The Government of Pakistan (GoP) has revised its markup subsidy scheme of housing finance significantly to align with the prevailing housing market dynamics in its effort to promote low-cost and affordable homeownership among low to middle-income groups.
The revised scheme is expected to make access to housing finance much easier for a large number of households that currently do not own a house.
Tier 0 Introduced Through Microfinance Banks
The scheme had divided the potential borrowers into three tiers. A new tier called Tier 0 has been added to the scheme to facilitate the participation of microfinance banks (MFBs) under the scheme for disbursement of financing of up to Rs. 2 million per housing unit.
In view of the fact that MFBs specializes in the extension of financing to low-income households, it is believed that the participation of MFBs will significantly enhance the outreach of the scheme to these segments.
Under this tier, MFBs will either use their funds, or banks will lend to MFBs for onward lending to low-income borrowers of housing finance.
Profit Rate Decreased Under Tier 1
The end-user subsidized markup rate under Tier 1 (housing units of up to 5 marla and covered area of 850 sq. feet under NAPHDA projects) has been lowered to 3 percent for the first five years and 5 percent for the next five years. Earlier, these were 5 percent and 7 percent, respectively. This will help reduce the burden of installments on low-income strata of applicants under Naya Pakistan Housing & Development Authority (NAPHDA) projects even more.
Financing Limited Extended to Rs. 10 Million
Under Tier 2 and Tier 3 of the scheme, keeping in view the limited supply of eligible housing units, especially during the initial years, the requirement of a maximum one-year-old housing unit has been waived till March 31, 2023.
Further, restriction on the first transfer of housing units and maximum value of housing units has also been removed. The maximum covered area for flats and apartments has been increased. Whereas covered area restriction has been removed in the case of land-based housing units.
The maximum allowed financing has also been doubled from Rs. 3 million to Rs. 6 million, under Tier 2, and from Rs. 5 million to Rs. 10 million under Tier 3.
It may be noted that Tier 2 is for houses of up to 5 marla and apartments with a covered area of up to 1,250 sq. feet under non-NAPHDA projects, and Tier 3 is for houses of up to 10 marla and apartments with a covered area of up to 2,000 sq. feet under non-NAPHDA projects.
In addition, the minimum eligible tenor of housing finance under the scheme has been lowered to five years from the existing ten years. This will facilitate individuals desiring to avail of shorter-term financing.
The revised markup subsidy facility will continue to be available through banks across the country.
Government Enhances Its Subsidy For Scheme
With changes in the key parameters of the scheme, the Government of Pakistan has increased the total funding allocation to Rs. 36 billion on account of markup subsidy payment for financing over a period of 10 years and has assured continuity of the facility.
In October last year, the GoP started providing markup subsidy facilities for the construction and purchase of new homes in a bid to promote housing finance to first-time homebuyers at subsidized and affordable markup rates.
This facility is being provided with the administrative support of NAPHDA and implemented by the State Bank of Pakistan through banks.
In order to expand the outreach of the scheme and allow many more households to benefit, the GoP, on the recommendation of stakeholders approved significant revisions in the key parameters of the scheme.
It is expected that revised parameters would further assist in materializing the Government’s vision of providing housing to the low and middle-income segments of the society.
