 43.27 %
ABN Amro Bank 18.18%
Others 3.27 %
100.00 %
H.B.F.C. 0.07 million
Outright Purchase 65.8 %
Construction 17.99 %
Renovation 16.90 %
100.00 %
The above figures indicate the following very interesting facts, which
need to be evaluated by the policy makers for taking appropriate decision:
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a. That out of the total loan 62% market share is with the foreign banks
28% private banks as compared to only 6% with the Nationalized
Banks.
b. That the major players in the field are Citibank 43% followed by ABN
Amro 18%, Askari 14% & Union Bank 11%. Total 86%.
c. That the majority of the loans have been given for outright purchase i.e.
66% followed by loan for construction 18% renovation 17%.
d. That average loan per borrower:
Foreign bank/De-nationalized banks Rs. 1.50 million
Private Banks Rs. 1.29 million
Nationalized Banks Rs. 0.30 million
HBFC Rs. 0.07 million.
e. That the market leader which had a almost monopolist share originally
in the Housing Finance is still H.B.F.C. with total disbursement ofalmost Rs. 31.00 billion followed by all the banks clubbed together at
Rs. 4.5 billion.
f. The figure of Rs. 4.5 billion is a tremendous improvement in the Banking
Sector is a recent evolution, which is a consequence of Macro Economic
Conditions, National Housing Policy 2001 and the measures and steps
taken by the State Bank of Pakistan and other Agencies.
As part of this research paper a questionnaire was circulated among the
Major Players in the Banking Sector w.r.t. Housing Finance who enjoy an
almost 90% of the market share. This questionnaire was followed up with
telephonic reminders and meetings/discussion. Based on the above survey the
findings are tabulated under:
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MAJOR PRIVATE BANKS IN HOUSING SECTOR
NAME Limit for
Loan
Equity Time Frame Processing Fee Rate of Interest
Banks (Million Rs) Ratio Years Floating Fixed
Union Bank 0.3-7.5 70:30 1-20 yrs 5000 + others 9-11 % X
Soneri Bank 2.5 70:30 1-15 yrs 2500 or 0.5% of Loan -f others
11% 16%
Askari Bank 0.2-7.5 60:40 1-20 yrs 2500 or 0.5% of Loan + others
10-12 % 18%
PICIC 0.25 60:40 2-20 yrs 12.5 % 14%
Faysal Bank 0.3 - 7.5 60:40 3-20 yrs 15000-25000(Accumulated)
9.37 % 18%
City Bank 0.3-7.5 60:40 1-20 yrs 11000Accumulated
9.5 % 17%
ABN Amro 0.1 - 7.5 60:40 3-20 yrs 3000-5000-r others
10% 16%
HBFC 0.1-7.5 70:30 1-20 yrs 950DAccumulated
12.5 % 12.50%
Al-Falah 0.1-7.5 70:30 1-20 yrs 5000 20000 7%
1.6 AWARENESS OF THE HOUSING FINANCE SCHEMES
The above exercise was conducted in respect to the Institutions involved
in extending House Finance. Now this exercise is undertaken to find out the
knowledge and general perception of H-F amidst potential borrowers. The
survey has produced some very meaningful results. The restricted parameters
of the survey are that the target group selected were:-
a. Mostly educated
b. Bread earners of the family
c. 92% male
d. More than 90% above age of 40
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With these parameters, the survey needs to be understood and results
are:
OWN HOUSE: 64% do not own their own house
DEPENDENTS: 60% have 2-4 + 24% 5-6 + 16% >6
RENTAL PAYMENTS: 56% pay approx Rs. 10,0007-
24% pay approx Rs. 15,000
20% pay approx Rs. 20,0007-
SOURCES: 70% have purchased their own house.
30% have been gifted or inherited.
AWARENESS: 65% do not know about the various H-F sche
35% knew of it.
BEEN TO A BANK: 92% have not been to a bank for this.
PERCEPTION OF 80% felt that the packages offered by the various
PACKAGES: Financial Institutions are neither convenient nor
affordable.
