KARACHI: House Building Finance Company (HBFC) Group Head Business and Operations Faisal Murad talked about the viability of house financing under the mark-up subsidy announced by the government and the competitive edge it has over commercial banks.
Q: What is your take on government’s mark-up subsidy for low-cost house financing?
A: Since its inception, HBFC has been providing housing finance facilities for low and middle income groups of the population. Various products have been developed to serve the needs of such segments of population. Lately, HBFC has introduced a new product under the government’s mark-up subsidy scheme called Naya Pakistan, Naya Ghar. The basic aim of the program is to facilitate the low-income segment. Some features of this product are standardised such as loan size, collateral specifications, etc., however, other features such as developing eligibility criteria based on age, profession and other metrics, selecting the borrower, application process and the loan underwriting has been left on the discretion of financial institutions.
There are three levels or tiers of financing that would be made available under the scheme, with a maximum loan size of Rs5 million on housing units with market value of up to Rs6 million. The projects to be financed include those announced under Naya Pakistan Housing Development Authority as well as those undertaken by private builders and constructors.
Q: How do you see the challenges associated with house financing?
A: I would say process and documentation requirements, especially for new borrowers. In any other consumer product, transactions can occur in 5-7 days but with housing finance, there are a lot more engagements, frequent visits and documentation requirements. Collateral requirements are also stringent. Other common challenges include unclear property titles, unauthorised construction, incomplete/inconsistent building plans. Issues like these jeopardise the loan approval process.
Q: What are the competitive advantages HBFC has over banks?
A: We give out 70 percent loans for construction so there is an opportunity for people who own residential plots.
Catering to the housing finance needs of the low and middle income segment for the subsidy scheme will be a challenge for banks and this is where we will shine. The appetite for affordable mortgages is rising and the industry is ready to feed it. This facility allows all individuals, who will be constructing or buying a new housing unit for the first time.
HBFC is very much focused on extending support to low and middle income people. That’s not to say that we don’t offer mortgages to upper income households, but our focus is on the low and middle income segment.
We lend to customers that might be deemed too risky for commercial banks like people associated with media, law enforcement agencies and travel and real estate agents, to name only a few. Other financial institutions discourage these loans, but we don’t shy away from extending housing loans to these segments.
This is the point where HBFC takes the lead on banks. Housing finance is our forte and considering the current government’s focus on affordable housing, HBFC will play a crucial role in the years ahead. We have been serving this segment since our inception and that’s why we understand this segment better than banks. Our understanding of this segment is backed by specialised data on their spending habits, income trends, household income dynamics, vulnerabilities, repayment behavior based on Karachi interbank offered rate changes. HBFC has received more than 100 applications for Naya Pakistan, Naya Ghar scheme since its launch on October 12. So far, around 24 applications (Rs32.62 million) have been sanctioned. We have disbursed Rs13.76 million as on 12th January 2021 in loans under the scheme. Disbursement is expected to speed up from this month onwards.
Q: Has HBFC announced any relief for customers who face economic hardships due to lockdown?
A: Repayment capacity of borrowers had been significantly hit during the first wave of the coronavirus pandemic. Customers were more vulnerable than ever. To provide relief to HBFC customers, we announced a relief packages that allowed deferment of principal, markup or both as per directives of the State Bank of Pakistan.
HBFC has been able to successfully grant 1,000 payment deferrals. We saw our bad debt ratio rise as our clients faced liquidity issues due to the Coronavirus pandemic, but the relief package and the remedial measures we took helped improve our non-performing loan ratio. However, the trend is reversing again as the economy moves into revival.
Q: What are the prospects?
A: We are working on our new financing products related to purchase of residential plots. Presently, we provide financing to only those customers who have their piece of land and who want to construct or purchase a house/apartment. We are also working on home renovation loans as well as solar financing and other products. We plan to roll out these three products in the first quarter of 2021.
