Financing To Housing Builders/Developers Shelter is one of the important human needs that have multiple effects on the society and economy. It can be witnessed through the fact that during the period of recession, developed countries boosted their economies through spending on housing sector. 40 industries are allied with the housing/construction sector. Pakistan is facing rapid urbanization due to which the need for housing in urban areas is increasing rapidly. One of the ways of improving capitalization of the housing sector is the provision of housing loans, thereby leveraging home ownership. The State Bank of Pakistan (SBP) in consultation with the stakeholders has taken several initiatives to promote housing finance but still it must go a long way to address the challenges being faced by the sector. These initiatives, besides bringing overall improvements, resulted in a larger lending exposure of commercial banks/DFIs during 2003-04 to 2008. However, some fundamental aspects of a fully functioning market-driven housing finance sector remain to be addressed before achieving a balanced and sustainable growth of the housing finance market in Pakistan. One of the areas required to be taken care of is, the availability of institutional finance facility to credit worthy builders/developers engaged in housing projects. Based on an analysis of the mechanisms being adopted by central banks and regulatory authorities in the region and world, below-given guidelines have been developed. It is hoped that through supply of bank finance, builders/developers would be able to increase the supply of affordable housing units. For effectively executing such financing transactions, banks/DFIs are encouraged to provide financing to Housing Builders/ Developers for which banks/DFIs may establish specialized units. Further, banks/DFIs are advised to adhere to applicable Prudential Regulations for Corporate/Commercial Banking.

1. Eligibility Criteria

• Builder/Developer/team should possess a valid builder/developer license from the building control authority, where applicable
• Builder/Developer must have at least 3 years of experience with a good track record
• There should be a clear and marketable title to the land, free of encumbrances, charges and liens on which the project will be built in case it is offered as equity of the builders/sponsors
• Copies of documents required to be submitted with application: i) Registration certificate of the firm/company ii) Memorandum and Articles of Association/Partnership Deed/Business Charter (in case of Sole Proprietorship) iii) List of the technical staff iv) Pakistan Engineering Council certificate and experience certificates v) List of recently completed projects (if any), along with copies of Completion Certificates submitted to concerned authorities vi) Any other document(s) required by the bank/DFI

2. Documents Relating to Financial Standing

Banks/DFIs may obtain the following documents from Builders/Developers:

• Three years’ financial statements duly audited by a practising Chartered Accountant or Cost and Management Accountant in case where the exposure of a bank/DFIs does not exceed Rs 100 million, for analysis and record.
• In case the financing amount exceeds Rs. 100 million then the latest financial statements shall be audited by an approved panel of auditors in the manner given in the document.
• Bankers’ confidential reports on the financial credibility of the firm/company and its directors/sponsors

3. Documents Relating To Property/Project

Banks/DFIs may obtain the following documents from Builders/Developers:

• Property Documents & Documents concerning ownership of land
• Concept plan
• Approved building plan
• Permission to Mortgage
• Non-encumbrance certificate
• NOC for construction/sale of the housing units from the concerned authority
• A predefined list of contractors & subcontractors
• Permission from relevant authorities i.e. Civil Aviation Authority, federal and provincial Environmental Protecting Agencies (EPA) etc
• Any other documents relating to the title/ownership of the project

4. Assessment of Builders’/Developers’ Projects

• A project should be capable of generating sufficient cash flows to repay its debt.
• Banks/DFIs shall get the technical feasibility report independently reviewed by an engineering firm of repute registered with concerned authorities such as the Pakistan Engineering Council etc.
• Financial Feasibility Report of the proposed project, endorsed by a reputed Auditing Firm which shall contain information on the Project’s anticipated economic conditions, capital investment, financial projections and projected completion time.
• Banks/DFIs should review the financial and other relevant documents submitted by the builders/developers as part of their risk-assessment process. Banks/DFIs should critically evaluate the possibility of various risks and their possible impact on the viability of the project and hedge identified and potential risks by initiating necessary measures as per their credit and risk management policies.

5. Valuation

• Banks/DFIs will get the value of the plot and the project assessed from PBA approved well-reputed valuers as per the following criteria.