KARACHI: Pakistan is mulling over the inclusion of first-time property buyers among overseas citizens in its affordable housing finance scheme to attract capital inflows as investor sentiments get shaky in the Middle East property market, a senior banker said.
Last month, the State Bank of Pakistan (SBP) expanded the subsidy and risk-sharing scheme, known as the ‘Wazir-e-Azam Apna Ghar Programme — Ghar Ho Tu Apna’. The maximum financing size has increased from Rs3.5 million to Rs10 million for houses up to 10 marla (2,720 square feet) and flats up to 1,500 square feet. The government covers the subsidies on these loans, setting a fixed end-user rate at 5.0 per cent up to 10 years.
The government is weighing options to benefit overseas Pakistanis through this programme.
“Policymakers are discussing allowing non-resident Pakistanis [NRPs] who possess a computerised national identity card and do not own any property in the country to qualify for mortgage subsidies under the affordable housing finance scheme,” Ahmed Ali Siddiqui, Group Head of Consumer Finance and Digital Banking at Meezan Bank, told The News in an interview.
“This plan reflects a strategy by the government to encourage overseas Pakistanis to invest their money back into local real estate projects,” Siddiqui added.
Tensions in the Middle East are impacting the Pakistan property market in two significant ways. On one hand, the rising instability in the Gulf, particularly in the UAE, could lead to capital flight back to Pakistan as investors look for safer and more affordable options. On the other hand, this situation may also slow down essential foreign remittances and increase construction costs due to oil price shocks.
The industry experts are noting a shift in mindset among people who previously wanted to settle in the Middle East. Now, exploring options to establish their primary residence in Pakistan, as they perceive it to be safer than major property markets in the Gulf, especially Dubai. Additionally, Pakistan’s financial sector is currently more stable than those in various Middle Eastern countries.
In the country, there is already an existing scheme that allows NRPs and holders of the Pakistan Origin Card to purchase residential or commercial property in Pakistan remotely and digitally through their Roshan Digital Account.
Pakistan is facing a significant housing shortfall, estimated at around 10 million units, with an annual increase of about 350,000 units. Several factors contribute to this issue, including high inflation, elevated borrowing rates, a weak land record system, and an inadequate mortgage recovery law, all of which hinder the growth of formal housing finance in the country.
In 2020, the government of former prime minister Imran Khan launched a markup subsidy scheme to provide affordable financing for the construction and purchase of homes for low to middle-income segments of the population. However, this program was abruptly suspended in 2022 due to pressure from the International Monetary Fund (IMF) to reduce subsidy spending.
According to industry estimates, approximately 65,000 cases have been financed under the traditional housing finance programme by banks across Pakistan. However, for the new scheme, the housing ministry and the central bank have set an ambitious target for banks to approve 50,000 cases in the next three months and 500,000 cases over the next three years. This goal presents a significant challenge for banks; the main issue is the availability of housing units.
In the first phase of the scheme, Meezan Bank received a large number of financing applications, as the bank offers only a Shariah-compliant financing option, with over 500 of those applications being approved. “We have already started disbursements and plan to wholeheartedly support this very important initiative. Our teams are happy to facilitate the customer in getting their dream house,” Siddiqui said.
“Our strategy focuses on facilitating financing for salaried individuals in both the private and government sectors, particularly those whose incomes can be reliably verified,” he added. Financing approval is contingent upon the applicant not being a defaulter and maintaining a clear credit report. Furthermore, the property for which the financing is requested must have a valid lease or legal title with a clear ownership record.”
Many industry players desire that the low-cost housing financing scheme be exclusively Sharia-compliant, as Pakistan seeks to transform its financial system to Islamic principles by January 2028 in accordance with constitutional and policy commitments. If banks offer conventional financing for the next 20 years, there could be conversion issues and legal challenges.
