SBP housing initiative
The State Bank of Pakistan has taken a number of initiatives lately to solve the issue of housing for the poor. After announcing 'Policy for Promotion of Low-Cost Housing Finance' last month, the SBP has now taken the government and Pakistan Mortgage Refinance Company (PMRC) on board for provision of cheap financing to help solve the problem of housing shortage. It may be recalled here that the central bank had earlier released a detailed study which highlighted the problems faced by the housing sector and suggested possible measures to solve the crisis with the initiation of housing finance policy. The SBP after releasing the report announced a policy to provide low-cost housing finance facility to borrowers in order to bridge the widening demand and supply gap in the housing sector.
The population is growing at an average rate of 2.4 per cent since 1998 and the annual demand for new homes is approximately increasing by 0.7 million a year whereas only about half of this demand is currently being met. Overall, the country is currently facing a housing shortage of about 10m units. A recent report said that outstanding housing finance volume from banks and the House Building Finance Corporation stands at around Rs 83 billion, equivalent to only 0.5 per cent of GDP, lower than that of India and Bangladesh. The SBP announced low-cost housing finance facility in the country on July 18 this year asking stakeholders to send their suggestions within 15 days.
It may be added here that Pakistan Tehreek-i-Insaf, which is expected to form the next government, has already announced its plans to build 5m housing units across the country in its manifesto. The massive plan could create millions of jobs and impact at least 42 allied industries linked to the construction sector. In this connection, it is interesting to note that the housing policy announced by the then government in 1990s to stimulate the economy could not be implemented. Needless to say, one of the key constraints hampering supply of housing units is the unavailability of financing. The formulation of policy for low-cost housing is an attempt to resolve issues faced by the mortgage industry.
According to the SBP, the new policy has been formulated keeping in view international best practices and local market conditions. In order to facilitate this policy, the PMRC was formed in April this year to provide financing to banks so that the banks could provide long term loans for housing in the country. Shareholders Agreement of PMRC was signed in Karachi on 15 April, 2018 with the government (National Bank of Pakistan and Ministry of Finance) and private sector banks holding 49 per cent and 51 per cent stake in the Company.
The PMRC's primary role will be to provide medium and long term liquidity to banks in order to help stimulate development in the sector. Furthermore, a Malaysian expert on housing, N.K. Rupan was hired as CEO of the PMRC who identified the lack of long term liquidity to finance housing in Pakistan as one of the major impediments in the development of housing sector in the country. The SBP earlier said that it will introduce a subsidized financing facility for low cost housing by providing liquidity to the financial institutions at subsidized rate. SBP will provide refinance up to Rs1m or 50 per cent of loan amount at a rate of 1 per cent to banks or DFIs and the end borrower rate will be 5 per cent. The remaining 50 per cent of the loan or financing amount will be their own sources at fixed rate of up to 12 per cent. Similar financing facility will also be provided through the Islamic Financial Institution which will go a long way to ease housing shortage in the country.