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Banks ease restrictions on real estate investments

Posted by admin on June 11, 2021

Working as a keypunch operator in a private company, I was excited to see the New Pakistan Housing Scheme, which offers cheap loans to the weaker sections of the population who do not have a home of their own. He tried to find a house worth Rs 3.7 million, but the bank’s paperwork took a long time. When he regained information about the house a few months later, it had risen 13 percent to Rs. 4.2 million.

Leading economist Atif Mian recently pointed out that the offer of cheap loans would lead to a steady rise in property prices.

“If you artificially increase people’s purchasing power to buy something, you will also increase the price of that thing, low-interest rates increase prices, and when you lend them more,” he said. As a result, the price of the house they want to buy will also increase.

But the government, through the Federal Board of Revenue and the SBP, is trying to facilitate builders and developers to build more residential units. This has increased banks and development financial institutions (DFIs) to provide maximum lending to buyers and financial schemes. The FBR also introduced an amnesty scheme, allowing builders and developers to invest in these projects.

Zaigham Mahmood Rizvi, chairman of the New Pakistan Housing Program, said that Pakistan needed about 11 million houses, of which 700,000 were being added annually. This means that if the demand for houses increases by 700,000 in one year, it will be even higher next year.

Zaigham Rizvi added that the main reason for the delay was the reluctance of banks to finance the housing industry.

“Mortgages account for 11% of India’s GDP, 5% for Bangladesh, and 0.5% for us,” he said.

The SBP has set targets for banks to extend mortgage loans, finance developers, and builders. Banks will now have to maintain 5% of their private sector lending by December 31, 2021, to finance housing and construction activities. ۔

The SBP has also introduced a carat and stick scheme to the hesitant banking industry to achieve these targets.

The SBP has now amended the provisions of the Capital Advocacy Regulation to facilitate the investment of banks and DFIs in real estate investment trusts (REITs). It has reduced the applicable risk weight for banks and DFIs in RETs units from 200% to 100%.

REITs raise funds from the public and public institutions such as banks and invest the funds in real estate properties.

A source, speaking on condition of obscurity, said that Atif Mian was correct in saying that if a cheap house loan was offered, it would increase property prices, but only when the demand and supply of cheap loans increased. I will increase, meaning housing units will be as limited as before.

Sources said that the policy of the State Bank of Pakistan and the government will always be to increase the supply of housing units, which will keep house prices stable.

The increase in construction activities will increase the number of people involved in this sector and related industries. Therefore, people from other industries will also benefit when they spend their earnings through this sector and industries.

The SBP expects investment through banks to boost the development of the country’s real estate sector.

The SBP said in a journal that the growing participation of financial institutions supporting regulatory measures would also encourage REIT management companies to start new RETs, leading to housing and construction. As a result, the government’s plan for the development of the sectors will be further enhanced. The central bank also amended the rules for banks to invest more in REITs, raising their equity from 10 percent to 15 percent.

The SBP further said that the amendments to the Capital Adequacy Regulation would encourage banks to participate in the capital market working for the real estate sector.

Only one REIT, Arif Habib Dolmen, is registered and functional in the Pakistan Stock Exchange.

As per the SECP, five new REITs have registered themselves in the last two years. A total of 10 REITs are registered in the SECP, while two more companies are registering.

Mukesh still wants to take advantage of the SBP scheme to buy property, but he is disappointed because the bank’s operations are painful, and the property is becoming more expensive.

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