Home Loan Growth – Journal


The State Bank and the Association of Pakistani Banks claimed that the banks’ housing and construction loan portfolio increased from Rs 54 billion to Rs 202 billion from July to March compared to a stagnant position at the same period last year. “Such growth in housing and construction finance during such a period has never been seen in the history of the country,” the joint statement said. It indicates that bank financing for housing and construction is likely to increase significantly as the mortgage financing activity under the Mera Pakistan program, Mera Ghar resumes. The SBP data on home construction loans, however, paints a different picture. It shows that the stock of housing finance provided to citizens only increased by 13.7 billion rupees to 93.5 billion rupees. If housing construction advances to bank employees – whose stock increased by Rs 25 billion – are also taken into account, the total housing finance portfolio increases by Rs 38.8 billion to Rs 228.3 billion. of rupees. Even construction loans to developers / builders of residential buildings only increased by 11 billion rupees.

Data discrepancies aside, there is no doubt that mortgage financing is slow to grow despite tax incentives and interest rates and housing subsidies announced a year ago for developers, builders and homeowners. potential owners. There is a large consensus that the scheme is mainly used by tax evaders to launder illegal money. Although the SBP requires banks to increase their housing and construction finance portfolios to at least 5% of their private sector advances by the end of 2021, they appear reluctant to comply. For starters, banks are uncomfortable with existing foreclosure laws and want a mechanism that allows them to repossess property without involving the courts in the event of default. Second, most potential owners are not “bankable” because they do not have a credit / payment history. In addition, there is a shortage of housing supply because developers are not prepared for the risks unless they are certain of a confirmed demand. The government recently increased the interest rate subsidy to boost affordable housing in addition to increasing funding limits for potential homeowners, but the impact will not be immediately known. The statement mentions the steps taken to address complaints from loan applicants and develop a model of income assessment and credit rating based on demonstrated expenses such as rent payments, utility bills, etc. But these measures will only help to a certain extent. A better idea is to develop more effective foreclosure laws to give banks confidence in addition to pushing those who have used the amnesty to invest in affordable housing based on the scale of the gains they have made.

Posted in Dawn, April 29, 2021


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