It was in mid of July this year when the State Bank of Pakistan’ Governor Dr Reza Baqir told that housing and construction finance in Financial Year 2021 saw a “remarkable” increase of Rs 111 billion or 75% to reach Rs 259 billion compared to 2020. “About 97% of the overall target set by State Bank for June 30, 2021 was met,” he claimed during a meeting of the National Coordination Committee on Housing, Construction and Development (NCCHCD) chaired by Prime Minister Imran Khan. Despite this “remarkable” growth, government’ plan to set up a regulatory body for home financing named “Pakistan Housing Bank” indicates all is not well or satisfactory in achieving desired targets.
Housing loans is an evitable and undesirable commodity in Pakistan, however for a successful low-cost housing program it is essential and greatly beneficial. It was earlier mentioned in these pages that low home financing is a blow to Naya Pakistan Housing Program, because banks are still reluctant to extend loans for the low-income housing, creating frustration among the government’s top ranks.
Arif Habib, a member of the Economic Advisory Council (EAC), is of the opinion that 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”. While the government’s prime agenda is to provide 5 million low-income houses but after three years there is no visible sign in this direction.
Pakistan Housing Bank
That’s why function of housing finance is now going to be devolved “out of the commercial banking arena” through the formation of housing finance institutions or companies. The State Bank of Pakistan currently regulates the housing finance market. However, Finance Minister Shaukat Tarin has just hinted a regulatory authority for housing finance market in the country will be established “in due course of time” by the name of ‘Pakistan Housing Bank’. While Arif Habib says “The idea of House Finance Companies is to create an enabling environment for the private sector so that it can pursue housing finance as an exclusive business”.
Clarifying that “Housing finance companies will be from the private sector” Arif Habib further elaborated “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.”
Licensing to Private Firms
In Pakistan there was no housing finance company existed until recently, when the Securities and Exchange Commission of Pakistan issued licenses 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.
Abid Suleri, another EAC member lauded this development by stating that setting up dedicated companies along the lines of mortgage societies may increase the number of collateral-free housing loans in the country. And, 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.
Now, how the commercial banks respond on this development and corporate with private house financer companies, it is to see in coming days. However, it can’t be ignored that very limited time is left for government and the county is, as usually, facing a shortfall of 10 million houses.