Affordable mortgage struggles to take off amid housing shortfall

KARACHI: The government’s affordable home financing scheme is staggering to catch speed despite pent-up demand for houses due to dearth of low-cost housing units in the country, people familiar with the matter said on Saturday.

They said the markup subsidy linked with low-cost residence has made it difficult for the borrowers to benefit from the scheme.

“Our bank has so far received more than 50 applications for the government’s markup subsidy scheme for affordable housing. In turn, two disbursements have been made due to low availability of housing units which fit the respective criteria,” said a banker on condition of anonymity. “This serves as supporting evidence to the notion that tight standards and strict prerequisites for giving out such loans constraint lending in this segment.”

The SBP issued a government mark-up subsidy for housing finance in October last to facilitate provision of subsidised financing to low and middle-income individuals.

There are three tiers of financing that would be made available under the scheme, with a maximum loan size of Rs5 million on housing units with market value of up to Rs6 million.

A senior banker said it’s a new realm whereby things take time to pick up. The government is making housing units available. “However, we won’t really have a complete understanding of the true picture, unless the purpose of this scheme is cleared,” he said.

The banker said this scheme aims to fulfill the constructed houses’ requirement in the country and to promote aligned industries such as cement, iron, steel and paint.

Builders agreed that it would be difficult for the people to find a new house or an apartment at the price of Rs3.5 million in the cosmopolitan cities. Since there is a lack of housing supply to cater the demand Naya Pakistan Housing Development Authority (NAPHDA) and private builders and constructors are building new projects especially for the program, they said.

Hassan Bakshi, former chairman of Association of Builders and Developers said the Lahore Development Authority is constructing 40,000 flats in collaboration with NAPHDA. In first phase they are constructing 4,000 flats. NAPHDA is building 2,500 housing units in Islamabad. The groundbreaking on these projects is expected to be in the next couple of months. NAPHDA will start constructing between 25,000 to 50,000 units across the country in next six months, he said.

The State Bank of Pakistan (SBP) said builders and developers are coming up with projects to meet increased demand of low cost housing units.

The central bank said the criteria of eligible borrowers and housing units under the scheme has been designed to accommodate low to middle income individuals and households, the SBP said. The target clientele also includes low to middle income households who have informal sources of income.

“With the efforts of NAPHDA, State Bank, commercial banks and other stakeholders, the utilisation of Scheme is expected to further pick up in coming days,” the SBP said.

Housing finance is underdeveloped in Pakistan. The current level of credit provision in this sector is at a very low level of less than 1 percent of GDP which is much lower than in other similar countries and in the region. Mortgages face a host of challenges ranging from strict collateral requirements, unclear property titles, unauthorised construction, and incomplete/inconsistent building plans.