Banks asked to lift housing finance

The State Bank of Pakistan (SBP) has directed the commercial banks to increase their financing for the housing and construction sector by two percentage points to a minimum 7% of their credit disbursements to the private sector.

The directive is aimed at supporting the government’s drive for making housing units available to the masses during 2022. Banks that fail to meet the quarterly targets of financing would face regulatory penalties, according to a notification available on SBP’s website.

Bankers, however, were seen complaining that the prices of housing units “are continuously shooting up”.

This has made it difficult for their clients to find affordable houses that fall within the allowed financing limits of Rs3 million, Rs6 million and Rs10 million (maximum).

“The government should take measures to increase the supply of housing units of the value falling in range of banks’ financing limits,” Meezan Bank Head of Housing and Construction Processing Unit Habib Siddiqui said while talking to The Express Tribune.

“Banks are receiving tremendous response from people for subsidised housing and construction scheme.”

On January 21, 2022, the central bank advised the commercial banks to increase their financing for housing and construction of buildings (residential and non-residential) to at least 7% of their respective domestic private sector advances by December 2022.

Earlier, the central bank set a mandatory housing and construction financing limit at 5% for an 18-month period that ended on December 31, 2021. “Banks falling short of their quarterly financing targets, as approved by SBP, will maintain, over and above the standard CRR (cash reserve requirements), an additional CRR, in the next quarter, by the amount equivalent to two times of the shortfall in achieving financing target, as of relevant quarter end vis-à-vis that of corresponding quarterly target approved by SBP,” the central bank said in another notification on January 21.

During 2020, the government allotted special focus to the housing and construction sector to achieve multiple targets during the peak of Covid-19. This included gearing up economic activities, reviving construction and around 40 allied industries, creating job opportunities mainly for daily wage earners and making affordable housing units available to the masses.

The government launched “Mera Pakistan Mera Ghar” (MPMG) in October 2020 to provide low cost housing units to people from low and middle income groups.

“Majority of the people applying to acquire housing finance fall in tier-3 category (over Rs6 million to Rs10 million),” Siddiqui said.

The non-availability of house maps and other documents at sellers’ end acts as another hurdle in the way of increasing financing to buyers of low cost housing units (upto Rs6 million).

The mark-up rate stands low on low-cost financing limits and increases to standard market rate on higher financing benchmarks.

According to the central bank officials, the amount of monthly installment to return the amount under low-cost housing finance is close to the amount people usually pay as monthly rent.

Earlier, the central bank expected that by December 31, 2021, credit to housing and construction finance would reach Rs384 billion (around 5%). Till December 2021, the total disbursement against MPMG financing amounted to Rs38 billion.

“During December 2021 (alone), an amount of Rs9.3 billion was disbursed, which was the highest monthly figure,” according to Arif Habib Limited (AHL). In order to increase funding for housing and construction through capital markets and microfinance banks (MFBs), SBP decided to allow counting of investments in Real-Estate Investment Trusts (REITs) and Pakistan Mortgage Refinance Company (PMRC) bonds or Sukuk (Shariah-compliant bond)”, the central bank said.

Published in The Express Tribune, January 30^th, 2022.

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