The Express Tribune

In a move that would majorly impact the housing affordability of middle- to high-income groups, the House Building Finance Company Limited (HBFC) has drawn the curtain on providing loans for properties valued in the market at over Rs1.5 million.The surprising move means that the housing bank will stop catering to a majority of its potential market.While the industry blasted the development, saying that it would cause the construction sector of the country to virtually come to a standstill, the move is directed at spurring growth in the low-cost housing segment.The directive is part of an internal circular, issued on September 30, that stated the HBFC would now lend up to Rs1,275,000 or 85% of the market value of the property (Rs1.5 million) and not more.Interestingly, the real estate sector in the country has witnessed exponential growth in the last few years, meaning that residencies are now valued at much above Rs1.5 million. The extent of the growth can be judged by the fact that the government recently amended its notified valuation rates to keep pace with actual market value of properties.Association of Builders and Developers of Pakistan (ABAD) Senior Vice Chairman Hassan Bakshi strongly opposed the move, saying that only houses or land in Katchi Abadis, part of the informal sector, are valued at less than Rs1.5 million. “We will oppose any such policy from the HBFC,” Bakshi told The Express Tribune.“Where would you get a property worth Rs1.5 million?“Such a low price of land is only available in slums (katchi abadis). Moreover, you would have to go to slums that are far from big cities to find land at such prices,” he added.Meanwhile, there was panic among the HBFC ranks as well, stemming from worries over default and provision for bad loans.“The new policy, if implemented, would prove to be a serious blow to the financial health of HBFC,” a concerned official of HBFC commented on condition of anonymity.“It would be highly difficult for HBFC to lend only to lower-income groups because it will create huge bad loans. If the lower-income group is to be catered, the HBFC needs to have the higher income brackets in its loan portfolio as well. This is the only way for HBFC to sustain its business.“This policy is seriously problematic in its business model. The HBFC cannot sustain this policy. It is unworkable,” the official said.A dejected builder from Karachi, however, said the HBFC does not want to lend any money at all, adding that the conditions are tantamount to saying no to everyone.“What will be the future of under-construction projects that are about to finish construction and need financing from HBFC?” he asked.Housing finance remains pitifully low in Pakistan. The mortgage-to-GDP ratio was 0.5% at the end of 2015. As per a World Bank study carried out in 2009, there is a backlog of 7.5 million housing units in Pakistan, which is increasing by 0.35 million housing units every year. Yet the number of people who take housing loan across Pakistan is continuously showing dismal growth over the years.Currently, 24 commercial banks, one microfinance bank and HBFC, which is the only housing bank in Pakistan, are providing people with housing finance. HBFC is the largest market player in terms of gross outstanding housing portfolio with a share of about 24%.Data shows a large portion of HBFC’s portfolio consists of small-sized loans of up to Rs1 million as opposed to other institutions whose portfolios seem tilted towards bigger loans of Rs5 million and above. The size of a typical HBFC loan in the October to December period of 2015 was only Rs1.7 million while the comparable average for private banks and Islamic banks was Rs7.5 million Rs8.3 million, respectively.Outstanding housing loans of HBFC amounted to nearly Rs14.7 billion at the end of December, up 16.3% from last year.Published in, October 5, 2016.Like Business on Facebook , follow @TribuneBiz on Twitter to stay informed and join in the conversation.