Commercial banks are all set to explore a lucrative avenue for their income through housing finance, cashing in on the government policy of a low-cost housing scheme, and contributing a major role towards the growth of the economy on a long-term basis.
Naya Pakistan Housing Scheme Authority has been set up for this very purpose and banks have given the task for allocating 5 percent of the loan portfolio for housing finance by the central bank.
With the deficit of more than 10 million housing units across the country, the demand for housing is persistent with the growth in population and urbanization however banks don’t offer housing finance in the country. Such an offering from the banking sector would go as much towards resolving the shortage of housing as it would towards making profits.
Unlike various other countries, currently, the housing financing ratio of the banking sector in Pakistan stands at less than 1 percent of the loan portfolio which the incumbent government wants to enhance through the support of the commercial banks.
A low-cost housing scheme is being developed for the wide segment of the population who do not own a home. Through this facility, an individual could buy a home in 20 to 25 years by paying installments of the housing units as monthly rent.
While talking to ProPakistani, Head of Islamic Banking at Habib Bank Limited (HBL) Muhammad Afaq Khan said that banks will push their teams to meet the target set by the banking regulator who will facilitate customers looking for purchasing homes through the housing finance scheme in the offing.
Not only would house financing witness a growth but financing to builders and developers will grow, and various sectors in the construction industry including cement, steel, marble, tiles will expand their production and business through the bank’s credit, he added.
The banks will meet their targets as similar to what they have done in the areas of agriculture credit and SME sectors, Khan remarked.
Banks will create jobs for bankers, evaluators, and lawyers in various cities but this is not the whole picture. Jobs will be created in over 40 sectors associated with the housing and construction sectors.
The present government announced a tax amnesty scheme for builders and developers which is generating healthy results so far. The pace has gone up significantly with the resolution of the foreclosure laws pending in the court.
Issues and Challenges
While no bank lends with a view to auctioning the property, unfortunately, foreclosure has remained a difficult area for banks, primarily due to the absence of firm and fair foreclosure laws until recently. The implementation of these laws remains the key to providing additional comfort to financial institutions, which will help bring more banks into the home loans segment, Babbar Wajid, Group Head Consumer, and Program Lending.
We are optimistic that this law will come into practice soon and it will enable financial institutions to become more proactive in underwriting new business.
There are legal and procedural challenges and issues of the housing industry related to red-tapism but these will be sorted out once the housing finance will pick up the pace.
Buying real estate and then obtaining a home loan on the concerned property is a fairly lengthy and complex process, Whilst we strive hard and ensure to make this process as simple and easy for our valued clients, a real estate regulatory body that can bring synergies to various documentation, registration, and transfer formalities will surely help the entire value chain, said the Group Head at JS Bank.
Islamic Banks Will Take The Lead
In Pakistan, the majority of society prefers Islamic banking over interest-based banking for financing their cars and houses. Hence, Islamic banks are aggressive in this area. These banks do have excessive liquidity of funds which they want to convert into valuable assets with long-term returns, therefore, it is a win-win situation for the customers and banks.
The low-cost financing facility will not only be available for the government scheme but individuals who meet the criteria can also buy property in housing societies of their choices.
All stakeholders agreed to develop the housing sector which has the potential to push the GDP towards V-shape growth.
There are eight banks—Islamic banks and Islamic banking division of the conventional banks, which are part of the steering committee of the housing finance.
The committee is working with stakeholders such as builders and developers to develop the housing sector in the country in the light of various findings and studies.
One Window Operations
The real estate business needs an authority that could deal speedily with the documentation and registration processes.
Corruption is rampant in the provincial department as the procedures are complicated and bribe culture is the norm. On the other hand, the trend of fake property documents is also on the rise which is also an impediment in promoting housing finance from the banks.
The government should introduce digitization in the property record system and ensure transparency which will not only reduce the element of corruption in the relevant department but also make it easy for people to buy property across the country.
There should be an authority that maintains check and balance over the housing societies and the prevailing malpractices of the businesses such as hidden charges, abrupt hike in installments, delay of providing possession to owners, etc.