Housing finance up 36 percent in nine months

KARACHI: Housing and construction loans increased 36 percent or Rs54 billion during the nine months of the current fiscal year of 2020/21, the central bank said on Tuesday.

The banks’ housing and construction finance portfolio increased from Rs148 billion by the end of June 2020 to Rs202 billion in March 2021. This represents a growth in three quarters of FY21 compared to a stagnant position in earlier quarters.

“Such growth in housing and construction finance in such a period has never been witnessed in Pakistan’s history previously,” the SBP said in a statement. “Overall financing to the housing and construction sector by banks is likely to increase further significantly as mortgage finance activity under Mera Pakistan Mera Ghar Scheme is picking up pace.”

As of April 20, banks have received applications for financing of more than Rs52 billion from the public under the scheme. Of these, the banks have approved financing of more than Rs15 billion to the applicants while the remaining applications are at different stages of the evaluation and approval process.

SBP with the help of Pakistan Banks’ Association and banks is ensuring that process of applying for housing finance is easy for the masses and in case they face any difficulty or have complaints, help is provided to them promptly and complaints are resolved in a timely manner.

The government envisions to increase the number of housing units manifold in coming years and has taken several measures in this regard. A key element to ensure sustainable increase in the construction of building activities is the provision of financing both to the supply and demand side players of the housing and construction sector. “Financing to the housing and construction sector in Pakistan has almost always remained quite negligible in the credit portfolios of banks when compared with other developed and developing countries for various reasons,” said the SBP.

SBP has taken several measures since July 2020 to support the provision of financing for the housing and construction sector by way of giving incentives and targets to the banks. A key regulatory measure in this direction was assigning mandatory targets to banks to increase financing for mortgages to builders and developers. Banks are required to increase their housing and construction finance portfolios to at least 5 percent of their private sector advances by end December 2021. In October 2020, the government augmented these efforts by introducing the government markup subsidy scheme.

Commercial banks have designated 50 percent of their branches, around 7,700, across the country for accepting applications under Mera Pakistan Mera Ghar housing finance scheme. In addition, all the remaining branches will also provide basic information about the scheme and refer applicants to the designated branches. Banks are regularly advertising the features of the scheme to attract and encourage potential customers.

In order to address complaints, the State Bank has established a comprehensive complaint resolution mechanism which comprises of an internet portal supported by a network of State Bank and commercial bank staff.

“A significant number of Pakistanis who currently do not own a house and are eligible for financing under the Mera Pakistan Mera Ghar scheme face difficulties in providing documentary evidence of regular sources of income to prove their ability to repay,” said the SBP. “To address this issue, the State Bank is coordinating with banks to develop a mechanism whereby income proxies, based on demonstrated expenses like rent payments or utility bills, could be used for credit evaluation and income assessment.”

PBA said it is engaged with internationally renowned experts to develop scoring models in this regard in the coming months. Banks have already developed initial judgmental income proxy model to accommodate applicants with informal incomes till the time expert’s developed scoring models are implemented.