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Saturday, April 13, 2024

Is the promise of Naya Pakistan Housing still standing?

The government is working on solving the underlying issues faced by people. The weak financial institutions of Pakistan might just not be ready to handle such a complex case, but even they are all in.

Prime Minister on Sunday directed the State Bank of Pakistan and the National Bank of Pakistan to facilitate those applying for a low-cost loan under the Naya Pakistan Housing Programme.

PM Imran reiterated that the construction of new homes under his government’s flagship project would bring a revolution in the country.

“If people start building their homes, there will be a revolution in the entire country which will also boost the businesses of 30 construction-allied industries,” he added

The premier admitted that people were facing difficulties in availing mortgage financing and directed the central bank and the state-owned bank to ease the procedure to facilitate citizens.

The applicants would require to provide a copy of their CNIC, two passport-sized photos, a salary slip in case they are employed, or a copy of the rent agreement of the shop or house to make the banks assess their income and fix an installment.

Read More: PM Khan allots houses, flats to poor laborers, widows on low mortgage

This underlines the government’s concern about the slow uptake in housing loans and the fact that aspiring homeowners are facing difficulties in securing bank financing.

It also shows that the central bank could now put more pressure on commercial banks to speed up the processing of loan applications. This means that the banks will have to opt for riskier loans due to the pressure of the government.

It is believed that the commercial banks are reluctant to give housing loans as they believe that expanding the mortgage industry is not possible without a strong foreclosure law that lets them repossess the property in case of default on repayment.

However, the matter was settled in late 2020 when the Lahore High Court passed a law allowing banks to auction the mortgaged property of a defaulter without obtaining a court order.

The beneficiaries of the housing loans are supposed to pay a monthly installment of Rs6,600 for a loan of Rs1 million, Rs13,199 for Rs2 million, Rs19,799 for Rs3 million, Rs26,398 for Rs4 million, and Rs32,998 for Rs5 million, however, the risk factor is high given Pakistan’s minimum wage earners, the target group earns only around 20 thousand a month.

Third, it implies that the government may ask NBP to pursue a more liberal mortgage policy to make up for the reluctance of private banks.

The basic problem however is not the bank’s reluctance, but as PM said, “bank employees were not in the habit of extending such easy loans to the needy.”

The banks have to give loans to high-risk individuals who don’t have many formal documents usually required for such locations. According to State bank, the number of loans generated by the conventional and Islamic banks was only 17,000 in 2019.

This shows it is not the government but the financial sector and the borrowers that need to get accustomed to these new customs.

A World Bank estimates that the total national housing deficit in Pakistan is over 10m units, with the gap increasing by 350,000 units annually.

The incremental deficit is estimated to rise to 400,000 units.

Some believe that an increase in housing and construction pushes growth in 30 to 40 related industries in the economy. One estimate indicates that an increase of 100,000 in housing units in one year contributes to up to 2pc of GDP.

Read More: PM Khan directs SBP and NBP to relax housing loan conditions

Thus, albeit the initial friction, the project Naya Pakistan Housing is something that Pakistanis need in the long run.