Presentation by Zaigham Mahmood Rizvi Chairman/M.D. House Building Finance Corporation

1. PresentationbyZaigham Mahmood Rizvi Chairman/M.D.House Building Finance Corporation Home Financing Seminar on Investment Opportunities in the Real Estate Sector in Pakistan4th June, 2005 at Islamabad.

2. HOUSING – The Prime Issue • Growing rate of Housing Demand in Urban areas 8% p.a. • Housing Units in the country19.0 million.>> Ownership 80.8% 15.5 m >> Rent free 10.2% 2.0 m>> Rented 9.0% 1.5 mUnits required for the population of 149 million.25 million • Shortfall of Housing Units 6.0 million * Based on 1998 Survey. * This estimates that backlog may now be increased to 7.0 m.

3. Annual Demand for HousingContributing Factors • Population Growth • Previous Backlog • Depletion.

4. HOUSING – The Prime Issue [Units per annum] • Additional Supply required 700,000 ( Due to Population Growth ) • To meet backlog in 20 years 300,000 • New Housing Need 1000,000* • Supply estimate 300,000 • Persistent Gap 700, 000 * Does not include depletion of stock, estimated at 2% per year. (50 years life)

5. HOUSING STOCK IN PAKISTAN • Total Housing Stock 19.0 Million Units • Urban 32.3% • Rural 67.7% Total : 100.0% • Overall Housing Stock comprised of :- • Kuccha Houses 39% • Semi Pucca houses 40% • Modern brick houses 21% Total : 100.0%

6. Room DensityPersons per Room • Pakistan & India 3.0 • Turkey 1.3 • China 1.1 • U.S.A 0.5 • Average 100 Countries 1.14 Source: U.N. (Habitat)

7. Mega Issue Provision of Affordable Housing • Assuming 1/3rd of the housing development is at the desired rate of 1 million units per year for urban population • And further assuming that nearly 80% of that housing requirement is from low and middle income level housing (SMH) • Pakistan would need to invest nearly 250 billion rupees per year for the construction industry alone for this segment of the population • Present credit level to housing is less than 10% of the potential need It presents a mega challenge not only to financial sector but also to construction material industries (CMI), the labor force and to the town planners/municipal corporations/private and public sector agencies.

8. Housing Sector Mega Issues Need Mega Solutions.

9. Housing Solutions • Retail • Mega (Wholesale) • Housing Complex • Satellite Towns • Public Sector

10. Housing SolutionsFinancing of Mega Projects • Mega Housing Projects Upto 5000 housing Units • Satellite Towns Upto 25,000 housing units. • Workers/Staff Housing Colonies • Pakistan Railways • Post Office • National Logistics Cell • Government Housing Schemes • Other Corporations • Textile Mills

11. HBFC Market Niche • Low Income Group • Middle Income Group • Workers Colonies • Low Income Housing Projects – Pre-requisites • Sanitation – Garbage Disposal • Streets – Road networks • Schools - Dispensaries - Markets • Water – Electricity • Transport to–from City • Municipal services.

12. Construction Sector Globally Contributes • 10-12% of GDP • 7 % Employment • Over 200 Industries move with the sector • Greatest Employment generation potential.

13. Outstanding Housing Finance Loans as %age of GDP

14. Housing Creditors House Building Finance Corporation – Public Sector Organization The biggest public sector organization providing housing finance since 1952 across the country including Northern areas and Azad Kashmir. Housing Finance Companies (HFCs) – Private Sector. Out of 7 HFCs permitted to start business, only 1 has survived with a mortgage portfolio of merely Rs.300 million i.e. IHFL. Commercial Banks Since March 2003, housing finance market has experienced a turn around. As many as 24 banks are active in providing housing finance.

15. Housing Finance Institutions Cases/year Focus on HBFC 8000 Building Other Banks 20,000* Purchase * Guesstimate

16. New Vision of HBFC Housing Bank for SMH Financing • For commercial banks and commercially driven housing finance companies; commercial considerations are prime. Target market – upper middle and high net worth individuals. Target areas – Posh localities, maintaining a negative list of locations. • For hbfc –new vision is to be as socially responsible and commercially sustainable housing finance institution. Target market – low income and middle income groups of populations Target areas – no negative list, all legalized residential locations.

17. A comparison of Housing units financed • Institution Life # of C a s e s • HBFC, Pakistan 52 years 427,000 • HDFC, India 27 years 2,400,000 • Singapore Govt Sector 30 years 700,000

18. Borrower’s Profile

19. Proposed Relief Package

20. Critical Challengesto Housing Sector Finance • Implementation of foreclosure law • Tenancy laws • Credit Bureaus • Developer Finance • Housing Schemes for Federal/Provincial Govt. Employees. • e-enabled documentation verification

21. Critical Challengesto Housing Sector Finance • Training • Establishment of REITs. • Land Registration Information System (LRIS) • Land Banks • Funding of Housing Loans • Low Cost Housing

22. Role of DFI’s • Housing Sector Development is stated to have direct linkage effect on nearly 72 construction material industries (CMI). Some of these are: * Cement, Bricks, Steel, * Wood/Carpentry, Plastic, Aluminum * Hardware, Sanitary wares, Tiles * Pre-Cast Slabs for walls and roofs • For lowering CMI’s Product Costs, standardization remains to be a challenge for both the financiers and the industry.

23. DFI’s to Promote and Syndicate Mega Housing Projects • Work closely with Builders, CMIs, Architects and Design Consultants. • Financial Engineering to develop and float innovative financing products • Lead and support syndicates to ensure transparency, risk management and credit enhancement • Float and manage RIETS/Bonds etc, in association with housing banks • Float and manage real estate mutual funds • Work closely with the housing banks and the governmental agencies for simplification of enforceable/marketable titles • Work with fiscal authorities for promoting mortgage friendly tax incentives

24. DFI’s to promote low cost housing through CMIs • Basic challenge for low-cost housing is low cost construction materials and reduced priced land • Primary challenge is to design low cost construction materials – DFI’s to promote research for this in association with CMIs • Another challenge is to promote standardization. Variety is less important than low cost bulk production. • Low cost of advertising by direct industry to industry sales. • Transfer of technology for low cost housing and standardization of low cost CMIs to be promoted between ADFIAP member countries. DFI’s to become a link between CMIs, Builders, Architect/Design Firms and Governmental agencies for promoting AFFORDABLE HOUSING FOR LOW/MIDDLE INCOME POPULATION

25. Thank You