Presentation on HBFCL’s Product Lines

By

Khalid Aftab Khan

GM-PPD&R

March 25, 2013

VISION & MISSION STATEMENT
To be the prime housing finance institution of the country, providing affordable housing
solutions to modest and middle income groups by encouraging new construction in
small & medium Housing (SMH) segments.
MISSION STATEMENT
To primarily target small & middle income groups of the population with viable and
sustainable products to ensure a profitable housing finance entity.
Why HBFCL was Needed ?

5
 HBFCL’s Earlier Products

Interest Bearing Scheme (IBS) (1952 – 1979)

• The Interest Bearing Scheme remained operative from 1952 to 30th June 1979 with
fixed rates of Interest.

• The Interest under this scheme was charged on monthly rest basis up-to 1978 and
thereafter, on quarterly rest basis.

• Range of interest charged was 6.25% to 12%. From July 1978 onwards compounding
was abolished and simple interest basis was introduced.

• Moratorium One year.

• Repayment Period 10 years to 20 years.

• Loaning size varied from Rs. 4,000 to Rs. 100,000.

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 Profit and Loss Sharing Scheme
1979 - July 1987
• Under the Federal Government directives from July 1979, HBFCL designed and
introduced Profit Sharing Scheme.

• Under this scheme, financing was made on Partnership basis and the amount of
financing varied based on the survey of cost of Land and Rental value of various
localities of a City or Town by ICAP.

• Rate of return varied within the range of 5.9% to 11.5% and was revised @10% after
every three years.

• Maximum covered area for financing was fixed for financing at 2250 sq. ft.

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 Simplified Schemes (SS)
1987-1989
• The Simplified scheme was an improved version PLS scheme under which instead of
fixing return on locality wise, return was linked with five (5) income groups.

• Return was calculated on reducing balance of financing on monthly basis depending

upon the loan disbursed.
Income Group Return Range
Lower Income Group 5.6% to 6.7%
Lower middle Income Group 5.6% to 7.9%

Middle Income Group 6.7% to 8.7%

Upper Income Group 10.4% to 10.6%

Rural Areas 5.08% to 5.5%

• Rate of return was revised @ 10% on yearly basis.

• Maximum Repayment Period was 15 years and there was a moratorium period of 12
months for completion of house.
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 Simplified Schemes (SS)
1987-1989
(Continued)

• No profit was charged during this period. Repayment of installments commenced from
13th month.

• Disbursement was allowed In two tranches

– 1st tranche - 40% on completion of plinth.

– 2nd tranche - 60% on completion of roofing.

• First time concept of Insurance of the life of customer was introduced and was
covered through Group Life Insurance.

9
 New Simplified Scheme (NSS)
July 1989 – 2000
• It was a slightly improved version of Simplified Scheme under which markup was
charged depending upon the amount of financing,

• Range of return charged was within the range of 10% to 16% . Rate of Return was
revised @ 10% of the applicable rate after every three (3) years.

• There was moratorium of One year for the payment of installments but during
construction period Service charge @ applicable markup rate was charged and made
the part of the installment.

• Proof of income was on the basis of affidavit for investment of Rs.5,00,000/= and
above

• Total Repayment period allowed was 15 years and disbursement was allowed In
three tranches.
• 1st tranche – Plinth

• 2nd tranche - After casting of roof with Block masonry.

• 3rd tranche - After Internal Plaster, Flooring & Sanitary work.

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 Ghar Aasan Scheme - Diminishing Musharaka
21 February 2002 to 11 February 2009
• In December 1999, Supreme Court of Pakistan in famous Riba case declared some of
the provision of HBFCL Act repugnant to Shariah and directed Federal Government to
make amendments/modification in HBFCL Act. After promulgation of ordinance in
2001, HBFCL introduced Ghar Aasan Scheme in compliance of Supreme Court decision.

• GAS was based on the concept of “Diminishing Musharaka”.