MARKUP RATE: 72% did not know of the present markup charged
CONVENIENT 92% responded by saying that they would prefer
PACKAGE: Package/product of housing finance which is convenientlyobtained is economical and can stretch for a longer period of time.
1.7 ALLIED INDUSTRIES WITH HOUSING AND
CONSTRUCTION
Housing and construction sector is not only highly labour intensive, it
has also multiplier effects on Industrial activity in the country. Revival of this
sector will also generate momentum in almost 70 allied industries such as:
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CEMENT SANITARY FITTINGS
1. Crush Stone 1. Sink
2. Polly bag / Polly propane bag 2. Wash Basin
3. Lime stone 3. Bath tub
4. Printing of bag 4. Water Tanks
5. Transportations 5. Tap
6. Shower
7. Flash
WOOD INDUSTRY
1. Door Aluminums
2. Window Glass
3. Shuttering Silica
HARDWARE INDUSTRY FLOORING
1. Nails 1. Tiles
2. Screw 2. Mosaic
3. Angle 3. Marble
4. Brackets
5. Door closer
6. Door Lock
7. Hammer
8. Screw Driver
9. Curtain Railing
10. Curtain Rod
PIPE
1. PVC Pipe
2. Steel Pipe
3. Asbestos Pipe BLOCK
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PAINT INDUSTRY ELECTRICITY
1. Oil paint l. Wire
2. Wall paint 2. Switch3. Distemper 3. Regulator/Dimmer
4. Whitewash 4. Tube Light
5. Paint Brushes 5. Bulbs
6. Sand paper 6. Fancy Light
7. Paint Drum/Pot 7. Fan
8. Transportation 8. AC
9. Pant Dyes 9. Heater
10. Petrol Chemical 10. Electric Motor
11. Warmish
12. Sprit
13. Polish
House is the serious need for every one I this world which is impossible
with out the above industries.
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CHAPTER 4
METHODOLOGY
4.1 NATURE OF THE RESEARCH
The research is contained on survey hence can be called as descriptive
research. Quota sampling has been applied, and 30, 30 copies have been
distributed among Bank employees and general public. It was then properly
treated for analysis. The material has been collected through personal
observation and questionnaires. The data have been collected with the help ofthe following techniques.
1. Primary Data
Primary data has been collected on questionnaire. It has been a valuable
source for collecting the clients opinion and their expertise.
2. Secondary Data
Books, newspaper and Internet sources have been the source for
secondary data. All the data have been properly studied, analyzed and
treated for concluding remarks and devising a scheme for Allied Bank
Limited.
4.2 RATIONALE OF THE QUESTIONNAIRE
The questionnaire contained 10 questions, including open-ended,
multiple choice and close-ended questions.
Question 1 was about to note down the available ways to finance a
property purchase.
Question 2 was about different types of charges included in house
financing / loans taking from financial institutions and banks.
Question 3 asks about the relevant documents and other formalities
required whileapplying for a loan.
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Question 4 needs information about approving one for loan, keeping in
view different Factors.
Question 5 asks about repaying schedule, devised by the bank and some
opinions from
the clients.
Question 6 was about making claims and options have been given.
Question 7 was about the main factors that affect the value of property.
Question 8 was about the main factors that affect the value of propertyof thecustomers.
Question 9 asks about need to consider than deciding the amount to
insure homeof the customers.
Question 10 was about the willingness of insuring house.
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4.3 ANALYSIS
ANALYSIS OF THE QUESTIONNAIRE
This questionnaire is designed for the customer who interested in house
financing. This activity was carried out in PICIC Commercial Bank Hayatabad
Peshawar.
Total No. of questionnaire was 20, in which 15 were consider to be fit
for the analysis.
In the below table the first row shows the options of the question and thesecond row show answers given by the customers.
Q. No.1: What are the ways available to you to finance property purchase?
Bank 8
Loan through family 5
Other financial institutions 2
This graph shows most of the people want loan from banks, because
loan through family creates problem of ownership. Loan through family and
friend is good when there is joint family system.
