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Pakistan Home Mortgage Financing Undeveloped – A Study Shows

In accordance with commercial viability and affordability, the majority of home supply is aimed towards the upper and wealthier classes.

Islamabad, Pakistan, 10/06/2021 / Islamabad News Bureau /

According to a research conducted by the World Bank Group’s International Finance Corporation (IFC), the mortgage finance market in Pakistan is strategically undeveloped, while the availability of homes for low-income groups in the country remains minimal despite strong demand.

As per the study, “Pakistan Housing Finance — Is There a Business Case for Financial Institutions,” despite the significant demand for housing, the mortgage depth ratio tends to be low at 0.3 percent, considerably lower than the South Asia average of 3.4 percent.

The study shows that it indicates a lack of home financing options, financial institutions’ restricted capacity, a lack of protracted financing, and legal/regulatory difficulties.

The IFC conducted the research to identify the volume of residential mortgage loan market that might be reached by diversifying portfolios across different household groups in minor, moderate, and major cities.

In accordance with economic potential and affordability, the majority of residential supply is aimed towards the upper and wealthier classes. Only 1% of residential supply serves 68% of the total population with a monthly income of up to $188. According to the research, about 56 percent of residential units serve 12% of the population with a monthly income of more than $625.

Pakistan’s housing supply is over $18,000 on average throughout all levels and regions in 26 targeted cities. Inexpensive residential properties or flats (up to 125 square yards) are just as important as affordable mortgage loans. Achieving a ‘housing for all’ objective may be challenging without an appropriate supply of affordable residences.

“IFC’s study highlights the need to open up housing financing for different customer segments in Pakistan, which is a critical component of the country’s Covid-19 response and recovery. Spurring private sector participation in mortgage finance is also vital to create a new market to boost competitiveness, growth and inclusion,” said Shabana Khawar, IFC Regional Head of Operations for Afghanistan and Pakistan.

Pakistan, with a rising population of nearly 208 million individuals, is in desperate need of additional homes. Its projected residential deficit is around 10 million houses, and it is predicted to rise by 400,000 units every year. Growing urbanization, rising land and building material costs, and low levels of mortgage financing have all led to the country’s housing shortage.

According to the report, home finance has the tendency to develop in Pakistan, and with the right strategy, procedures, and financing, mortgage finance can be enhanced to 26 cities, with the ability to serve an additional 500,000 individuals across various socioeconomic groups.

According to the report, current and new home finance companies can produce an extra loan volume of $3.8 billion in the residential financing industry to service about 500,000 individuals.

The Pakistan government is now offering a mark-up subsidy for mortgage finance, with FIs financing housing units of up to 250 square yards and flats or apartments with covered areas of up to 2,000 square feet for first-time home-owners. The financing has subsidised pricing of up to 9% per year for a maximum tenor of ten years and a maximum loan amount of $62,500.

The markup subsidy scheme is bolstered by providing affordable housing to low-income segments by the ‘Naya Pakistan Housing and Development Authority’ (NAPH­­DA), with mortgage finance available from financial intermediaries for a maximum of $16,875 for a unit of up to 125 square yards and flat or apartment with a covered area of up to 850 square feet.

Source: Submit123News

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