KARACHI: Bank lending to the housing and construction sector increased by an unprecedented 85 per cent during the calendar year 2021 while the loan disbursements under the Prime Minister’s low-cost housing scheme also rose to Rs38 billion.

The State Bank of Pakistan (SBP) on Thursday reported very high growth in financing to the housing and construction sector but it was still not up to the mark as the government wants to build 5 million houses during its tenure ending next year.

“Recording an unprecedented growth of 85pc, banks’ outstanding credit for the housing and construction sector increased by Rs163bn to Rs355bn during 2021,” said the central bank in a circular.

In October 2020, the government introduced a Markup Subsidy Scheme, commonly known as Mera Pakistan Mera Ghar (MPMG), aiming to boost the housing sector by extending cheaper loans to low-income families to build their homes.

Disbursements under Mera Pakistan Mera Ghar surge to Rs38bn

“Within the housing and construction portfolio, disbursements under the MPMG increased by Rs38bn,” said the SBP.

Since the end of the amnesty scheme on June 30, 2021, the inflow of investment in the housing and construction sector has significantly reduced. Builders have been demanding to extend the amnesty scheme but the government looks determined not to extend it. The amnesty scheme allowed black money to join the industry which artificially increased the property prices manifold across the country.

“Financing to housing and construction and particularly under the MPMG has witnessed impressive growth on the back of many enabling regulatory measures introduced after extensive consultation with stakeholders,” said the SBP.

The SBP said it advised the banks to increase their housing and construction finance portfolios to at least 5pc of their domestic private sector advances till December 2021. The central bank has also introduced a set of incentives and penalties to ensure compliance.

Habib Bank, Meezan Bank and Bank AL Habib were the top three contributors to the significant growth in housing and construction financing. These banks also made significant progress in the provision of financing under the MPMG.

Financing under MPMG picked up momentum in 2021 as approvals for financing by banks grew from near zero to Rs117bn in 2021.

“The banks have received requests of financing of Rs276bn from potential customers, which indicates that approvals and disbursements will keep growing in coming months,” said the SBP.

Bank Alfalah emerged as the leading bank with the highest disbursement of Rs3.3bn followed by nine banks with disbursements of over Rs2bn each. These include Meezan Bank, BankIslami, National Bank, Standard Chartered Bank, HBFCL, United Bank, MCB Bank, Bank of Punjab and Habib Bank.

The SBP said it has taken a number of steps to create an enabling regulatory environment for banks to increase financing to the housing sector. Key initiatives include allowing acceptance of third-party guarantees during the construction period, waiver of Debt Burden Ratio (DBR) in case of informal income and the introduction of standard facility offer letters by the banks.

The SBP has also advised banks to develop and deploy income estimation models for borrowers with informal sources of income.

Moreover, the construction sector has been declared an industry. This brings tax relief to firms in the industry through the amendments to the tax ordinance. Reforms to tax policies provide numerous incentives to builders and developers as well as contractors. These include lower tax rates and the removal of numerous taxes previously hampering the ease of doing business in the sector.

Published in Dawn, January 7th, 2022