In a first serious step towards fulfilling the promise of providing affordable homes, the federal government on Wednesday approved a Rs23.6-billion plan to facilitate low to medium-income groups in taking loans from banks at subsidised rates.
The Economic Coordination Committee (ECC) of the cabinet also approved a Rs4.7-billion supplementary grant - just 22 days after the start of new fiscal year - to share the cost of interest with borrowers.
The approval of supplementary grant after the budget was passed by the National Assembly last month once again exposed the ill-planning on the part of the government that did not know three weeks ago that it would need subsidies for the project.
With the approval of Rs4.7 billion in supplementary grant, the total budget outlay projection of Rs7.137 trillion has been breached in first month of the new fiscal year.
The ECC approved a 20-year loan tenor for three, five and 10-marla homes and a subsidy plan for 10 years. The government has approved Rs23.6 billion in subsidy for 10 years on financing needs of Rs100 billion on the basis of current Karachi Interbank Offered Rate (Kibor) at 6.89%. The subsidy will increase with any hike in interest rate by the central bank. Prime Minister Imran Khan had promised to build five million homes for the homeless people. His government took the first step in that regard towards the end of its second year in power.
The housing project will be executed by the Naya Pakistan Housing and Development Authority.
This month, PM Imran announced a 10-year subsidy on bank financing for housing units of three, five and 10 marlas. The interest rate requirement is estimated on the assumption of current 6.89% Kibor plus 4%.
Out of the Rs23.6-billion subsidy, Rs7.4 billion has been approved at existing rates for up to five-marla projects being undertaken by the housing authority, Rs10.5 billion for the non-housing authority up to five-marla projects and Rs5.8 billion for the non-housing authority up to 10-marla projects. The mark-up subsidy will be provided for 10 years on bank financing, according to a statement of the Ministry of Finance.
Accordingly, the end-user mark-up on housing units measuring up to five marla will be 5% for first five years and 7% for the next five years. For housing units measuring up to 10 marla, the end-user mark-up rate will be 7% for first five years and 9% for the next five years. For a three-marla housing unit, the maximum price is estimated at Rs3.5 million and the borrower can obtain up to Rs2.7 million in loan.
For a five-marla house, the loan size will be Rs3 million. For a 10-marla house, the maximum cost is estimated at Rs6 million and the borrower can get up to Rs5 million in loan. The loan tenor will vary from 10 to 20 years but in case the tenor is above 10 years the government will not share the interest cost. The government will pick 4.4% of interest cost in the first five years and 2.4% of the cost in the next five years for a five-marla home. There will not be any subsidy after 10 years.
The repayment of loans will be made in monthly installments. In case of 20-year subsidised loans, the cost was estimated at Rs33.1 billion, which the ECC did not approve. The housing authority has worked out initial estimates of subsidy requirement on financing of Rs100 billion by banks. The government expects that Rs70 billion will be borrowed by those who want to construct small housing units of up to five marla and financing requirement of Rs30 billion is estimated for 10-marla units. The shortage of housing units in Pakistan is estimated at 10 million, which is increasing by around 300,000 units every year, according to the Naya Pakistan Housing and Development Authority.
The lack of an adequate foreclosure mechanism, absence of a real estate regulatory authority and uncertainty about title deeds have hampered expansion of the housing sector. The ECC also took up a summary of the Ministry of National Food Security and Research and approved allocation of Rs15.7 billion, which was earmarked for nitrogenous fertilisers and would now be diverted to phosphate and potash fertilisers.
It was also decided to immediately release and disburse the subsidy on whitefly pesticides. The ECC approved Rs1.5 billion in subsidy on tractors and mark-up of Rs6.8 billion on all loans for 12.5 acres of landholdings disbursed by Zarai Taraqiati Bank Limited (ZTBL).
The ECC directed the food ministry to properly monitor and evaluate the disbursement mechanism for various subsidies in order to maintain transparency and ensure that the benefit reached the small farmers. The ECC decided to allocate 150,000 tons of wheat to Pakistan Army from Passco stocks on the basis of payment in fiscal year 2020-21.
The ECC also approved allocation of Rs41.8 million to the Ministry of Information Technology and Telecommunication/ NITB for the deployment of systems, data analysis, modelling and mobile apps for NCOC stakeholders and government departments with instructions that wherever possible the budget may be rationalised/ minimised in consultation with the Finance Division.
The ECC approved the establishment of Balochistan Mineral Exploration Company Limited with support of the federal government.
It will be a joint venture of the government of Pakistan with the Balochistan government for the formation and operations of the company with 10% shareholding amounting to Rs320 million to be injected in two equal tranches through Pakistan Mineral Development Corporation (PMDC).
The Petroleum Division and PMDC have been authorised to execute the shareholders’ agreement and complete all legal, regulatory and corporate formalities in connection with the formation, incorporation and equity participation in the mineral exploration company.
Published in The Express Tribune, July 23rd, 2020.
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