• Initially the maximum Financing limit for urban areas was Rs. 2 million and Rs 75,000
for Rural areas. Subsequently the maximum limit was first increased to Rs. 5.0 million
and than to Rs. 7.5 million for selective big cities. Similarly, the maximum limit for Rural
areas was increased to Rs.150,000.

• The scheme had Repayment Period of 25 years/20 years

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 Ghar Aasan Scheme - Diminishing Musharaka
21 February 2002 to 11 February 2009
(Continued)

• Agreed period of construction

– 9 months for houses

– 12 months for flats/apartments was allowed from the date of execution of the deed of assignment and
partnership.

– During agreed no rental was charged.

– In case of purchase of finished house/flat/apartment, no such period for completion of house/flats was
allowed.

• Commencement of Rental Income payment

– Rental income of started from the first day of the month after the expiry of the agreed period in case of
construction .

– In case of purchase of finished house/flat from the first day of the month following execution or signing
of the deed of assignment and partnership.

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 Ghar Aasan Scheme - Diminishing Musharaka
21 February 2002 to 11 February 2009
• Annual rental income was determined @ 6% of the total assessed cost of the house
whereas the net annual rental income was determined @ 5% of the total assessed cost
of the house.

• The rental income was payable on monthly basis and was revised @ 25% after every 3
years.

• Corporation’s share in the Rental Income

– HBFC share in the rental income of the house was in proportion to its investment in the
originally assessed total cost of the house/flat.

• Appreciation in the value of house

– Appreciation @ rate ranging from 2.5% to 12.5% (later reduced to 5% to 12.5%) on the unit
price was charged till all the units were purchased by the customer.

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 Ghar Aasan Scheme - Diminishing Musharaka
21 February 2002 to 11 February 2009
(Continued)

• Option to Purchase Units during Agreed/Moratorium period

– Within 2 years from the date of execution of the Deed of Assignment and Partnership, the
partner had the option to purchase the units of the Corporation on lump sum payment of
profit (@ 7.5% in Union Council, 10% in Tehsils, 12.5% in District Headquarters and 15% in
Middle/Upper Income Group areas ) in addition to the payment of appreciation in the
value of the house at applicable rates.

• Purchase of Investment Units

– Cost of each unit comprised of the value of the yearly unit plus agreed appreciation in the
value thereon.

– The partner had the option to purchase as many units as he wished or full investment, at
any time after two years.

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 Ghar Shandaar Scheme Under Murahaba
14th April 2003
• Ghar Shandaar Scheme was aimed to provide financing renovation under Murahaba
Financing.
• No Grace period was allowed.
• Repayment period of the scheme was initially Five years and than increased to 10
years
• Disbursement was made in in one go
• In determining Repayment capacity, clubbing of the family income was allowed.
• Security
– Equitable mortgage of the house and/or;
– Additional collateral of moveable or immoveable property offered by the applicant at the
discretion of HBFC.
• Repayment Capacity
– Upto 33% of the net monthly income of the applicant(s)/ guarantor(s).

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 GAS -Flexi

• The product was introduced in October 2007 on test basis at Lahore and was
subsequently launched through out the network of HBFCL for the purpose of Purchase
/Construction of a property.

• The Product is based on the Diminishing Musharaka concept.

• Rental is calculated on KIBOR + spread basis.

• Initially rental rate was to change after every 1 to 5 years, depending upon the
benchmark selected by ALCO.

• The Customer had an option to select from two repayment plans i.e. fixed repayment
plan and variable repayment plan.

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 GAS -Flexi

(Continued)

• Fixed instalment plan:

– Rate used for calculating the fixed instalment higher than the rate used for the calculation of
variable instalment plan.

– Initially for 5 than for 3 and than yearly re-pricing.

• Variable instalment plan:

– Under this plan, the unit purchase installment was to change every month.

– The benchmark used for calculation of installments was equivalent to one year KIBOR +
spread to be advised by the ALCO.

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 GAS -Flexi

(Continued)

• Each instalment consists of three components i.e.

– Monthly rent calculated on outstanding principal;

– Cost of units (Principal portion) purchased by the customer;

– Insurance Premium {Life & property (loan insurance through Takaful)}.

