KARACHI: The government has decided to revise downward the markup rates for housing subsidy scheme with the aim to give the sector another chance to emerge as a leader in economic growth.

A latest circular issued by the State Bank of Pakistan (SBP) on Saturday said that in view of the feedback received from various stakeholders, the government has decided to revise pricing (markup rates and subsidy payment period) under Tier-I housing scheme which is used to finance housing units in the Naya Pakistan Housing and Development Authority (NAPHDA) projects.

The government has provided a number of incentives and took a series of measures to give a boost to the housing sector but growth remained much below the expectations.

However, the housing and construction collectively showed better growth in the calendar year 2021. An SBP report issued this year said the credit to housing and construction has increased by 85 per cent during the year 2021. The credit for Prime Minister’s Housing Scheme also attracted Rs38 billion for financing, while the credit for housing construction increased by Rs163bn to Rs355bn in 2021.

The subsidised markup financing for one to five-year tenor will now be 2pc. Similarly, the subsidised markup financing for six to 10 years will be 4pc, while the same financing for 11 to 15 years will be charged at 5pc.

Earlier, the rate was 3pc for five years, 5pc for next five years and KIBOR plus 250 basis points for 15 to 20 years.

However, the bank pricing will be KIBOR (Karachi Inter Bank Offered Rate) plus 2.5pc. The SBP further said that for loan tenors exceeding 15 years, market rate – bank pricing – will be applicable.

Earlier, the SBP had advised the banks to increase their housing and construction finance portfolios to at least 5pc of their domestic private sector advances till December 2021, introducing a set of incentives and penalties to ensure compliance.

Financing under the Mera Pakistan Mera Ghar (MPMG) picked up momentum in 2021 as approvals for financing by banks grew from near zero to Rs117bn in 2021.

Till end of 2021, banks received requests of financing of Rs276bn from potential customers, indicating possibility of higher approvals and disbursements in coming months.

The SBP claims that it has taken a number of steps to create an enabling regulatory environment for banks to increase flow of financing to the housing sector. Key initiatives include allowing acceptance of third party guarantee during the construction period, waiver of Debt Burden Ratio (DBR) in case of informal income and the introduction of standard facility offer letter by the banks. The SBP has also advised banks to develop and deploy income estimation models for borrowers with informal sources of income.

The government has already declared the construction sector an industry. With this brings tax relief to firms in the industry through the amendments to the tax ordinance. Reforms to tax policies provide numerous incentives to builders and developers as well as contractors. These include lower tax rates and the removal of numerous taxes previously hampering the ease of doing business in the sector.

Before the beginning of FY22, the Pakistan Banks’ Association (PBA), through a consultative process, developed and circulated among banks a baseline income estimation model.

The SBP believes that this estimation model is expected to ease difficulties being faced by general public in availing housing finance under MPMG.

Published in Dawn, February 13th, 2022

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