LAHORE: In spite of a push from the government and the State Bank of Pakistan (SBP) to encourage affordable housing in the country, the mortgage industry is slow to pick momentum as reflected by new data published by the central bank on Monday.

The SBP data shows that the net housing finance stock of the commercial banks has jumped by a mere Rs13.7 billion to Rs93.5bn in the nine-month period between July and March.

However, this doesn’t include house building loans advanced by the banks to their employees, the stock of which has risen to Rs134.8bn from Rs109.8bn during the same period. When combined the total housing loan stock of the banks rose to Rs228.3bn or slightly above 0.5pc of the country’s size of the economy, from Rs189.6bn in July.

Among many incentives given by the government last year to provide affordable housing to the low-middle-income households, it had offered a subsidy of Rs300,000 per unit on the first 100,000 small houses and apartments in addition to significant interest rate subsidy to make mortgage affordable for the potential homeowners.

Concurrently, the central bank had given the banks targets to disburse at least 5pc of their private sector loan portfolio for housing and construction. The banks unable to meet the target were to be penalised by the regulator.

None of the tricks seems to have worked out the way the government had expected. Compared to Pakistan, India has increased the mortgage financing from less than 1pc of its GDP to over 10pc in the last 15 years.

“There are multiple reasons for the slow uptake in housing finance even though banks are willing to expand in this category,” a senior banker told Dawn on Tuesday.

“Among other factors, there are supply side issues related to the availability of low-cost housing units in the market for the low-middle-income households the government wants to have their own houses or apartments. No builder or developer has so far shown interest in this segment because of the low price cap.

Besides, the majority of the prospective borrowers are not bankable as they don’t have the kind of (income) profile or credit history to become eligible for a bank loan. So there is also a demand side impediment to the development of housing finance,” he explained, requesting anonymity.

Nevertheless, another senior banker said the housing supply and demand issues apart, the banks will always be conservative in advancing housing loans as long as the government does not formulate new foreclosure laws giving the lenders the right to repossess the property in case of a default without having to seek permission from the court. “The banks want protection against defaults to safeguard the interests of their depositors and shareholders, as well as litigation against them that last for years.”

Recently, the government has made important changes in its earlier interest rate subsidy scheme for the housing sector for first-time homeowners, enhancing bank loan limits for the different categories of houses, apartments and flats and reducing interest rates for the borrowers. Besides, the cap on the market value of housing units above Rs3.5mn for the middle/higher income households has been removed.

Additionally, the government has also brought in microfinance banks into housing finance by allowing them to lend up to Rs2mn for purchase of houses, flats and apartments up to the size of five-marla or 125sq yards or with maximum covered area of 1250sq ft under non-NAPHDA projects.

The reduction in the price and enhancement of the loan limits is expected by the authorities to encourage builders and developers to jump into low-cost or affordable housing. But the bankers are not very hopeful.

“For the push to affordable housing to succeed, the government will first have to construct smaller, high-rise apartment buildings on the state land for government employees. Once that initiative takes roots and creates incentives for the private builders and developers, only then we will see any meaningful growth in mortgage financing by the banks,” the first banker concluded.

The SBP data shows that ‘personal loans’ is the only area where consumer finance has shown a decent growth in the last nine months as it stock rose by a fifth to Rs229.2bn from Rs192bn apart from auto leasing, which spiked by a hefty 35pc to Rs284.7bn during the same period. Low volume credit card and consumer durables loans remain stagnant.

Published in Dawn, April 21st, 2021