• Lock out Period:

– No balloon payment within first three years.

– Termination allowed subject to payment of prepayment penalty.

– No lock out period now.

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PRODUCT # 1 : CONSTRUCTION

Purpose:

Construction of a residential property on applicant’s own land or further

construction of an already constructed residential house.
 Construction Case
Salient Features
• Construction Tenure
– Maximum 12 months (extension allowed on case to case basis.)
• Disbursement
– In 4 tranches, according to stage of construction
• 1st Tranche of 40% After Foundation completed; for completion of structure with block
bricks / masonry and casting of roof; (however, under no
circumstances the tranche should exceed the appraised value of the
land/structure)
• 2nd Tranche of 30% Fixation of frames of doors and windows, plumbing & Electrical
works.
• 3rd Tranche of 20% Plastering, fixation of doors and windows, flooring of all rooms.
• 4th Tranche of 10% For Finishing
– All tranches to be released subject to satisfactory inspection report / photographed by the
District Managers. 3rd cheque released after satisfactory inspection report by the PBA
approved valuer.

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 Repayment

• Monthly payment consisting of utilization cost (rental) only, commence immediately

from 1st month and are based on the tranches so far disbursed.

• The customers have two options to choose for repayment of instalments:

– Starting from 13th month from the date of execution of Musharaka Agreement or

– Starting after 12 months from the date of disbursement of last tranche. The moratorium
period however, should not exceed 24 months.

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 Purchase Case

• Purpose
– Purchase of complete residential property (Apartments / house)

• Tenure
– 3 to 20 years

• Amount
– Rs. 10 million

• Disbursement
– In one go in favour of the seller, immediately after the completion of all the prescribed
documentation formalities, at the time of execution of Musharaka Agreement.

• Repayment
– The repayment of instalment commence from 1st month from the date of execution of
Musharaka Agreement.

22
 Renovation Case
• Purpose
– Renovation of an already constructed residential House, Flat, Apartment.
• Tenure
– 2 – 10 years
• Renovation Period
– Maximum 6 months
• HBFC LTV
– For large cities up to 25% of the FSV of the existing property assessed by the PBA approved
valuer but not exceeding Rs. 2.5 million.
– For other cities maximum limit is based on the 50% incremental value of the property (FSV
of existing property + BOQ ) but not exceeding Rs.500,000.
– However, in urban areas Regional Head can allow up to Rs. 2.5 million on case to case basis.
• Disbursement
– In One go.
• Repayment
– The repayment of instalments commence immediately from the following month in which
Musharaka Agreement is executed.
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 Balance Transfer Facility

• Purpose
– To purchase an existing housing finance facility from any financial institution.
• Financing Range
– Rs. 0.1 m to Rs. 10 m
– Financing covers the outstanding principal amount and also include any applicable early
termination penalty only.
• Disbursement
– Payment is made in one go, directly to selling bank in the presence of customer securing
release of title documents etc. to the satisfaction of HBFCL.
– The Cheque however, is made in the name of the Customer, who endorses the cheque in
favour of the Seller.
• Repayment
– The repayment of instalments starts from 1st month from the date of execution of
Musharaka agreement.

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 Underwriting parameters for individuals

• Minimum/Maximum Age of Main Borrower

– Salaried: 60 years
– Professions/ SEP/Businessmen: 65 years
• Clubbing of Income
– Clubbing of income is allowed for Co-applicants and Guarantors having inheritable rights in
the proposed property.
• Determination of Loan Tenure
– Worked out on the basis of age of the youngest applicant/ Guarantor whose income is
considered for loan.
• Income Estimation
• Title Clearance
• Current Pricing
• Monthly Rental
– One Year KIBOR + Spread of 3.25% (for Salaried) / 3.50% for non-Salaried.
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 Underwriting parameters for individuals

• Loan To Value Ratio (LTV)

