ISLAMABAD: The government is seeking additional financing of $85 million for its ‘Pakistan Housing Finance Project’ which sought to improve access to housing finance of low- and middle-income households.

The World Bank has started appraising the project and it is expected that the additional financing will be approved by the end of next month, it was learnt here.

The housing finance project already funded at $145m was conceived and designed to address structural gaps in Pakistan’s financial system that had impeded the growth of affordable housing finance.

A World Bank report on Friday said that since its inception 10 months ago, there had been 42,956 applications worth Rs200 billion under Mera Pakistan Mera Ghar and only 17,129 of these applications of Rs78bn had been approved, indicating only a 40 per cent approval rate.

Disbursements are still lower at Rs17bn. The proposed additional funding into the Risk Sharing Facility (RSF) will give banks comfort as they move towards lending to an untested market segment and will have a direct impact on the rate of approvals and disbursements going forward.

It will allow banks to move towards lending to untested market segment

The additional financing will complement and support the government’s housing programme and will entail an injection of an additional $85m into the RSF, which sought to expand the size of Pakistan’s mortgage market, specifically by enhancing access to housing finance for those traditionally excluded. Mortgages will be extended nationwide with both rural and urban housing eligible for financing.

Given the housing shortage in Pakistan and the additional financing focus on supporting the expansion of the affordable housing availability, it is expected that most mortgages will be originated on newly constructed properties, or on upgrades to properties, although existing housing is also eligible.

It is expected that the project’s indirect positive contributions will spearhead increased growth on the supply side of the market. Thus, it would be important for the project to ensure that such financing does not support environmentally and socially unsustainable supply-side activities.

The additional financing is also designed to promote climate-friendly housing by incentivising banks to give more mortgage loans to lower income households who transition to formal housing that demonstrates greater energy and resource efficiency.

Pakistan is one of the most urbanised countries in the South Asian region — one third of its population lives in urban centres. This urbanisation has resulted in increasing urban sprawls with growing concerns about air pollution, waste generation, lack of housing, etc. Informal settlements are mushrooming across urban centres.

The additional financing is designed specifically to give access to housing finance to lower income households so that they can transition to formal housing — without the credit guarantee the additional financing offers, these households would be ineligible for formal housing finance. The lowest income households are the most vulnerable to climate change, as they are unable to secure housing units that would adapt to the increasing climate risks in Pakistan.

The report states that the parent project stands fully disbursed and has a closing date of June 30, 2023. All major project development objectives level indicators are on track to being achieved before the project closing date.

The project’s mid-term review in June 2021 concluded that the project’s development objectives and project design remain relevant, with a high level of commitment from the government.

The parent project has had a significant developmental impact on the housing finance market in Pakistan. Availability of the longer-term, fixed rate wholesale funding which Pakistan Mortgage Refinance Company (PMRC) brought to the market created an enabling environment for new primary mortgage lenders to enter the market; four housing finance companies have been registered in Pakistan since PMRC began its operations; and 12 micro-finance banks now actively lend in this space.

The report says that the improved policy environment and revitalised market conditions around the supply of housing and demand for housing finance have resulted in unprecedented growth of the sector. The current administration came into office two months after the parent project became effective and launched an ambitious affordable housing programme in early 2019 known as the ‘Naya Pakistan Housing Programme’.

Published in Dawn, January 15th, 2022