SBP Announces Financing Facility for Low-Cost Housing

The State Bank of Pakistan (SBP) has announced financing facility for low-cost housing for special segments of the society. At the same time, it has relaxed a few regulations for financial institutions in a bid to help promote loans for houses.

Due to a lack of monetary funds, a large chunk of the population was deprived of full access to institutionalized housing finance to meet their housing needs according to the central bank.

In a statement released by the SBP on late Monday, it stated:

This is even a greater challenge for the segments of society with special conditions such as widows, children of Shaheed, transgender, special persons and persons in the areas severely affected by the war against terrorism. In order to facilitate the availability of long-term affordable funding for housing to these segments of society, SBP has decided to introduce a financing facility for low-cost housing for special segments.

The loan limit has been set to PKR 2.7 million for up to 12 and a half years by the SBP for all the banks and development finance institutions (DFIs).

The move will see first-time homeowners become eligible to apply for the loan and they will be able to borrow for construction of a new housing unit with a maximum value of up to three million rupees. A plot could also be financed for construction; the plot(s) in question would have to have a value of up to one million.

The central bank would refinance up to 100 percent with borrower rate for SBP refinance of five percent, including the bank’s spread of up to four percent.

In another statement, the bank added “Loan to value ratio of up to 90:10 shall be maintained for low-cost housing finance. Financing extended to low-cost housing shall be exempted from exposure limit of 10 percent on real estate sector.”

Banks/DFIs will be allowed by the SBP to apply for the valuation of a single unit on all the units of the same society/colony replacing the old method where they conducted separate valuation for each unit constructed on the same layout and size. The Banks/DFIs will be exempt from the requirements such as the general reserve requirement against the financing extended to low-cost housing.

A Mudarabah- based Islamic financing facility has been introduced by the SBP whereby, low-cost housing for special segments will be available with the Islamic banking institutions and Islamic DFIS, referred as participating Islamic financial institutions (PIFIs).

Lastly, the bank added in a statement that the “PIFIs may submit their requests for allocation/assignment of limits under this facility to be evaluated by the State Bank of Pakistan as per its internal criteria.”