– Purchase/Replacement/BTF
• 70:30 (House)
• 60:40 (Flat)
– Construction 60:40 of total projected cost of construction.
• Renovation 25:75
• Life/Property Insurance
• Debt Burden Ratio
• Slab of monthly net income %
– Upto Rs. 10,000 25
– Rs. 10,000 to Rs. 30,000 30
– Rs. 30,000 to Rs. 50,000 35
– Rs. 50,000 to Rs. 100,000 40
– Above Rs. 100,000 50
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 Underwriting parameters for individuals

Security
• Equitable Mortgage
– 100% equitable mortgage in the leasehold residential properties in large cities i.e. Karachi,
Lahore, Rawalpindi/ Islamabad, Multan, Faisalabad, Hyderabad, Quetta and Peshawar
subject to observance of the following:-
• Having sufficient market value with Memorandum of Deposit of Title Deeds;
• Red Entry on record of rights ;
• Intimation to concerned Sub-Registrar and lease issuing authority with Irrevocable General Power
of Attorney in favor of the Company;

• Registered Mortgage
– In rest of the areas through conventional method of Registered Mortgage Deed.
• Area Wise Loan Limit
– In all urban areas including Tehsils, Small Towns and District Headquarters / Rural areas all
over Pakistan ranging from Rs. I million to Rs. 10 million
– In all Rural Areas irrespective of model villages declared by the Government up to
Rs.150,000/-
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 Underwriting parameters for Developers

• In case the Developer is

– Sole Proprietorship, Proprietorship Certificate from FBR is required.
• A Partnership firm, copy of following documents are required
• Registered Partnership Deed, Certificate of Registration of Firm from Registrar of Firms OR NTN
along with association of persons (AOPs).

• A Private Limited Company, copy of following documents are required

• Memorandum and Article of Association and SECP Registration

• Developer (s) will apply to HBFCL on prescribed Application Form.

• Pay non-refundable processing fee as per following schedule:
– Category of Project Plot Old New
• Up to 1,000 sq yards Rs. 75,000 25,000
• From 1,001 to 5,000 sq yards Rs. 150,000 50,000
• More than 5,000 sq yards Rs. 275,000 75,000

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 Underwriting parameters for Developers

(Continued)

• Provide the following documents

– Copies of Project Brochure and Project Feasibility Report.
– Copy of CNIC of Sole Proprietor / Partners / Directors.
• Provide list of other projects undertaken by him / Partner(s) / Director(s) with different
names / partnerships /companies along with following details:
– Date of Approved Building Plan by the competent authority.
– Date of completion of the project as declared / approved by the competent authority.
– Any penalty imposed by any authority against builder/ partners / directors.
– Booking Value and current value of apartment / house
– Whether HBFCL Loan was availed by the allottees/ purchaser on the said project
• Provide list of other projects, which were banned or stayed by any Authority.
• Intimate HBFCL about any liability or loan taken from other Banks/Institutions in
general as well as against the project applied.
*
29
 Underwriting parameters for Developers

(Continued)

• Provide last three years bank statement of the Proprietor / Partners / Directors / firm /
Company.

• Provide copy of last year assessed Income Tax Return of Sole Proprietor / Partners /
Directors / firm / company.

• Should sign an Indemnity Bond in order to indemnify HBFCL in case of delayed

possession to the customer (allottee) to the extent of payment of monthly installments
constituting of principal + profit + property & life insurance premium till such time
the possession is handed over.

• Provide NOC(s) to construct the project from all relevant departments such as Building
Control Authority, Electric Supply, Gas Supply, Water Supply, and Sewerage
Maintenance Department, etc.

30
 Underwriting parameters for Developers

(Continued)

• Provide NOC from Building Control Authority to sell apartments/houses and publishing
advertisement.

• Provide valid Architect License from PCATP of the Architect/Consultant of the

particular project.

• Provide valid Developer License issued by the concerned authority.

