{"id":74587,"date":"2019-11-27T12:45:42","date_gmt":"2019-11-27T12:45:42","guid":{"rendered":"https:\/\/www.zameen.com\/blog\/?p=74587"},"modified":"2019-12-05T05:06:02","modified_gmt":"2019-12-05T05:06:02","slug":"sbp-low-cost-housing-pakistan","status":"publish","type":"post","link":"https:\/\/www.zameen.com\/blog\/sbp-low-cost-housing-pakistan.html","title":{"rendered":"State Bank of Pakistan’s Low Cost Housing Push: A Year Later"},"content":{"rendered":"\n

Back\nin July 2018, when Prime Minister Imran Khan was just about to be sworn into\noffice, the State Bank of Pakistan (SBP) came up with a comprehensive policy\ndraft for low-cost housing finance. The draft addressed housing finance market in\nPakistan by highlighting its growing need and underscoring its importance in offsetting\nthe huge housing deficit. <\/p>\n\n\n\n

The  draft was sent out to stakeholders, as well as\nthe public, to solicit their views and get feedback. However, when the policy\nwas finalized and published in March 2019, the new version was found wanting in\nkey areas that were part of the previous draft. <\/p>\n\n\n\n

The policy underlined the factors hindering the growth of housing finance in Pakistan, and offered a range of products to facilitate end-consumers, financial institutions as well as the often-ignored developers. It also emphasized the SBP\u2019s role as the chief regulator in pushing for low-cost housing. This eventually also coincided with the much touted Naya Pakistan Housing Program (NPHP)<\/a> that was (or rather, still is) all set to facilitate building of 5 million houses across Pakistan, that is nearly half of the existing housing shortage, over the span of 5 years.<\/p>\n\n\n\n

The policy identified various reasons behind banks\u2019 averseness to mortgage assets such as unclear titling of assets, asset-liability mismatch, weak contract enforcement and the existing foreclosure laws<\/a> that do not give banks the authority to foreclose on properties in case of default. The central argument was that the more prominent lacking is in the area of transferring of reliable property rights, which is the key ingredient in making housing finance a safe business for banks. Entitlement issue is so complex and grave that most banks do not consider mortgaged property a reliable security. <\/p>\n\n\n\n

Following\nwere some of the policy recommendations: (a)\nhelp the government implement the amendment under Section 15 of FIRO Amendment\nAct 2017 which will empower banks to foreclose mortgaged properties directly in\nthe case of defaults, while also ensure implementation of Section 20 of the Act\nthat has made willful defaults a non-bailable offence; (b) provide targets to\nbanks for low-cost housing finance; (c) relax general reserve requirements for\nthose financial institutions that are providing low-cost housing loans; (d)\nencourage banks to offer more innovative products[1]<\/sup><\/a>; (e) upscale finance limits\nfor microfinance banks; (f) promote and develop housing finance companies.<\/p>\n\n\n\n

The final policy however did not encompass\nthe first recommendation, though it did ensure that general reserve\nrequirements for financial institutions were relaxed, and finance limits for\nmicrofinance banks upscaled. However, the major aim, where SBP was to introduce\na subsidized financing facility to provide refinance up to Rs1 million or 50\npercent of loan amount at a rate of 1 percent to banks\/DFIs, and to bring the\nend borrower rate down to 5 percent, never really materialized. <\/p>\n\n\n\n

Another major recommendation was the\nproposed model for land utilization. Since land makes up for a substantial\nportion of the total housing cost, the SBP proposed that\u2014in an open-bid\nproject\u2014large parcels of government and institutional vacant land could be\noffered free of cost to the developers undertaking housing projects, comprising\nat least 50 percent houses\/apartments in the low-income category. The rest of\nthe land could be utilized upon the builder\u2019s discretion with 10 percent\ncommercial use. This would have significantly reduced the cost of housing\nprojects. <\/p>\n\n\n\n

Again, this product never appeared\nin the final document. However, what did make the final cut was a low-cost\npolicy for special interest groups in low-income segments including widows,\nchildren of martyrs, special persons, transgenders and persons in areas\nseverely affected by terrorism. Essentially, SBP substantially reduced the\nscope of its refinancing product. <\/p>\n\n\n\n