0
2
4
6
8
Bank Loan through family Other f inancial
institutions
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Q. No.2: What are the charges involved in taking a loan from the bank?
Legal fee 15
Processing fee 15
Pre-payment fee 15
Other 15
All the above mention charges are involved for every one. That is why
every customer ticks all the options.
0
2
4
6
8
10
12
14
16
Legal fee Processing fee Pre-payment fee Other
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Q. No.3 What are the documents you need to have to produce to the
bank when applying for a housing loan?
Legal documents 15
Tax documents 15
Option to purchase 15
Agreement document 15
Others 15
All the option is selected by every customer. Because every customer
has to summit all these documents.
Legal
documents
20%
Tax documents
20%
Option to
purchase
Agreement
document
20%
Others
20%
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Q. No.4: What are the main factors for banks to consider when
deciding whether to approve your housing loan application?
Customer assets and liabilities 15
Customer employment history 15
Customers property current market value 15
Age of the customer 15
Income of the customer 15
The bank has to over view the above mentioned points before decidingapproval of loan
0
4
8
12
16
Customer
assets and
liabilities
Customer
employment
history
Customers
property current
market value
Age of the
customer
Income of the
customer
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Q. No. 5: What are the possible solutions offered by banks to help you
keep to you repayment schedules?
Restructuring the loan 5
Interest servicing 2
Lower repayments 8
Capital reduction 0
Most of the customers want to low the repayment and restructure the
loan
0
2
4
6
8
Restructuring the
loan
Interest servicing Lower repayments Capital reduction
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Q. No. 6: How do you go about making claims?
Though court 15
Others 0
If there are some calms from banks after paying yours installment the
customer will clam it through court.
15
00
5
10
15
20
Though court Others
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Q. No.7: What are the main factors that affect the value of your
property?
Tenure 8
Location 1
Surrounding features 3
Current demand of the property 3
Its means the main factor that affect the value of your property is tenure
of the property surrounding features and location is also important.
8
1
3 3
0
2
4
6
8
10
Tenure Location Surrounding
features
Current demand of
the property
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Q. No. 9: Do you want to insure your house?
Yes 6
No 8
Most of the people dont want to insure there houses because the
insurance prices of banks are too high.
6
8
0
2
4
6
8
Yes No
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Q. No. 10: Are you ready to pay the extra insurance amount?
Yes 2
No 13
All most every one not ready to pay such an extra amount.
2
13
0
5
10
15
Yes No
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FINDINGS
1. From the analysis of my research thesis I found that the people want
loan from bank instead of family and other financial institution because
family creates ownership problem and loan through bank is secure
method therefore all banks should have house financing scheme.
2. The crucial factors which are to be consider by the bank is to overview
customers assets and liabilities, employment history, property current
market value. Age of the customers, and income of the customer.
3. If customers are not satisfied from the bank they claim in the banking
court for legal relief.
4. From the analysis of the thesis I have found that the most affected
factors that affect the value of your property is tenure, location,
surrounding features, current demand of property etc.
5. People want to insure their home at low cost. Most of the people dont
insure because of high interest rate.
6. Housing finance should not be limited to big cities.
7. People trust more on those financial institutions which have fixed rate of
interest instead of floating rate.
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RECOMMENDATIONS
1. Housing Finance should be not being restricted to few cities like
Karachi, Lahore and Rawalpindi. Few localities like DHAs, Army
Schemes, Cantts, LDA and CDA. Selected borrowers like Bank
employees, multinational reps, Business class personnel. It should be
broad based in all respect.
2. The PICIC Housing Authority should make immediately segment wise
task force i.e. Financial, Utility, Legal, Builder and Housing Societies to
ensure proper and timely implementation.
3. There should be either fixed rates instead of floating rates or some cap
into the floaters.
4. Housing finance market should be broad based rather than concentrated
in a few pre-selected specialized institutions. The demand for housing
finance in Pakistan is too large to be met by a few institutions.
