The dream of owning a home – newspaper


When Mera Pakistan Mera Ghar (My Pakistan, My Home) or MPMG was launched in October 2020, the government boasted of giving homes to millions of Pakistanis. The ruling PTI party was confident that cheap housing would replenish its dwindling political capital.

But the program has only recently got underway, meaning the PTI’s election promise to provide five million low-cost housing units to Pakistanis could go largely unfulfilled by the end of the party’s tenure in mid-2023. From October 2020, things started to move – but not fast enough for PTI to deserve the award its leadership sought. The pace of loan disbursement was initially too slow,

apparently due to the reluctance of banks to wholeheartedly participate in the program. It didn’t start gaining some momentum until after March 2021 when the government announced looser features of the program, given input from all stakeholders.

New funding under MPMG, which was below Rs 600 million, began to grow rapidly, surpassing Rs 18 billion on October 18, according to the latest data released by the central bank. What has encouraged banks to offer mortgage lending under the MPMG is that the State Bank of Pakistan (SBP) has allowed them, in accordance with relevant regulatory requirements, to treat these loans as a “loss” if they are not repaid after two years of maturity Date. (Corporate and commercial loans are treated as a “loss” if they remain unpaid for a year or more after maturity).

The crucial question is whether 100,000 new residential units will be built under Mera Pakistan Mera Ghar by the end of December

Given the long-term nature of mortgage financing, the condition that it be treated as a “loss” after two years makes sense. And banks are apparently happy with it.

Another thing that has encouraged banks to offer home loans under the MPMG is that the central bank has also allowed them to conduct real estate surveys (for credit rating) semiannually instead of quarterly. This extension of the permitted period is intended to enable the banks to accelerate the processing of loan applications in accordance with the MPMG. This means that the volumes of such loans would grow even faster in the coming months if other factors were left unchanged.

The crucial question, however, is whether 100,000 new residential units will be built under the MPMG by the end of December. The PTI government had decided to hit this mark in Phase I of the Low Cost Housing Program when they reviewed the program and made it more workable in March this year.

There is no official word about the total number of residential units completed to date in accordance with the MPMG. But with a proxy you can get an idea of ​​the speed at which low-cost housing is being implemented.

The central bank has told the nation that by October 18, the banks have received home loan applications for Rs.202 billion. Of this, the banks had approved applications worth Rs. 78 billion – and the actual payout by October 18 was only Rs. 18 billion.

The huge gap between the number of loan applications and the number of loans approved is very understandable. Banks must meet certain eligibility criteria before they can approve a loan. But the gap between approved loans (Rs.78 billion) and disbursed loans (Rs.18 billion) is too wide and betrays the seriousness of the banks in making the new housing program a real success. SBP Governor Dr. Reza Baqir has “stressed the need to speed up the pace of bank approvals to meet funding requests to ensure people are not discouraged by turnaround time,” according to an SBP press release.

His advice comes at the right time. But the central bank must also urge banks to speed up the disbursement of already approved loans, as this will actually change people’s lives – and not just lending.

At the beginning of this financial year in July 2020, the SBP assigned binding targets for residential and construction loans to every bank. They also need to bring their home and construction loan to 5 percent of their total domestic advances. Banks, which initially did not react much to the advance of the central bank, finally decided to increase lending to the housing and construction sectors from July to September 2021.

In those three months, all banks achieved a cumulative 94 percent of their target for this lending. And this resulted in an increase in the total stock of housing and construction loans by 48 billion rupees. It should be noted that this addition includes not only the loans granted within the framework of the MPMG, but also the total lending of banks to this sector, including loans outside the MPMG, which are offered to builders and developers of corporate, commercial and private housing structures.

Towards the end of August, the PTI government also launched the Roshan Apna Ghar housing finance program for foreign Pakistanis who operate Roshan Digital Accounts. Prime Minister Imran Khan hopes this will be a game changer for the housing industry. Under this scheme, banks would offer guarantees to purchase land in Pakistan on behalf of foreign Pakistanis who have Roshan Digital Accounts. These accounts, as we all know, are opened in Pakistani banks by foreign Pakistanis while they are abroad, and they feed these accounts with foreign currency. Banks would have no problem offering guarantees to account holders who have already deposited over $ 2 billion. The handling of the guarantees – if necessary – is no problem for banks.

But this facility must be carefully monitored. Large plots of land purchased with bank guarantees from ultra-rich (or politically affiliated) groups of foreign Pakistanis can be used for housing association development.

This can drive up land prices where the demand for residential units is high. This in turn would force even the building owners participating in MPMG to re-price their residential units, which would destroy the actual purpose of inexpensive housing.

Published in Dawn, The Business and Finance Weekly, November 8, 2021


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