The credit rating of House Building Finance Corporation has gradually gone up during the past three years and has been maintained as 'A' during 2003.
The first credit rating of HBFC was carried out by Pakistan Credit Rating Agency (Pacra) during 2001.
The corporation was assigned a long-term rating of 'BBB', and a short term rating of 'A 3'. In the following year the long-term rating went up three notches from 'BBB' to 'A' and the short-term rating went up two notches from 'A 3' to 'A 1'.
"This improved 'A' grade rating was also maintained for 2003," HBFC managing director Sohail Osman Ali said.
Talking to Business Recorder on Monday he said that improved credit rating of the Corporation had contributed towards its credibility. "The management hopes in the future to raise long term funds from financial institutions, insurance companies, pension funds and the general public for highly sophisticated and mutually beneficial construction ventures."
He said that a major constraint in promoting housing finance was the absence of electricity, water and sewerage in many areas. Housing projects can not take shape without these provisions.
"In Surjani Town, Karachi, the worst can be seen, as houses and flats are not habitable; 96 percent of 7800 HBFC customers in this township are in default of Rs 388 million."
He said that the Sindh Urban Land Ordinance 2001 had had negative effect on HBFC disbursement. "Because of the cancellation of land title HBFC had to block disbursement of over Rs 360 million to 2500 families. Furthermore, there are potential clients for HBFC, who have been living in building for over eight years but can not obtain loan for house renovation as a result of this Ordinance, they have lost title to their property."
He said that housing projects need mortgage financing at cheaper rates for which government would have to play a leading role.
"The National Housing Policy envisages stamp duty, registration fee etc to be a total of one percent with nil percent for mortgage finance but it has still not happened."
He thinks this can be one of the key reasons why mortgage finance is only one percent of GDP in Pakistan.
He said that for 2004 (January-December) the Corporation had a target to recover three billion rupees from the mortgagees. For the same period it has a target to disburse two billion rupees to individual applicants and one billion rupees among builders for project financing.
Limit for individual loan is Rs 7.5 million whereas for project financing it is Rs 850 million per party. So far, Rs 600 million has been disbursed to individual applicants. First disbursement on account of project finance is likely to be released by the end of May, 2004.
He said, "Our credit line from the State Bank of Pakistan is sealed since 1992. We have to be a self-sustaining and profit making organisation to survive. Therefore, on the one hand we have accelerated recovery of outstanding dues from the mortgagees and on the other made house mortgage finance easily available. So far this strategy has paid good dividends."
He said that credit lines of the SBP which were of 10 years period started to be repaid on the due dates from 2002. "Between 2002 and 2004, credit lines totalling over Rs 4.3 billion have been paid on due dates. The most recent repayment took place on May 4, 2004, of Rs 1.25 billion. Eight credit lines totalling Rs 12.6 billion remain to be paid each year till 2012.
He said that during 2003 the Corporation recovered Rs 2.8 billion against the target of three billion rupees. "In the light of this recovery, and loan disbursement and settlement of credit line with the SBP, the Corporation has a smooth sailing," he added.
Ali said that larger projects could be undertaken by inviting participation of other financial institutions.
He said that the strategy of the Corporation would be to arrange funds for project finance through their own resources.
Ali referred to liquidity with financial institutions and negotiability of their interest rates and said that with the kind of credibility HBFC had developed encouraging response to its projects and proposals were sure to come.
He said that the improved credit rating of the HBFC had been useful and the first step for being self-sustaining were carried out and the Corporation successfully arranged a privately placed term finance certificate (TFC) issue for Rs 300 million for three years subscribed by Pak-Libya Holding Company.
He said, "The purpose of this exercise was to demonstrate the Corporation's ability to raise funds privately and to develop credibility of track record through regular payments."
He said to secure its position the Corporation in accordance with Prudential Regulations carried out valuation of over 148,000 properties it has mortgaged for loaning purposes. "The market value of properties mortgaged to HBFC was Rs 72.9 billion (forced sale value Rs 59 billion), so the Corporation is adequately secured," he added.
The process of sending accounts statements to customers of the earlier schemes began from March 2004 and 55,000 customers in Karachi were targeted. By the third quarter of 2004 each customer of the Corporation would be in possession of his/her account statement.