5. Another caution point is that there is a need to improve significantly the
enabling environment i.e. the property market, the property registration
and retrieval system, legal and judicial system and the real estate
market.
6. The benefit of the reduction of excise duty on cement should be passed
on to the consumers. The government should initiate action to break the
cartel of the cement manufacturers.
7. Lands and utilities providing agencies should willingly and actively
participate in this cause otherwise no matter how lucrative the Housing
Finance package offered by banks will die sooner or later.
8. Loans should be provided by banks to developers of residential and
commercial projects based on their reputation, good will and feasibility.
That is a Developer Finance System
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9. Funds lying with SBP to the tune of US $15 million or Rs. 900 million
under this head since 1994. This amount should be disbursed to the
banks at reduced rates.
10. Title of documents of property should be computerized and made
available on demand in the shortest possible time.
11. Foreclosure laws should be implemented without recourse to courts
within 90 days.
12. Training of Banks Staff on various aspects like: - underwriting,
developer financing, documentation, foreclosure etc. May study housingfinance projects from Srilanka and Thailand / Malaysia.
13. CIB information for customers is shared between banks through the
Central bank.
14. Extensive publicity in shape of advertisements in print and media w.r.t.
the housing finance available and its procedures and benefits. Especially
those which are none interest bearing schemes.
15. Broadly speaking a rapid growth in housing finance business will accrue
significant benefits to the economy in the form of employment
opportunities, support to a variety of sectors, a higher economic growth,
and fulfillment of an important social need of own Makaan.
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CONCLUSION
As is now evident from the above findings that housing finance is the
critical input required for the promotion of construction industry leading in turn
to the economicrevival.
Housing and allied construction sector is not only highly labor intensive
but it has also multiplier effects on industrial activity in the country. Revival of
this sector will also generate momentum in almost 70 allied industries Thus the
housing and construction sector can safely be regarded as the mother of
industrial activity in the country.The National Housing Policy 2001 embodies measures to ensure the
development of the housing sector by use of a number of instruments such as
availability of concessionary Housing Finance, access to land cross-subsidy
and removal of bureaucratic and legal bottlenecks to facilitate the entire
process of home ownership.
Measures adopted by the Government/SBP particularly in the provision
of housing finance at affordable rates will provide a significant boost to
housing and construction sector.
The low share of Housing Finance to GDP does not represent any lack
of demand rather it reflects the absence of properly organized approach to
housing finance which has hitherto suffered form rather high interest rates and
somewhat lack of competition in the financial sector.
There are some other significant constraints in the housing sector that
either increase the cost of transaction or increase risks for the lender to
unmanageable levels. These can be identified as poor record / retrieval of
property rights, high stamps duties, bureaucratic delays, corruption,
disorganized state of the real estate market etc.
It is worldwide-recognized fact that the construction industry of a
country plays a vital and significant role in the development of its economy and
prosperity.
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A MODEL HOUSING SCHEME FOR ABL
A shelter which you can call your own has been eluding you so far? Not
any more. With the ABL Housing Scheme, almost any one can now fulfill his
long cherished dream of owning a house or a flat of his/her choice at most
attractive terms.
ELIGIBILITY
Any individual aged 21 years or above having regular income.
PURPOSE
Purchase of land, purchase or construction of house/flat or purchase of
old house/flat.
Renovation/extension/repair/furnishing of house/flat.
Taking over of existing Housing Loan form other Bank/Financial
Institution.
The loan is now extended to those cases also where flats are being
constructed by promoters/developers where immediate mortgage of the
property may not be possible.
QUANTUM OF LOAN
Maximum of Rs. 100.00 Lac loan depending on the cost of house/flat,
applications age, income, repayment capacity etc. Loans of higher amount
may be considered on the basis of merit of the case. The maximum quantum of
loan shall be as follows:
Nature of applicant Location of house /flat
Metro Urban Semi-UrbanRural
i) In case of individual 80 80 80
ii)Incase of co- borrower 100 100 100
Enhancement of loan up to 10% may be allowed for furnishing of house/flat
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MARGIN
Margin may be as low as 10%
INTEREST RATE
Facility of both fixed and floating rates interest available.