The original\ndraft policy also expressed the Central Bank\u2019s aims to increase outstanding\nhousing finance from Rs. 88 billion (at the time) to Rs 250 billion, and to\nincrease the number of borrowers from 62,000 (at the time) to 200,000 by June\n2021. In September 2019, housing finance stood at Rs103.64 billion (up 17%)\nwhile the NPL ratio for banks and DFIs decreased from 13 percent to 11 percent,\nwhich indicates that some progress has been made. But, the number of borrowers has\ndecreased to around 59,000 with majority of the loans in the size range of\nwithin Rs1 million. <\/p>\n\n\n\n

Simultaneous\nwith the introduction of the draft policy, the Pakistan Mortgage Refinance\nCompany (PMRC) had come into action. With funding support from the World Bank, PMRC\nwas well placed to refinance some of the loans issued to financial institutions\nand House Building Finance Corporation (HBFC).  This would lengthen the tenure of the mortgage\nloans and provide a stable source of funding to housing finance providers.\nSince PMRC was all set to take on a more influential role in housing finance,\nit seemed reasonable for the SBP to only function as a regulator and facilitator,\nwhich is what eventually became apparent.
<\/p>\n\n\n\n

This is\nevident from SBP\u2019s final policy document as well, which states: \u201cThe government\nis already taking measures to facilitate adequate housing for all segments of\nthe society. State Bank has decided to introduce regulatory and policy\ninitiatives which will also complement efforts of government for housing\nindustry\u201d.<\/p>\n\n\n\n

The latest increase in housing finance is most\nlikely a reflection of the new products being introduced, specially by HBFC, but\nthe coverage under PMRC has remained limited. The hope would be to keep non-performing\nloan ratios at their minimum so financial institutions are more open to\navailing the refinancing. <\/p>\n\n\n\n

\n\n\n\n

[1]<\/a> They can be: a) \nAvailability of fixed\/hybrid rate (floating and fixed) b)  Availability of specified Interest-only\nperiod products to make regular home loans affordable c)  Step-up \npayment  option  wherein \ninitial  installments  are \nlower  and repayment schedule is\nlinked to expected growth in borrower\u2019s income d)  Discounted \nrates  for  borrowers \nthrough  institutional  arrangements \nwith various public\/private sector entities e)  Availability of flexible tenures and maximum\nloan tenure as allowed under Prudential Regulations for Housing Finance f)  Products with no prepayment penalty option<\/p>\n","protected":false},"excerpt":{"rendered":"

Back in July 2018, when Prime Minister Imran Khan was just about to be sworn into office, the State Bank of Pakistan (SBP) came up with a comprehensive policy draft for low-cost housing finance. The draft addressed housing finance market in Pakistan by highlighting its growing need and underscoring its importance in offsetting the huge housing deficit. The  draft was sent out to stakeholders, as well as the public, to solicit their views and get feedback. However, when the policy was finalized and published in March 2019, the new version was found wanting in key areas that were part of the previous draft. The policy underlined the factors hindering the growth of housing finance in Pakistan, and offered a range of products to facilitate end-consumers, financial institutions as well as the often-ignored developers. It also emphasized the SBP\u2019s role as the chief regulator in pushing for low-cost housing. This eventually also coincided with the much touted Naya Pakistan Housing Program (NPHP) that was (or rather, still is) all set to facilitate building of 5 million houses across Pakistan, that is nearly half of the existing housing shortage, over the span of 5 years. The policy identified various reasons behind banks\u2019…<\/p>\n","protected":false},"author":97,"featured_media":74590,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[11053],"tags":[19524,43961,44886,690,6066,44885],"persona":[32411,35639],"class_list":{"0":"post-74587","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-laws-taxes","8":"tag-laws-and-taxes","9":"tag-lob","10":"tag-low-cost-housing-in-pakistan","11":"tag-low-cost-housing-schemes","12":"tag-sbp","13":"tag-sbps-low-cost-housing","14":"persona-property-investment","15":"persona-property-management","16":"cat-11053-id"},"acf":[],"yoast_head":"\nState Bank of Pakistan\u2019s Low-Cost Housing Push: A Year Later | Zameen Research<\/title>\n<meta name=\"description\" content=\"Analyzing SBP\u2019s low cost housing policy and housing finance.\" \/>\n<meta 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