Housing finance jumps 75% in FY21

SBP governor informs prime minister on unprecedented growth in housing finance

KARACHI:

Banks’ financing for housing and construction sector jumped 75% in the past one-year to a total of Rs259 billion in the fiscal year ended June 30, earning Prime Minister Imran Khan’s praise for the unprecedented growth in advances.

The advances include subsidised loans worth Rs39 billion under the government project Mera Pakistan Mera Ghar (MPMG) for people belonging to low and middle income groups, State Bank of Pakistan (SBP) Governor Reza Baqir told a meeting chaired by PM Khan.

To recall, the government identified housing and construction sector as the potential engine of growth of the domestic economy and chalked out a detailed plan to support the sector and revive the economy.

The construction sector not only activated 40-70 allied industries in Pakistan like steel, cement, wood and paint, but also helped achieve the government’s goal of creating job opportunities for a great number of daily wage earners in the construction sector who had lost jobs after the Covid-19 outbreak in the country in February 2020.

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The government announced amnesty scheme for developers that they would not be questioned about source of funds to be used to initiate large housing projects. Besides, it cut rate of taxes for housing and construction sector significantly, especially on houses to be bought or constructed by people of low and middle income groups.

Pakistan’s economy grew 4% in FY21 compared to a contraction of 0.5% in the prior fiscal year 2020. The government has set economic growth target of 4.8% for the current fiscal year 2022. Baqir presented information on unprecedented growth in housing and construction finance to the prime minister on Wednesday in a meeting of the National Coordination Committee on Housing, Construction and Development (NCCHCD), SBP said in a press statement on Thursday.

During FY21, housing and construction finance outstanding increased by Rs111 billion or 75% over FY20, reaching Rs259 billion by end June, 2021. “An increase of this quantum in housing and construction finance in one year is unprecedented in Pakistan’s history. As a result, 97% of the overall target set by SBP for June 30, 2021 was met.”

“The prime minister expressed the strong resolve of the government to accelerate activity in this area and encouraged banks to continue to support this area of economic activity and especially to facilitate customers interested in availing the government’s mark-up subsidy scheme for housing.”

In July, 2020, the SBP, in line with the government’s vision to promote the housing and construction sector activities and improve home ownership in the country, mandated banks to increase their housing and construction finance portfolio to at least 5% (approximately Rs330 billion) of their private sector advances by December 2021. Accordingly, the SBP set quarterly targets with the mutual consent of presidents/CEOs of banks supported by an incentive and penalty framework to motivate banks to achieve these goals.

In addition to the strong growth in construction and housing finance, the SBP governor shared to the meeting that banks have started to extend housing finance under the government mark-up subsidy scheme Mera Pakistan Mera Ghar (MPMG), for the low to middle income segments of the society.

“Provision of housing finance to such segments of society is also unprecedented in Pakistan’s history. In April 2021, banks were given separate targets under MPMG to induce them to grow this segment of housing finance. Consequently, the number of applications increased significantly and the amount of loans applied for more than doubled in the last quarter (Apr-Jun) of FY21 to Rs111 billion. As of June 30, 2021, banks have approved home financing worth Rs39 billion.”

Baqir also informed the prime minister that following his instructions to facilitate the public as much as possible, a simple one-page application form has been designed separately for salaried persons, businessmen and applicants with informal income to apply for such housing finance. In order to facilitate applicants with informal income, some very basic personal information, and payment information about house rent, utilities and children education will be required. Forms will be available both in English and Urdu by end July 2021.

While appreciating the SBP’s efforts to bring ease for borrowers through simple application form and processes, “the PM voiced expectation that banks’ portfolio must show strong growth in disbursements in the coming days,” according to the statement.

To facilitate access to home finance especially within lower and middle income groups, State Bank’s key initiatives include allowing acceptance of third party guarantee during the construction period, waiver of debt burden ratio (DBR) in case of informal income and the introduction of standard facility offer letter by the banks.

SBP has also advised banks to develop and deploy income estimation models for borrowers with informal sources of income. In addition to gauge readiness, knowledge and appropriate behaviour of banking staff towards MPMG customers, regular mystery shopping of banking branches on a pan Pakistan basis is conducted by State Bank.

Published in The Express Tribune, July 16^th, 2021.

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