• Give an undertaking that till the completion of project and possession of all the flats /
house to the purchaser / allottee/ lessor of HBFCL, he will not transfer the title of the
project to any other persons / party / firms etc., by any mode of transaction

• Issuance of disbursement Cheques at all stages of construction (already defined HBFCL

Policy) will be subject to the Evaluation Report of the construction by a reputed
valuator appointed by HBFCL, the cost of which will be borne by Developer

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 Underwriting parameters for Developers

(Continued)

• In case, if any building violation is highlighted in Evaluation Report by the valuator,

HBFCL will hold payments of remaining tranches, until the concerned Authority
regularizes it.

• In order to get further tranches from HBFCL, Developer will provide regularized plan
along with the copy of paid Challan of penalty, if any.

• Ensure availability of all amenities, such as Gas, Electricity, Water, etc. at site before
disbursement of final tranche.

• Provide the floor plan of each block, identifying the block and flat number mentioning
the name of the allottee to which the flat is booked/sold.

• Inform HBFCL for issuance of any sub-lease in favor of the purchasers whether the
purchaser is a client of HBFCL or not.

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 Initial Parameters of Credit Underwriting for individuals
under GAS(FLEXI)
• Citizenship
– Resident of Pakistan, and Non Resident (overseas Pakistanis)as per policy

• Non Resident Pakistanis (NRP)

– Financing facilities for Purchase, Construction and Renovation are available but the facility
of Replacement of an existing housing finance (Balance Transfer facility) should not be
extended.

• Maximum age limit of Applicant

• Co-applicant/Guarantor
– Primary or three Co-applicants /guarantors allowed.

– Guarantor must be a family member and with an inheritance rights in the property, to be
mortgaged/ assigned with HBFCL.

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 Initial Parameters of Credit Underwriting for individuals under GAS
(FLEXI)
(Continued)

• Income
– Salaried/ Self-Employed/

– Business Persons
• There is no income limit for eligibility, but it should be sufficient to obtain required investment as
per current investment criteria.

• Employment Tenure
– Salaried
• Current job (either confirmed or contractual) with a minimum 1 year continuous work history in
the same industry/field.

– Self-Employed/Business persons
• Minimum 2 years in current business/industry.

• Credit History
34
 Initial Parameters of Credit Underwriting for individuals under GAS
(FLEXI)
(Continued)

• Other Loans
– Applicant/Co-applicants/guarantors must be current as per the latest CIB/Data check on all
known loans. (However, the Zonal Manager may allow exception of not more than 1 time in
60+ Days Past Due (DPD) in past 12 months on merit of the case.

• Debt Burden Ratio (DBR)

– (DBR) up to 40% of the net monthly/verifiable take home income for non-salaried persons
and Agriculturist;

– Up to 50% of the net monthly/verifiable take home income for regular employees of
Government/Semi Government /Pubic & Private Limited Companies, Multinational and
Private reputable firm / Co. In cases, where one co-applicant is salaried and other is non-
salaried person, a mean of the two percentages i.e. (40%+50%) 90%/2 = 45% of the joint
income should be considered for calculation of repayment capacity.

35
 Initial Parameters of Credit Underwriting for individuals under GAS
(FLEXI)
(Continued)

• Matter concerning to refund of processing fee.

– Processing fee is non-refundable where applicant quits himself from availing investment
facility.

– Processing fee is refundable up to 50% if declined by HBFCL.

• Personal Reference
– Two personal references (Relatives and Office Colleagues) or any two verifiable references
not living with the customer (for verification purposes & to assist in any collection effort).

• Credit Checking
– Through CIB , DATACHECK & Bank Statements.

36
 Musharaka Takaful / Insurance

• Company arranges life insurance, equivalent to the amount of the investment the life
of the Customer on whose income the investment application is accepted by the
Company.

• The sum assured is the original amount of the investment disbursed by the Company.

• Claim, if any, received against the policy from the insurance company in excess of the
outstanding balance of total dues is refunded to the legal heirs of the Customer.

• The Customer pays the insurance premium along with the monthly payment of share
of rental income and purchase price of Musharaka Unit.

• The Company arranges Property Takaful from a reputable Takaful company against all
relevant insurable risks such as loss, damage or destruction of the Musharaka Property.

