SBP announces new policy for housing finance

SBP announces new policy for housing finance

ISLAMABAD - State Bank of Pakistan (SBP) has designed a policy to enhance the loan size of the banking industry, specifically for housing finance, from Rs. 83 billion to Rs.250 billion by end of 2021.

The policy aims to increase number of borrowers of housing finance from existing 68,000 to 200,000 by 2021, which will play a pivotal role to meet the need of public for purchasing houses in different cities of the country.

Under its plan, the central bank has formulated a policy on low cost housing is an attempt to resolve issues faced by the mortgage industry. The policy has been formulated keeping in view international best practices and local market conditions. ------------------------------

The policy constitutes of eight pillars that focus on regulatory incentives and mechanism to address the issue of affordability of low-income borrowers.

Accordingly, the definition of low cost housing financing in Pakistan to be adopted as loan amount of up-to Rs. 2 million with the property valuing up to Rs. 2.5 million.

The maximum monthly income of a low cost housing finance borrower should be up to Rs. 60,000.

SBP will introduce a subsidized financing facility for low cost housing by providing liquidity to the financial institutions at subsidized rate. SBP will provide refinance up to Rs. 1 million or 50% of loan amount at a rate of 1% to banks/DFIs and the end borrower rate will be 5%.

The remaining 50% of the loan / financing amount shall be provided by the banks/DFIs from their own sources at fixed rate of up to 12% or variable rate of 1 year KIBOR plus risk premium up to 4%.

The facility will be provided for both individual house borrowers and housing builders/developers. Similar financing facility will also be provided through the Islamic Financial Institutions.

In this connection, the central bank will assign housing finance targets to banks with the instructions to make these targets part of the overall business plan and departmental targets.

SBP will facilitate provincial governments and state owned enterprises/autonomous bodies to avail housing finance from banks.

SBP suggested tax incentives, by the Federal Government, to builders and financial institutions on income derived from low cost housing.