Experts see housing finance picking up down the line

KARACHI: Housing finance is not even half a percent of GDP (gross domestic product) of the country but signs are encouraging, a senior Islamic banker said on Monday.

“Financing for housing was barely Rs1 billion six months back, but now it is around Rs3 billion a month,” said Jahanzaib Saeed of Dubai Islamic Bank, speaking at an online session.

The virtual discussion titled “Islamic home finance - way forward” was organised by IBA's Center of Excellence in Islamic Finance.

“Although still low but growing, Prime Minster Imran Khan seems keen to deliver his election promise and State Bank of Pakistan is making it more conducive for banks to operate.” Regulatory changes, incentives and surveillance were mending and pushing forward the fractured wheel, Saeed said.

“This low number suggests housing was never on conventional banks radar because demand for interest-based housing loan was low,” he said adding that though Islamic banks had changed this perception.

Saeed said the surge witnessed during the last six months was mainly due to Islamic house finance. “Even traditional banks are offering housing finance through their Islamic windows.”

He said in Islamic mode of financing, a property was jointly purchased by the customer and bank, adding that “the customer pays rent for using the property every month he also

buys property share form bank every month till he gets the complete ownership”. "If its halal we will take it" this was the result of a survey conducted by IFC and it was shared during the session by Zaigham Rizvi, an expert on housing finance.

“Reached out to this segment understandably they are undocumented but IFC has developed guidelines for their income assessment and for clubbing family income,” Rizvi said. He requested the central bank to develop paper-based guidelines for banks on those lines.

Rizvi said this was the targeted segment of PM initiative.

Imran Ahmed, Additional Director Development Finance SBP said, “The central bank requires banks to keep 5 percent equivalent of their private sector credit portfolio for housing by end 2021”.

“Banks are also required to devise quarterly targets and on achieving those are allowed to maintain lower cash reserves.”

Besides, Ahmed said banks got waiver on 10 percent exposure limit if provided for housing. In addition to regulatory changes the SBP had introduced a refinancing scheme and a new tier was added for providing microfinance housing loans in earlier arrangement, he said.

“SBP is on mystery shopping for gauging performance. It created a markup subsidy complain portal and established a help desk for customers,” Ahmed added. Sohail Baig, CEO Emaar, said regulatory environment was important, though a lot more needed to be done.

Baig suggested reviewing credit limits, down payment, rate structure, documentation, and processes. For him cumbersome documentation and early payment penalties required a revisit. He also proposed tax incentives to new home buyers would expedite delivery.