Low-cost housing markup subsidy increased to Rs36bln

KARACHI: The government has revised up allocation on account of markup subsidy payment for low-cost house financing to Rs36 billion in addition to make other changes in the scheme, the central bank said on Thursday.

The government revised its markup subsidy scheme of housing finance significantly to align with the prevailing housing market dynamics. The revised scheme is expected to make access to housing finance much easier for a large number of households who currently do not own a house.

“With changes in the key parameters of the scheme, government of Pakistan has increased the total funding allocation to Rs36 billion on account of markup subsidy payment for financing over a period of 10 years and has assured continuity of the facility,” the State Bank of Pakistan (SBP) said in a statement.

“It is expected that revised parameters will further assist in materialising the government’s vision of providing housing to the low and middle income segments of the society.”

In October last year, the government started providing markup subsidy facility for the construction and purchase of new homes in a bid to promote housing finance to first time home buyers at subsidised and affordable markup rates. The subsidy allocation was Rs33 billion.

The facility is being provided with the administrative support of Naya Pakistan Housing and Development Authority (Naphda) and implemented by SBP through banks.

“In order to expand the outreach of the scheme and allow many more households to benefit, the government on the recommendation of stakeholders approved significant revisions in the key parameters of the scheme,” the SBP said.

Under the revised parameters, the scheme had divided the potential borrowers into three tiers. Now a new tier called tier-0 has been added in the scheme to facilitate participation of microfinance banks (MFBs) under the scheme for disbursement of financing of up to Rs2 million per housing unit. In view of the fact that MFBs specialise in extension of financing to low income households, it is believed that participation of MFBs will significantly enhance outreach of scheme to these segments. Under this tier, MFBs will either use their own funds or banks will lend to MFBs for onward lending to low income borrowers of housing finance.

The end user subsidized markup rate under tier 1 (housing units of up to 5 marla and covered area of 850 sq. feet under Naphda projects) has been lowered to 3 percent for first five years and 5 percent for the next 5 years.

Earlier these were 5 percent and 7 percent respectively. This will help to reduce the burden of installments on low income strata of applicants under NAPHDA projects even more.

Under tier 2 and tier 3 of the scheme, keeping in view the limited supply of eligible housing units especially during the initial years, the requirement of maximum one-year-old housing unit has been waived till March 31, 2023. Further, restriction on first transfer of housing unit and maximum value of housing units has also been removed. Maximum covered area for flats and apartments has been increased whereas covered area restriction has been removed in case of land based housing units. The maximum allowed financing has also been doubled from Rs3 million to Rs6 million under Tier 2 and from Rs5 million to Rs10 million under tier 3. Tier 2 is for houses of up to 5 marla and apartments with covered area of up to 1,250 sq. feet under non-NAPHDA projects and Tier 3 is for houses of up to 10 marla and apartments with covered area of up to 2,000 sq. feet under non-NAPHDA projects.

In addition, minimum eligible tenor of housing finance under the scheme has been lowered to 5 years from the existing 10 years. This will facilitate individuals desiring to avail shorter term financing. The revised markup subsidy facility will continue to be available through banks across the country.