THE State Bank and Pakistan Banks Association have claimed that the housing and construction loans portfolio of banks has grown by Rs54bn to Rs202bn from July to March compared to a stagnant position in the same period last year. “Such growth in housing and construction finance in such a period has never been witnessed in the country’s history,” the joint statement reads. It says that bank financing for housing and construction is likely to increase significantly as mortgage finance activity under the Mera Pakistan, Mera Ghar scheme picks up. SBP data on house-building loans paints a different picture though. It shows the stock of housing finance to citizens has risen by just Rs13.7bn to Rs93.5bn. If house-building advances to bank employees — the stock of which has grown by Rs25bn — is also considered, the total housing finance portfolio increases by Rs38.8bn to Rs228.3bn. Even construction loans to developers/builders for residential buildings have grown by merely Rs11bn.

Data discrepancies apart, there is little doubt that mortgage finance is slow to grow despite tax and interest rate incentives and housing subsidies announced a year back for developers, builders and potential homeowners. There is broad consensus that the scheme is mostly used by tax cheaters to whiten illegal money. Although the SBP requires banks to boost their housing and construction finance portfolios to at least 5pc of their private-sector advances by end 2021, they appear reluctant to comply. For starters, the banks are not comfortable with the existing foreclosure laws and want a mechanism whereby they can repossess the property without involving the courts in case of a default. Then most potential homeowners are not ‘bankable’ as they lack a credit/payment history. Moreover, there is a housing supply gap as developers aren’t prepared for risks unless they are certain of confirmed demand. The government has recently increased the interest rate subsidy to give another push to affordable housing besides boosting financing limits for prospective homeowners, but the impact won’t be known immediately. The statement mentions the measures being taken to redress loan-seekers’ complaints and develop a model for income assessment and credit worthiness evaluation based on demonstrated expenses like rent payments, utility bills, etc. But these measures will help only so much. A better idea is to develop more effective foreclosure laws to give banks confidence besides pushing those who have used the amnesty to invest in affordable housing according to the size of the gains they have reaped.

Published in Dawn, April 29th, 2021