ISLAMABAD: The State Bank of Pakistan has targeted in its newly formulated policy to increase housing finance portfolio of banks and Development Financial Institutes (DFIs) from current, Rs83 billion to Rs250 billion by June 2021, along with increasing the number of borrowers to 200,000 from the current 68,000.
The Policy for promotion of low-cost housing finance has been formulated by the SBP to ensure low-cost housings for the low-income people as Pakistan, like other developing countries, has been facing shortage of housing units and this basic human need is felt more profoundly at the bottom-of-the-pyramid comprising of the poor and financially under-served segments of the society.
According to the draft of the policy, the growing number of households implies an increase in the demand for housing and annual demand for new homes is approximately 700,000 a year, whereas, only about half of this demand is met.
Overall, the housing deficit is estimated at 10 million units and growing while the combined volume of outstanding housing finance from banks and the HBFCL stands at around Rs83 billion currently, which is equivalent to only 0.5 percent of GDP.
This ratio (referred to as mortgage depth) is low in comparison, not only to advanced economies but also to regional developing economies of India and Bangladesh.
The policy constitutes of eight pillars that focus on regulatory incentives and mechanism to address the issue of affordability of low-income borrowers.
According to the policy the definition of low-cost housing financing in Pakistan would be adopted as loan amount of up to Rs2 million with the property valuing up to Rs2.5 million.
The maximum monthly income of a low-cost housing finance borrower must be up to Rs60,000.
Under the policy, the SBP would introduce a subsidized financing facility for low-cost housing by providing liquidity to the financial institutions at a subsidized rate.
The SBP will provide refinance up to Rs1 million or 50 percent of the loan amount at a rate of 1 percent to banks/DFIs and the end borrower rate will be 5 percent.
The remaining 50 percent of the loan, financing amount would be provided by the banks/DFIs from their own sources at a fixed rate of up to 12 percent or variable rate of 1-year KIBOR (Karachi Inter Bank Offer Rates) plus risk premium up to 4 percent.
The facility will be provided for both individual house borrowers and housing builders/developers. Similar financing facility will also be provided through the Islamic Financial Institutions.
Banks would be assigned housing finance targets with the instructions to make these targets part of the overall business plan and departmental targets.
The general reserve requirements against low-cost housing finance portfolio of banks/DFIs would be waived and bank/DFI’s exposure in low-cost housing would be exempted from the exposure limit of 10 percent for real estate sector.
Microfinance Banks would be allowed to increase housing finance amount up to Rs1 million from Rs500,000. A standardized loan application form is to be issued through PBA to streamline loan processing by banks/DFIs.
Banks/DFIs would introduce innovations in offering housing loan products and SBP would facilitate provincial governments and state-owned enterprises/autonomous bodies to avail housing finance from banks.
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