Govt geared to meet housing target

The government, in coordination with the World Bank, has managed to create a favourable environment to achieve the target of providing five million low-cost housing units through subsidised financing to the underserved population, a central bank’s deputy governor said on Monday.

The housing and construction industry holds the key to revive 40-70 allied businesses, promote economic growth into double-digit and create new job opportunities especially to daily wage earners.

The steering committee on housing and construction sector, which is headed by State Bank of Pakistan (SBP) Governor Dr Reza Baqir, has assigned “mandatory targets to banks…in order to ensure that credit is provided to low-cost housing units,” said SBP Deputy Governor Jameel Ahmed.

“Those financial institutions including banks, which will achieve the assigned targets of low-cost housing finance would get incentives…(however) the banks which will fail to achieve the targets will be penalised,” he said.

The SBP has made it mandatory for all the banks in the country to provide 5% of their total lending portfolios to low-cost housing borrowers by December 2021. The 5% comes to around Rs330 billion.

Against this mandatory target, “the central bank has provided an incentive structure whereby a relaxed cash reserves requirement (CRR) has been offered to (those) banks, which will achieve the mandatory targets,” he said.

He was speaking at a ceremony where Pakistan Mortgage Refinance Corporation (PMRC) signed agreement with six commercial banks to provide them guarantee to cover up to 40% of their risk of default on repayment of the loans by the low-cost housing borrowers.

“SBP in coordination with the Ministry of Finance and the World Bank undertook the strategic initiative of providing liquidity in the form of PMRC. The purpose of establishing PMRC is to provide liquidity for low cost housing units through primary mortgage lenders (like banks),” he said.

This will also help develop hybrid mortgage models and develop capital markets in Pakistan, he said.

“Initially we have allowed…low-cost housing on those projects which are not older than a year. This is done to promote construction and allied industries and job creation. Over a period of time, its features will be reviewed (and older houses may be financed),” he said.

“We all are aware that affordable housing and accessing to housing finance is one of the major issues in Pakistan. Housing finance through formal finance is very limited and is mostly accessible to upper income segment of the population.”

The main challenge that Pakistan faces today is the extension of housing finance to the low and middle segments of the population. This creates a case for increasing affordable housing. “The low penetration of housing finance is because…Pakistan’s low-income groups reside mostly in illegal quarters in major cities.”

Mortgage-to-GDP ratio in Pakistan is one of the lowest in the region “which is hovering around less than 1% for almost a decade.”

The SBP has undertaken various initiatives to promote and enhance housing finance such as PPRA (public procurement regulatory authority) prudential regulations for housing finance and ongoing capacity building of stakeholders. “One of the key achievements in this regard is the establishment of PMRC.”

“PMRC is taking initiatives to provide liquidity to primary and as well as secondary markets for housing in Pakistan,” SBP deputy governor said.

Today’s step (PRMC provides guarantee to cover losses of banks) is in the direction of enabling affordable housing. “Coverage of losses was one of the banks’ demands. The guarantee is expected to facilitate banks to extend low-cost and affordable housing finance to unbanked community and households,” he said.

PMRC MD & CEO Mudassir H Khan said the housing and construction industry has the power to revive the domestic economy, which is in trouble due to Covid-19 challenges. “The housing and construction industry holds the key to revive the economy into double digit.”

The enabling environment for low and middle income housing finance would play a pivotal role in fulfilling Prime Minister Imran Khan’s promise of providing five million low-cost housing units during his five-year tenure (2018-2023).

Published in The Express Tribune, December 29^th, 2020.

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