Presentation on HBFCL’s Product Lines By Khalid Aftab Khan GM-PPD&R March 25, 2013.

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 ?

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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.

• 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.

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%

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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.

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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.1010

Ghar Aasan Scheme - Diminishing Musharaka21 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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(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.

• 1212


• 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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(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 CaseSalient 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.

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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. 2525


• 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 502626


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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(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.

*2929


(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.

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(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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(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 History3434


(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.

3535


(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.

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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;

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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.

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• 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).*4040


(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

*4141


(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

*4242


(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.

*4343

Thank you

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Presentation on HBFCL’s Product Lines By Khalid Aftab Khan GM-PPD&R March 25, 2013.

Documents

Transcript of Presentation on HBFCL’s Product Lines By Khalid Aftab Khan GM-PPD&R March 25, 2013.