The recent changes in the State Bank of Pakistan’s prudential regulations for housing finance are expected to make it more convenient for banks to meet the growing demand for housing loans, originating from middle income groups, with due banking prudence.

The changes conveyed to banks on April 18 make it clear that housing finance up to Rs10m is subject to valuation by at least one valuer listed on the Pakistan Banks Association’s (PBA) approved panel. Properties valuing up to Rs3m will continue to be exempt from valuation by professional valuers. Banks or development finance institutions (DFIs) can use their internal resources to assess such properties.

According to the revised PR for housing finance, housing loans exceeding Rs10m will have to be valued by at least two valuers listed on a PBA approved panel.


When seen in this backdrop, regulations on housing finance still look wanting on many counts


“This is a key change as it was not clear earlier whether loans higher than Rs3m but up to Rs10m will also have to be assessed by a valuer though we knew that loans exceeding Rs10m needed valuers’ assessment. This was creating problems in disbursement of housing loans worth more than Rs3m and up to Rs10m,” explained a senior executive of a large local bank. “Many banks were actually not making housing loans of this size for fear of violating regulations.”

Under the SBP regulations, banks are supposed to provide a housing loan equal to 85pc of the total value of the property. In cases where more than Rs3m and up to Rs10m constituted 85pc of the assessed property value against which housing loans were being sought, banks were clueless about what to do. Incidentally, this is the range in which housing loans are most sought by the people in middle-income groups. “Banks were either skipping housing loans falling in this category or were seeking the SBP’s clarification on a case- to- case basis.”

Bankers and builders say with the necessary clarification having been made part of the revised prudential regulations, housing loans are likely to get a boost.

By end-September 2016, the stock of housing loans worth Rs1m-Rs5m of all banks and DFIs stood at Rs10.6bn, almost one third of the Rs32bn stock of loans exceeding Rs5m, according to SBP stats. Further breakup into loans exceeding Rs10m is not available but bankers say such loans contribute heavily to the stock of housing loans.

Under the changed prudential regulations, those borrowers whose sanctioned housing loans fall insufficient due to cost overruns during construction of housing units can avail additional financing after two years of the last availed financing facility. Earlier, the condition was for three years. This, according to bankers, will help banks and DFIs lend more to mortgage loan seekers.

Although the regulations imply that this facility is for individual loan seekers, bankers and builders say it would eventually help housing project developers as well. Sponsors of housing projects don’t seek construction loans in their own name. Once their housing units are booked by individuals, loan applications come to banks and DFIs in the name of individuals. “So, practically speaking, all building projects will benefit from this relaxation,” explained a senior executive of an Islamic bank.

Cost overruns are very common in the construction business and the cut in the time period for availing additional finance from three to two years will facilitate completion of housing projects.

This should also help ease the pressure of growing backlog of shortage housing facilities in the country which has hit past 9m units, industry sources say.

Banks have lent Rs68bn to the construction industry in less than three years (between July 2014 and March 2017).

So far affordable housing to poorer sections of the population and low-cost housing remains a dream unfulfilled. The SBP needs to amend prudential regulations with the specific purpose of promoting mortgage loans for low-cost housing.

When seen in this backdrop regulations on housing finance still look wanting on many counts. Banks have not even been asked to ensure a certain percentage of housing loans to builders for undertaking low-cost housing. Nor they have been asked to change the loan size mix in favour of smaller loans for housing finance.

Published in Dawn, Business & Finance weekly, April 24th, 2017

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