The State Bank of Pakistan (SBP) has formulated a draft policy for the promotion of low cost housing in the country.
“The formulation of policy for low cost housing is an attempt to resolve issues faced by the mortgage industry. The policy has been formulated keeping in view international best practices and local market conditions,” the central bank stated in a statement.
Focus of the policy is on regulatory incentives, risk mitigation mechanism for financial institutions and mechanism to address the issue of affordability for low-income borrowers.
The policy is based on eight pillars, such as legal and regulatory framework, upscaling of housing finance limits for microfinance banks, affordability, promoting and development of housing finance companies. The policy also includes government and corporate institutional support through land and infrastructure development, fiscal incentives, establishment of a real estate regulatory authority and a capacity building and awareness creation agenda.
According to the statement, the policy strives to increase housing finance portfolio of banks/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.
Key initiatives under the policy includes definition of low cost housing financing in Pakistan to 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 should be up to Rs60,000.
The central bank has also proposed to introduce a subsidized financing facility for low cost housing by providing liquidity to the financial institutions at subsidized rate. SBP will provide refinance up to Rs1 million or 50 percent of loan amount at a rate of 1pc to banks/Development Finance Institues (DFIs) and the end borrower rate will be 5pc. The remaining 50pc of the loan or financing amount shall be provided by the banks/DFIs from their own sources at fixed rate of up to 12pc or variable rate of 1 year KIBOR plus risk premium up to 4pc.
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.
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