Incentives for Housing Finance: A Bank-Led Approach for Pakistan

Incentives for Housing Finance: A Bank-Led Approach for Pakistan

Islamabad: The Government of Pakistan has decided to prioritize a bank-led model for housing finance, moving away from direct lending practices that have historically created economic distortions. Federal Minister for Finance and Revenue, Muhammad Aurangzeb, emphasized the need for a sustainable and accessible housing finance system during the International Affordable, Green & Resilient Housing Conference held on Wednesday.

A Shift in Strategy

“We will not go back to direct lending, which was a wrong thing to do. It creates distortions and has implications for the medium term,” stated the Finance Minister. Instead, the government will focus on introducing incentive mechanisms to encourage banks and microfinance institutions to take the lead in housing finance.

This shift is aimed at making housing finance more accessible to the general public, while creating a framework that ensures long-term growth and stability in the housing sector. By empowering financial institutions, the government hopes to bridge the housing finance gap without creating economic inefficiencies.

Addressing Housing Challenges

Pakistan’s housing sector faces two major challenges:

1. Population Growth: With the population growing at an alarming rate of 2.5% annually, the country faces a host of social and economic issues, such as poverty, child stunting, poor educational outcomes, and a high number of girls being out of school. Affordable housing is seen as a critical solution to address these issues.
2. Climate Change: The devastating floods of 2022 served as a stark reminder of the need for climate-resilient housing. The Sindh government has already taken steps to discourage construction along water banks, setting an example for promoting safer and more sustainable housing solutions.

The Finance Minister highlighted the importance of affordable and resilient housing in tackling these challenges, adding that it is a key priority for the government to provide solutions that cater to both current and future needs.

Key Reforms in Housing Finance

To address the growing demand for housing finance, the government plans to implement the following measures:

• Regulatory Authority: A new regulatory authority will be established to improve access to funding and streamline the housing finance process.
• Foreclosure Laws: Laws will be introduced to enable banks to reclaim properties in case of loan defaults, which will encourage financial institutions to lend more confidently to the housing sector.

These reforms are expected to create a more robust framework for housing finance, attracting both domestic and international investments into the sector.

Economic Progress and Housing as a Growth Pillar

The Finance Minister noted that Pakistan has made significant strides toward sustainable and inclusive growth, with housing emerging as a crucial pillar of development. Over the past 14 months, the country has reversed fiscal and current account deficits, signaling a more stable economic trajectory.

Key economic indicators show promising improvement:

• Foreign exchange reserves have increased to 2.5 months of import cover, compared to just two weeks previously. The government is optimistic about reaching the international benchmark of three months of import cover by the end of the fiscal year.
• Inflation has dropped to a 78-month low of 4.9% in November.
• The State Bank of Pakistan’s policy rate is expected to decrease further, while the Karachi Inter-Bank Offered Rate (Kibor) has already experienced a decline.

These improvements reflect a stable macroeconomic environment, which is crucial for fostering investments in housing and other key sectors.

Looking Ahead

The government’s focus on incentivizing housing finance through a bank-led approach marks a shift toward sustainable and inclusive development. By addressing the dual challenges of population growth and climate change, Pakistan aims to create a resilient housing sector that can cater to the needs of its people while driving economic growth.

With regulatory reforms and a focus on green, affordable housing solutions, the country is positioning itself for a brighter and more sustainable future.

Ref: https://tribune.com.pk/story/2513836/incentives-proposed-for-housing-finance