KARACHI: The government plans to set up a regulatory body for the rapidly growing housing finance market in the country.

According to the economic plan for sustainable growth unveiled by Finance Minister Shaukat Tarin on Friday, the regulatory authority by the name of ‘Pakistan Housing Bank’ will be established “in due course of time”.

Speaking to Dawn, Arif Habib, a member of the Economic Advisory Council (EAC), said the function of housing finance will be devolved “out of the commercial banking arena” through the formation of housing finance institutions/companies.

The State bank of Pakistan (SBP) currently regulates the housing finance market.

Govt wants to devolve function of providing home loan to housing finance companies

“Housing finance companies will be from the private sector. The idea is to create an enabling environment for the private sector so that it can pursue housing finance as an exclusive business,” said Mr Habib.

A broker-turned-industrialist with vast stakes in cement and real estate sectors, Mr Habib is the focal person in the EAC for the housing and construction vertical.

No housing finance company existed in Pakistan until recently. The Securities and Exchange Commission of Pakistan issued licences to three such companies — Pakistan Housing Finance Company, Trellis Housing Finance Company and Asaan Ghar Finance Ltd — in 2020-21. These companies are expected to commence operations in the current year.

“The government is going to encourage banks to provide housing finance companies with funds so that the new entities can scale up their operations. They will also be allowed to raise funds through market instruments,” Mr Habib said.

Although commercial banks are striving to meet the SBP targets for home loans, it is not “in their DNA to process a large number of small loans,” he noted.

That’s why Mr Habib expects that fund management companies, microfinance banks and investment banks will set up dedicated housing finance companies to take advantage of growing opportunities in the rapidly expanding housing sector.

According to Abid Suleri, another EAC member who heads the Sustainable Development Policy Institute, commercial banks are too accustomed to secured lending or loans backed by collateral.

“Despite the government’s noble intentions and regardless of what the SBP says, it is ultimately the discretion of the branch manager whether they approve a loan application or turn it down,” he said.

Mr Suleri added that setting up dedicated companies along the lines of mortgage societies that exist around the world may increase the number of collateral-free housing loans in the country.

Outstanding consumer financing for house building amounted to Rs106.8 billion at the end of July, up 32.7 per cent from a year ago. Similarly, outstanding loans for building construction were Rs97.9bn at the end of last month, up 42pc from July 2020, SBP data shows.

The government has set aside Rs36bn for its housing loan mark-up subsidy scheme to promote affordable housing over a 10-year period. It is offering through commercial banks 20-year mortgages at 3pc, 5pc, 7pc and 9pc annual rates depending on the property’s size and value. Its target is to achieve outstanding housing finance equalling at least 5pc of the total private-sector credit by the end of this year.

As of April 20, banks had received applications for financing of more than Rs52bn from the general public under this scheme with the approved amount of more than Rs15bn.

Published in Dawn, August 29th, 2021