Pakistan’s Incentives for Affordable Housing
SBP – Pakistan’s incentives for low cost & affordable housing finance
SBP’s announcement of new regulatory incentives to promote low-cost and affordable housing finance dated November 20, 2020, State Bank of Pakistan is constantly providing an enabling regulatory environment to promote housing and construction finance.
This is an important sector that has significant economic linkages with other sectors in the economy and the current level of credit provision in this sector is at a very low level of less than 1 percent of GDP which is much lower than in other similar countries and the region.
To support the provision of finance to this sector and especially facilitate affordable housing, SBP has now announced five regulatory relaxations to incentivize banks to finance low-cost and affordable housing.
Firstly, the definition of low-cost housing finance used in the current regulations for banks has been aligned with the definition used under Government Markup Subsidy Facility for Housing Finance eligible under Tiers I & II of housing finance.
To facilitate financing for this segment, the SBP is urging banks to use alternative methods to identify income sources and assess the creditworthiness of the borrower.
The second and third types of relaxation are being given to facilitate financing for this segment. Accordingly, under the second relaxation, banks have been exempted from the requirement of using ‘verifiable income’ to calculate the debt burden ratio (DBR) in the case of low-cost housing finance where banks are using income proxies and where the income of borrowers is not verifiable.
Thirdly, banks have also been exempted from the requirement of observing DBR, in the case of low-cost housing finance, where banks are using repayment surrogates like rent, utility bills, telcos bills, etc to assess the repayment capacity of borrowers.
Hence, borrowers without verifiable or non-verifiable income will become eligible to avail low-cost housing finance.
Fourthly, banks have been exempted from the requirement of Internal Credit Risk Rating System for low-cost housing finance till September 30, 2022, as their current systems do not specifically cater for low-cost housing finance.
Finally, to provide comfort to the borrowers who have liquid securities or already have a housing unit, banks have been allowed to extend housing finance for the purchase/ construction of a residential property by accepting existing residential property or liquid securities in place of equity contribution for housing finance at the time of calculation of the loan-to-value ratio.
Read more: State Bank of Pakistan incentivizes low-cost housing finance
SBP incentivise low-cost housing finance