GVS: How important is a mortgage to the housing market in the developed world and what percentage of housing in North America is through mortgage?
Fahad Siddiqui: Some of the European countries have an 85 percent-plus homeownership rate. Homeownership rates in countries like the USA, Canada, and Australia hover between
60 percent to 70 percent and a major reason for such high ownership rates is because of very solid and robust end-user home financing plans offered by the financial institutions and credit unions, backed up by the relevant regulatory bodies. i.e., Canada provides a very attractive first-time homebuyer incentive in which high loan to value ratios (up to 95 percent) and very nominal closing/registration costs are a few of the many benefits for new and first-time homeowners.
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GVS: How large is the Pakistani mortgage market?
Fahad Siddiqui: Pakistan’s mortgage market remains very small. An estimate conducted 12 to 18 months ago was the size of the mortgage market was equivalent to just about 0.3 percent – 0.35 percent of GDP. It remains the lowest in South Asia compared to 3.4 percent, which is the regional average; 3 percent in Bangladesh and 11 percent in India.
GVS: Why do Pakistani banks and financial institutions not move into this crucial area and what role will the new Foreclosure Law play?
Fahad Siddiqui: No financial institution lends with a view to auctioning the property. Unfortunately, foreclosure has remained a problematic area for banks, primarily due to the
absence of firm and fair foreclosure laws (Section 15) until recently.
The implementation and execution of this law remain key to providing additional comfort to financial institutions to expand the risk appetite and offer innovative and customized home financing solutions to end-users.
GVS: What is your Bank’s vision on mortgages/home loans and housing in Pakistan?
Fahad Siddiqui: JS GharApna, our Home loans product has been recognized as Pakistan’s best consumer finance product at the Asian Banking and Finance Awards 2019. We are the
largest conventional Home loan providing Bank in Pakistan.
Our drive and growth in this space come from our Bank’s ambition to help bring economic prosperity to Pakistan. We remain focused and committed to supporting the Government of Pakistan’s vision to expand the housing and construction sector and enable the people of Pakistan to become proud homeowners.
GVS: What is your view on the government mark-up subsidy scheme (Affordable Housing) and how are you contributing to the success of this program?
Fahad Siddiqui: Rapid urbanization and population growth have decreased the ability of people to get access to affordable housing. The introduction of the low-cost housing program, which is officially called, “Mark up subsidy scheme,” intends to curb the shortfall of approximately 10 million houses in Pakistan by offering affordable homeownership options to our citizens.
The recent measures to promote affordable housing taken by the Government and SBP are a step in the right direction, as the housing and construction sector has the potential to be a prime source of creating significant employment opportunities within the skilled and unskilled workforce.
We believe that the housing and construction industry backed up by pragmatic home financing solutions is strongly related to the overall development of the economy. At JS Bank, we are actively promoting the affordable housing program and have managed to submit 650+ new client applications, amounting to approximately PKR 2.7 billion under this scheme over the past few months; hence there is significant demand for affordable housing and we continue to be an active player in this space.
GVS: What are the real challenges for the banks to financing housing to middle-class earning customers?
Fahad Siddiqui: Affordability and adherence to allowable debt burden ratios and servicing of re-payments are some of the most common questions and challenges that customers and financial institutions face. At JS Bank, we rigorously analyze our portfolios and work tirelessly to improve our processes and procedures.
This enables us to serve all our valued client segments regardless of the income bands efficiently. We do see further room in improving the digitization capability of the Home loan process cycle, starting from sourcing the client, underwriting, credit administration, and disbursing the facility.
GVS: State Bank of Pakistan (SBP) has assigned mandatory targets to banks in the housing and construction sector. How do you see this step both as an opportunity for banks and challenges around maintaining portfolio health?
Fahad Siddiqui: The mandate assigned by SBP to all banks on housing and construction financing aligns well with our strategy, as the home loans business remains a crucial focus and growth area for us.
We have a well-managed portfolio which is a direct result of quality sourcing and prudent credit underwriting methods. As a leading bank in the home loans segment, JS Bank is conscious of its responsibility in helping develop this sector.
GVS: Any recent initiatives that JS Bank has taken to support the housing and construction sector?
Fahad Siddiqui: We continue to bring out of box solutions to increase our market share and cater to all client segments. We recently signed up with Garden Square developers who are building an affordable housing project near Gujranwala. The project parameters align very well with the government mark-up subsidy scheme.
JS Bank will extend end-user financing on this project. Another initiative that will expand our new client acquisition coverage was to sign up with the Islamabad Realtors Association who would exclusively refer potential home buyers to JS bank to fulfill the home loan requirements.
GVS: A general perception is that banks in Pakistan have limited product offerings for Home loans compared to other international markets. Is this true? What is JS Bank doing to change this perception?
Fahad Siddiqui: As an industry-backed up by robust SBP guidance, we are heading in the right direction in terms of product innovation and making it easy for the end-users to buy their dream homes and avail housing finance against the purchase.
The pace at which we should introduce solutions for clients is relatively slow; however, at JS Bank, we take great pride in our speed to market in launching, customized, innovative, and fit-for-purpose products to serve our valued clients.
A recent example of this was our five-year fixed interest rate home loan offer that generated a lot of interest and acceptance. A fixed interest rate offer allows a client to keep consistent monthly installments for specific pre-selected terms.
Fahad is a career banker and has recently relocated back to Pakistan. During his career, Fahad has held senior global management roles in various geographies like Asia, Middle East & North America while been associated with Financial Institutions such as HSBC, Standard Chartered, Barclays Bank, & Bank of Montreal. GVS asked him to share his experience on how the mortgage and housing markets are different in international markets as compared to Pakistan and why historically this has been the case.