KARACHI: In a bid to resolve issues faced by the mortgage industry in Pakistan, the State Bank of Pakistan (SBP) has formulated a policy on low cost housing aiming to increase housing finance portfolio of banks/DFIs from Rs 83 billion to Rs 250 billion by June 2021, along with increasing the number of borrowers to 200,000 from the current 68,000. The Policy for Promotion of Low-Cost Housing Finance constitutes of eight pillars that focus on regulatory incentives and mechanism to address the issue of affordability of low-income borrowers. SBP will introduce a subsidized financing facility for low cost housing by providing The financing facility will provide liquidity to the financial institutions, at a subsidized rate, for extending housing finance to low income segments. SBP will provide refinance up to Rs 1 million or 50% of loan amount at a rate of 1% to banks/DFIs and the end borrower rate will be 5%. The remaining 50% of the loan / financing amount shall be provided by the banks/DFIs from their own sources at fixed rate of up to 12% or variable rate of 1 year KIBOR plus risk premium up to 4%. The facility will be provided for both individual house borrowers and housing builders/developers. Similar financing facility will also be provided through the Islamic FinancialInstitutions. The SBP said utilizing large parcels of vacant government and corporate institutions’ land for low cost housing projects is one way of addressing housing shortage for low-income borrowers. Allocation of free land, under public private partnership (PPP) model, to the commercial builders and developers would incentivize private sector towards low cost housing projects. Earmarked land will be offered free of cost to the developer for at least 50% houses/apartments in low-income category. Developer offering maximum number of low income flats/units free of cost would be awarded the project through open bidding process. The SBP will assign housing finance targets to the banks with the instructions to make these targets part of the overall business plan and departmental targets. The targets will be assigned from October 2018 onwards. According to the policy the general reserve requirements against low cost housing finance portfolio of banks/DFIs to be waived. Bank/DFI’s exposure in low cost housing to be exempted from the exposure limit of 10% for real estate sector. Microfinance Banks to be allowed to increase housing finance amount up to Rs1 million from Rs 500,000. Also, a standardized loan application form is to be issued through PBA to streamline loan processing by banks/DFIs. SBP will facilitate provincial governments and state owned enterprises/autonomous bodies to avail housing finance from banks. According to the policy, to qualify under low cost housing, the borrower has to fulfill the criteria which include purchase price of the housing unit/apartment up to Rs 2.5 million, loan size up to Rs 2 million, and monthly income of a borrower up to Rs 60,000. Currently, the housing deficit in Pakistan is estimated at 10 million units. The shortage is more pronounced for urban population, which according to one estimate is facing a backlog of 3.5 to 4 million units. Pakistan’s population has increased by 4 million per year over the last 19 years; assuming a similar rate of increase going forward, then Pakistan needs additional 600,000 households every year.