• Insurance is in the name of the Company as the loss payee thereof and is valid and
effective for the entire Term. Claim received is shared in proportion to the financing by
HBFCL and the customer.

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 Khuda Ki Basti –IV Lahore

• Khuda Ki Basti –IV, Lahore is a low income housing scheme sponsored by M/s Saiban a
reputed NGO operated by Mr. Tasneem Siddiqui.

• To facilitate the allottees of NGO HBFC got the following basic requirements fulfilled
at its own.

• The valuation of the project was arranged by HBFC at its own cost saving over expenses
of Rs. 150,000/- of the builder M/s Saiban.

• The processing fee for the approval of the project of Rs. 100,000 was exempted in this
project;

• The legal scrutiny of documentation of the project was done by a reputed legal firm
and expenses were borne by HBFC;

• The processing fee from the individual allottees was charged @ 50% of the existing
processing fee i.e.

• The debt equity ratio of 60:40 keeping in view the requirement of the customers in
this case was enhanced and fixed at 80:20;
38
 Khuda Ki Basti –IV Lahore

(Continued)

• In normal circumstances, B-Class construction rates are allowed only in RCC & RBC
slabs whereas A- class construction rates were allowed on the usage of pre-fabricated
roofing in this project.

• A concession of 2% in the existing profit rates was offered in this project.

• HBFC is financing in this project on the basis of transfer letters and permission to assign
issued to the allottees by M/s Saiban. The allotment of plots is made for a period of
five (5) years and proprietary rights shall be given to the allottees after successful
completion of five (5) years. HBFC assisted M/s Saiban towards the completion of
documents and allowed financing in this project on the basis of specified documents.

39
 Underwriting parameters for Developers

• At the time of handing over the possession, the Developer should ensure that the
possession of the mortgage property has been handed over to its original allottee
(HBFCL borrower) and will forward the copy of possession letter to HBFCL duly
acknowledged by the HBFCL borrower.
• Developers will communicate to their prospective customers that approval of their
individual loans by HBFCL will be subject to their fulfilling of HBFCL Credit Criteria.
Developers at their end cannot guarantee of approval of any loan to individuals.
• HBFCL will:
– Generate e-CIB of all Sole Proprietor / Partners / Directors of Developer.
– Obtain directly the Bankers’ Confidential Report regarding the Credit worthiness of the
Developer and its Partners / Directors.
– Seek information about Developer its Partners’ / Directors’ and Project’s Land from M/s
NEWS - VIS Credit Information Services (Pvt) Ltd .
– Seek information about Credit history of Partners’ / Directors’ of the Developer through
Data Check.
– Provide a copy of its agreement with Developer to the borrower (allottee).
*
40
 Underwriting parameters for Developers

(Continued)

• Deposit the following Original Title Documents of the land of the project along with the
Memorandum of Deposit of Title Deed to HBFCL. All Title documents will remain with
HBFCL till the possession is handed over to all HBFCL borrowers (allottees).

• In Case Of Allotted Land

– Allotment order

– Possession order

– Acknowledgement of possession

– Site plan

– Proof of payment of full cost of land

– Specimen of title to be given to individual allottee

*
41
 Underwriting parameters for Developers

(Continued)

• In Case Of Leasehold Land

– Lease deed and subsequent transfer deed with mutation

– Up to date search certificate from the date of lease deed

– Site Plan

– Permission from the Lessor to issue sub-lease deed

– Permission to assign to the allottees of the flats/housing units

– Specimen of title to be given to individual allottees

*
42
 Underwriting parameters for Developers

(Continued)

• In Case Of Freehold Land

– Registered sale deed

– Unbroken chain of Jamabandi/city survey record for last 15 years

– Mutation

– Non-encumbrance certificate for the last 12 years

– Specimen of title to be given to individual allottees

• Title Clearance
– A reputed lawyer suggested by HBFCL, will examine title documents of the project, the cost
of which will be borne by Developer.

*
43
Thank you

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