Government slashes profit margin for housing finance: newspaper

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The government provided a number of incentives and took a series of measures to boost the housing sector, but growth remained well below expectations. A latest circular released by the State Bank of Pakistan (SBP) on Saturday said that based on feedback received from various stakeholders, the government has decided to revise the prices (mark-up rate and subsidy payment period) in under the Tier I housing scheme which is used to fund housing in Naya Pakistan Housing and Development Authority (NAPHDA) projects.

The subsidized financing of the increase for a duration of one to five years will now be 2%. Similarly, subsidized mark-up funding for 6-10 years will be 4pc, while the same funding for 11-15 years will be charged at 5pc.

However, housing and construction collectively showed better growth in calendar year 2021. An SBP report released this year indicates that housing and construction credit grew 85% in calendar year 2021 The Prime Minister’s Housing Scheme Credit also attracted Rs38. billion for financing, while credit for housing construction increased by Rs163 billion to reach Rs355 billion in 2021.

Previously, the rate was 3% for five years, 5% for the next five years, and KIBOR plus 250 basis points for 15-20 years.

However, the bank price will be KIBOR (Karachi Inter Bank Offered Rate) plus 2.5 pc. The SBP further stated that for loan terms longer than 15 years, the market rate – the bank price – will apply.

Previously, the SBP advised banks to increase their housing and construction finance portfolios to at least 5% of their advances from the domestic private sector until December 2021, introducing a set of incentives and penalties to ensure compliance.

Funding under the Mera Pakistan Mera Ghar (MPMG) has picked up momentum in 2021, with funding approvals by banks rising from near zero to Rs 117 billion in 2021.

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

Till the end of 2021, banks have received funding requests of Rs 276 billion from potential customers, indicating the possibility of higher approvals and disbursements in the coming months.

The government has already declared the construction sector an industry. This provides tax relief to businesses in the sector through changes to the Tax Ordinance. Tax policy reforms provide many incentives to builders and developers as well as contractors. These include lower tax rates and the removal of many taxes that previously hampered the ease of doing business in the sector.

Prior to the start of FY22, the Pakistan Banking Association (PBA), through a consultative process, developed and disseminated among banks a benchmark revenue estimation model.

The SBP believes that this estimation model should alleviate the difficulties faced by the general public in accessing housing finance under the MPMG.

Posted in Dawn, February 13, 2022

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