FIXED RATE
Period of Loan Rate of Interest
Up to 5 years 10.50% p.a.
Above 5 years but up to 10 years 11.00% p.a.
Above 10 years 11. 25% p.a.
FLOATING RATE: BASED ON KIBOR
Period of Loan Rate of Interest
For all periods At KIBOR Minus 2.25% subject toa minimum of 11.50%
Further reduction of 0.50% p.a. in the rate of interest (both for fixed and
floating) is allowed if the loan is taken by a woman having own income or
taken by a married couple jointly and another 0.25% p.a. reduction is allowed
on providing liquid security covering at least 50% of the loan amount.
In case, a borrower opt for life insurance cover under the scheme a
further reduction of 0.25% p.a is allowed in the interest rate. Thus the effective
rate may be as low as 10.50% p.a
REPAYMENT PERIOD
Loan is repayable within a maximum of 20 years, hi case of salaried
person repayable within superannuation and in case of professional and self-
employed person within the age of 65 years.
Loan is repayable in Equated Monthly Installment which includes part
of principal and interest and worked out considering loan amount, interest for
initial moratorium period, rate of interest and period of repayment.
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Facility of variable EMI depending on the repayment capacity is
available.
One can switch over from fixed rate to floating rate of interest and vice-
versa during the tenure of the loan at nominal fee.
Advance payment of EMI or pre-payment of loan is permissible with
penalty, other than bullet repayment due to death or retirement of the borrower.
SECURITY
Mortgage (either equitable or registered) of house/flat for which the loan
is given and hypothecation of movable assets financed by the Bank for
furnishing the house/flat. If mortgage of house/flat is not possible, the loan
shall be covered by liquid/tangible security of adequate value acceptable to the
Bank.
In case of professional or self employed persons additional security shall
be required either in the form of Banks won Term Deposit, LIC Policy (by
surrender value), NSC, Relief Bond etc to the tune pf 10 to 20% of loan or
Personal Guarantee of one or two persons having worth of 125% of the loan
and acceptable to bank.
PROCESSING CHARGE
No processing charge Insurance
Insurance of house property is mandatory whereas life insurance cover
for the borrower is optional. The Bank is offering a very attractive package of
home insurance under the scheme.
Keeping in view the existing house financing scheme, kibor rates and
State Bank of Pakistan regulation the above mention house financing scheme is
proposed for ABL. This proposes scheme will attract the customers and
maximize the low market share of ABL in the sector of housing loans.
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BIBLIOGRAPHY
1. The Millionaire Next Doorby Stanley and Danko.
2. Your Money or Your Life by Dominguez and Robin.
3. The Total Money Makoeverby Dave Ramsey.
4. The Wealthy Barberby David Chilton.
5. The Richest Man in Babylon by George Clason.
6. The Joy of Simple Livingby Jeff Davidson.
7. Yes You Can Achieve Financial Independenceby James Stowers.
8. Never Eat Aloneby Keith Ferrazzi.
9. Living Simply with Children.
10. Getting Things Doneby David Allen.
11. www.housebuildingfinancecorporation.com
12. Alfalah Housing Loans.
13. PICIC Housing Loans.
14. Askari Commercial Bank Housing Loans.
15. This report containing material from house building finance corporation,
Muslim Commercial Bank, PICIC, United Bank Limited and Housing
Scheme Models, Bank Articles.
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7. What are the main factors that effect the value of your property?
a) Tenure
b) Location
c) Surrounding featuresd) Current demand of the property
8. What do you need to consider than deciding the amount to insure yourhome?
a) More insure the house
b) Keep in mind the contests of your house
c) Potential cost
d) Cost of construction
9. Do you want to insure your house?
a) Yes
b) No
10. Are you ready to pay the extra insurance amount?
a) Yes
b) No