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Pakistan is a country of over 241 million people, with strong economic growth potential. Pakistan’s high population growth rate fuels urbanization and with it comes high demand for housing from almost every stratum of society. There is an estimated shortage of 10 million residential units in the country; most of it in low-and middle-income group.
In order to leverage the potential of housing sector towards the long-term sustainable economic growth, SBP has taken a number of measures including:
Keeping in view the distinctive nature of housing finance, the SBP issued separate set of prudential regulations (PRs) for housing finance. These regulations are revised from time to time based on changing market dynamics.
With a view to promote affordable housing finance, the Government of Pakistan has introduced a Markup Subsidy and Risk Sharing Scheme namely ‘Mera Ghar - Mera Ashiana’
SBP has revised the previously communicated quarterly housing and construction finance targets, making their achievement non-mandatory. This reflects a shift from a mandatory targeted approach to a market-driven framework, where financial institutions are encouraged to pursue internal targets while managing their own risk appetite. However, State Bank expects the banks to continue making all-out efforts to achieve their housing and construction finance targets while duly considering their internal credit risk policy and risk profile of their borrowers.
In order to promote low cost housing finance in the country, State Bank of Pakistan decided to encourage and facilitate the Banks/DFIs to pursue low-cost housing finance, regulatory exemptions/relaxations in the following Prudential Regulations (PRs) for housing finance are advised:
SBP issued guidelines to encourage banks/DFIs to extend housing finance to the housing units in under construction projects. These guidelines have been developed considering current market norms of buying or selling of housing units in under construction projects by addressing issues of legally enforceable rights and responsibilities. Under these guidelines, all payments to the builder or developer shall be routed through an escrow account maintained by the bank or lead bank of consortium. These guidelines will help spur economic development through promotion of activity in housing and construction sectors. Apart from providing an opportunity to the borrowers to avail housing finance under ‘Mera Pakistan Mera Ghar’ in under construction projects, this will also help builders to enhance stock of new apartments/flats across the country.
SBP facilitated banks and Punjab Government for the development of checklist of property documents that are required by banks for authentication before disbursement of financing. The title documents requirements vary from one land record authority to other e.g. revenue department, development authority, housing society, etc. The provision of standardized checklist for different land record authorities enabled Punjab Government to develope an online portal for prescreening of title documents as per requirements of banks offering mortgage finance. Besides, the SBP also collaborated with Punjab Government to carryout extensive capacity building sessions for the banks’ staff to sensitize the effectiveness and utilization of the portal. SBP will also facilitate the same process if other provinces introduce such mechanism.
Customers already own a house but wishing to upgrade the living standard or change house due to change in family size have to bring in the cash as equity to avail mortgage. Therefore, buying and selling a house simultaneously is cumbersome process and the same may not happen at one point in time or otherwise customer has to liquidate his assets to bring in equity.
With the objective to facilitate housing finance to those who own liquid securities or other properties, banks have been allowed to count these collaterals against meeting prescribed 15% equity contribution of the borrower.
Banks have been facilitated to use alternative delivery channels for lead generation and quick disbursement of housing finance. Banks engage real estate agents, microfinance institutions, microfinance banks and branchless banking agents to originate customers for disbursement of housing finance. Encouraged by the SBP, banks have employed direct sales force for housing finance.