Housing loans up 13pc to Rs65.85bln in July-Sept

KARACHI: Housing loans rose more than 13 percent year-on-year to Rs65.85 billion during the quarter ended September 30, 2016, the central bank data showed on Friday, as soft interest rate whetted the consumer appetite. 

The State Bank of Pakistan (SBP), in its quarterly housing finance review, recorded outstanding loans to home buyers and developers at Rs58 billion in the same quarter a year earlier.

The housing finance market has witnessed a robust growth in recent years due to various reasons, including positive macroeconomic indicators, stability in economy and improving law and order situation.

A country with a population of more than 200 million has an incredible potential and demand for housing is increasing with strengthening middle/upper-middle class consumer segments.

“Growth in housing finance was mainly due to increase in demand and tapering inflation,” said Syed Iftikharul Haq, head of consumer finance at Faysal Bank. “In the wake of declining benchmark rates, this proposition has become even more viable for financial institutions and consumers.” 

Haq said the central bank’s focus on housing finance would be instrumental in increasing overall economic growth of the country.

“We need to be cautious as these are long-term financing agreements and banks are working on a floating rate model,” he said. “It is high time that banks reach out aggressively in building their long-term portfolios and acquire fresh customers (and) at the same time the focus should be on credit vigilance, quality acquisition strategy and creating customer awareness.”

The State Bank of Pakistan said Islamic banks continued to take lead in housing loans as compared to their conventional peers.

Outstanding loans of Islamic banks amounted to Rs25.8 billion during the July-September period of 2016, followed by private banks at Rs20.73 billion. 

Analysts said the share of Islamic finance is rising because of consumer interest towards Shariah-compliant products.

The State Bank of Pakistan report said Islamic banks’ share in financing for outright purchase of houses stood at 51.27 percent.

Conventional lenders accounted for 35.84 percent, while House Building Finance Company Limited (HBFCL) emerged as the largest player in financing of two sectors: construction (47.07 percent) and renovation (58.04 percent). 

Outstanding loans of HBFCL stood at Rs14.7 billion as at September-end.

The company remains the largest player in the housing finance market, accounting for 42 percent of new borrowers. It contributed 14.50 percent to the new disbursements equivalent to Rs597 million in July-September 2016.  

“We have seen the consumer finance cycle going through different evolutionary cycles. Therefore, based on our experience we should design our policies in such a way that result in building a portfolio, which is beneficial for both customer and the bank in the long term,” Haq said.

“However, I still feel that the foreclosure laws need to be revisited in order to further accelerate the momentum.”