1) The banks/DFIs shall not take exposure on the real estate sector exceeding 10% of the aggregate of their advances and investments (excluding investments in Government securities) at any point in time. That is:
Real Estate Sector Exposure Limit = 10% of Advances and Investments (Less Investments in Government Securities)
2) For the purpose of this Circular:
i) Exposure: As defined in the Prudential Regulations for Corporate/Commercial Banking.
ii) Real Estate Sector shall include:
a) Individual/family owned houses for the purpose of self-occupation or renting out (non-commercial usage).
b) Builders, developers, contractors, corporations, property dealers and any other person dealing in residential, commercial and industrial real estate, e.g., undeveloped land, housing societies/residential buildings, office buildings, multi-purpose commercial premises, hotels, shopping malls, retail space, retail store buildings, industrial space, factories, warehouses.
c) Subsidiaries of (b)
d) Debt instruments and shares issued by (b) and (c) above and units of Real Estate Investment Trusts (REIT) issued by a REIT Management Company.
3) In case of 2) ii) b), such exposure shall be counted towards the above limit of 10% where the prospects for repayment and recovery in the event of default depend primarily on the cash flows generated by real estate.
4) Infrastructure Project Financing (IPF), as defined in the SBP’s guidelines for Infrastructure Project Financing as amended form time to time, shall not be included for calculating the above limit.
5) The banks/DFIs shall put in place appropriate internal limits and standards for exposures secured by real estate. The acceptable level of real estate as collateral, by type of property and geographical area, shall also be set.
6) The subject instructions are applicable with immediate effect. The bank/DFIs may run checks on their portfolios to determine their existing level of exposure in the real estate sector. The banks/DFIs already in breach of the above limit are advised to achieve compliance within 6 months of the issuance of this Circular.
7) The above instructions are being issued in exercise of powers conferred under Section 41 of the Banking Companies Ordinance, 1962. Any violation will attract punitive action as per law.
8) Please acknowledge receipt.