KARACHI: The government will provide Rs33 billion markup subsidy for the construction and purchase of new houses and all individuals are entitled to avail this facility.

The State Bank of Pakistan (SBP) on Monday announced that for the first time all individuals who will be constructing or buying a new house can avail bank financing at subsidised and affordable markup rates.

This facility will be provided with the administrative support of SBP as executing partner with Government of Pakistan and Naya Pakistan Housing and Development Authority (NAPHDA).

The government has allocated Rs33bn for payment of markup subsidy for financing over a period of 10 years and has assured continuity of the facility.

For this purpose, the SBP and Government of Pakistan have signed a memorandum of understanding.

The markup subsidy facility will be available through all banks and is divided in three tiers.

Under Tier I, financing will be available for purchase of houses/apartments/flats of up to 5 marla or 125 sq yards, with maximum covered area of 850 sq feet and maximum price of Rs3.5 million, under NAPHDA projects. Maximum financing under this tier is Rs2.7m with maximum tenor of up to 20 years.

Banks will charge maximum markup rate of Kibor plus 250 basis points. However, the federal government will provide markup subsidy to reduce borrowers’ rate to five per cent for first five years and 7pc for next five years.

The Karachi Interbank Offer Rate (Kibor) is determined in the interbank market on a daily basis and is used as a benchmark for most of the retail lending by banks. These rates are published on the website of State Bank on a daily basis.

Financing under Tier II is also for houses/apartments/flats up to 5 marla or 125 sq yards with maximum covered area of 850 sq feet and maximum price of Rs 3.5 million. Maximum financing under this tier is Rs 3m with maximum tenor of up to 20 years.

This tier facilitates construction or purchase of housing units by individuals and households who have not applied or qualified for NAPHDA projects.

Banks will charge maximum markup rate of Kibor plus 400 basis points. However, subsidised rate for the borrowers for first 10 years under Tier 2 is the same as that of Tier I.

The Tier III of the facility promotes affordable housing for middle-income families. This Tier allows subsidized financing for construction or purchase of houses/apartments/flats of more than 5 marla (125 sq yards) and up to 10 marla (250 sq yards) with maximum covered area from 850 sq feet to 1,100 sq feet and maximum price of Rs 6 million.

Maximum financing under this Tier is Rs5m with maximum tenor of up to 20 years. Banks will charge maximum markup rate of Kibor plus 400 basis points. However, the government will provide markup subsidy to reduce borrowers’ rate to 7pc for first five years and 9pc for next five years.

Habib Bank President Muhammad Auranzeb said the terms of the new facility help mitigate some of the concerns that banks have had about venturing into low-income housing loans. “There is a backstop of 40-50pc against default at the portfolio level and this will be a key enabler for the facility” he told Dawn. “The role of NAPHDA also helps address banks’ concerns around land titles.”

He said the facility has been developed through a consultative process led by SBP and involving the banks and their input has been incorporated. He added that the banks’ concerns about a foreclosure law remain in place.

Published in Dawn, October 13th, 2020