Pakistan’s Biggest Real Estate Step!  Making of Housing Finance Regulatory Authority 

Author: Awais Kayani
Pakistan’s Biggest Real Estate Step!   Making of Housing Finance Regulatory Authority 

At the end of July, outstanding consumer finance for house construction totaled Rs106.8 billion, up 32.7 percent year on year. Similarly, outstanding construction loans totaled Rs97.9 billion at the end of last month, up 42 percent from July 2020, according to SBP statistics.

Pakistan has seen a surge in the real estate market. The growth in the construction sector and housing industry is growing at a rapid rate where land and finance are the only two factors shaping the market as of now. The demand grows with the population.

The sectors thus require finance and governing authorities for smooth sailing. The article covers the following points:

  • The Financing of Real Estate
  • Pakistan Housing Bank
  • The housing Finance Companies

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The Financing of Real Estate

Over a 10-year period, the government has set aside Rs36 billion for its housing loan mark-up subsidy scheme to encourage affordable housing. Commercial banks provide 20-year mortgages for 3 percent, 5 percent, 7 percent, and 9 percent annual rates, depending on the size and value of the property. By the end of the year, it hopes to have outstanding home finance equal to at least 5% of total private-sector credit.

“As of April 20, banks had received applications for financing of more than Rs52bn from the general public under this scheme with the approved amount of more than Rs15bn.”

The house financing authority deals with providing house loans at lower interest to qualified buyers. These agencies are local or state based organizations that provide mortgage loans. Buyer use these to fund down payments and closing costs.

Pakistan Housing Bank

The authorities exist in private sectors with normal banks providing these services. With newer reforms in mortgage loans and the need to make it easier for people, the streamlined system needs a regulatory authority that deserves the responsibility.

In an economic plan presented by the Finance Minister Shauket Tareen, he stated,

The regulatory authority by the name of ‘Pakistan Housing Bank’ will be established “in due course of time”.

The government wants small companies to grow in real estate, which is what the economy of housing is moving towards. However, the private and commercial banks need to step up as the State Bank of Pakistan is the only Bank that is providing funds to these companies, at a great cost.

In a report it is in concern for financial houses that SBP shouldn't be seen as the only avenue for funding these housing finance companies. This is due to the fact that SBP isn't not build to provide small loans.

“Technically, not in their DNA”

The reason why private companies should form housing financing companies is to create an environment of an exclusive business sector where other private sectors are enabled to perform and grow separately in the housing sector.

The Housing Financing Companies

In a report, no housing company existed before. Until recently, the SBP gave licenses to only three companies to start a housing finance business. These companies i.e. Pakistan Housing Finance Companies, Trellis Housing Finance Company, and Asaan Ghar Finance ltd - will begin operating in 2021-22.

The housing finance was catered by the government alone, however, the demand would be seen as commercial activity soon. A standardised HFC sector would help real estate by catering to huge demands for affordable housing in the country. There were no licensed sectors in the industry to respond as housing finance companies for the past decade.

While cognisant of the huge gap in affordable housing finance, the SECP in collaboration with the Pakistan Mortgage Refinance Company and the World Bank Group has started a comprehensive awareness campaign to highlight the opportunities for potential new entrants.

Recognizing the large vacuum in affordable home finance, the SECP has launched a thorough awareness campaign in partnership with the Pakistan Mortgage Refinance Company and the World Bank Group to highlight the opportunities for possible new entrants.

The SECP also supports the plan to include HFCs in the government's housing finance markup subsidy scheme. The former chairman of the Association of Builders and Developers, praised the SECP for allowing more enterprises to participate in the HFC market.

This gives a clue that national institutes want the private sector to participate and lead the sector with complete dedication and systemic to cater the need and build a functional business environment around it.

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