Bank financing for under-development projects permitted


KARACHI: The depository financial institution of Pakistan (SBP) has allowed buyers to urge bank financing for under-construction housing units getting to cause growth within the construction and housing sector in line with the government’s policy.

“To facilitate buyers of under construction housing units in obtaining housing finance, the financial institution has issued guidelines to banks and DFIs that allow them to increase loans for under-construction projects,” said the SBP on Thursday.

The SBP said that currently banks are reluctant to supply such financing which limits the choices of home buyers that require financing to finish units.

“The SBP’s new guidelines provide an entire framework with necessary risk mitigation elements for the banking system to support this area of housing financing,” it added.

Essentially, the financing risk of banks are going to be secured through mortgage of project land supported specific arrangements with builders.

“The payments to builders are going to be routed through a specially created account (known as an escrow account) with no direct access to the vendor until completion of construction milestones as agreed between financing banks and builders,” said the SBP.

The purchasers of housing units availing finance are going to be ready to enjoy variety of advantages , said the SBP, adding that the purchasers will get housing units in under-construction projects which are relatively low-cost compared to completely constructed units. The strong monitoring and oversight by the banks will facilitate timely completion and transfer of possession to the purchasers while housing units are new. The purchasers may bear lower maintenance and renovation costs for initial few years.

“These benefits are expected to make incentives for purchasing underconstruction houses creating demand for the development industry,” said the SBP.

Banks are reluctant to supply finance for purchase of housing units in under-construction projects as compared to completed projects. The prevalent market practices is that builders allow the purchasers of housing units to form periodic payments when construction begins against allotment letters which may be a convenient process in enabling home ownership.

However, banks don’t provide housing finance against allotment letters. As a result, buyers are bereft of the chance to avail housing finance from banks and hence owning affordable housing units within the under-construction phase of projects.

In addition, builders also complain that non-availability of housing finance from banks for the under con-struction projects reduces demand and slows development of latest projects. ‘With a rise in financing after issuance of those guidelines, such concerns are going to be addressed,” said the SBP.

The SBP guidelines are a serious breakthrough and are in line with State Bank’s ongoing efforts to spur economic development through promotion of activity in housing and construction sectors, it added.

“It is predicted that housing finance of banks will see a big growth in near future. aside from providing a chance to the borrowers to avail housing finance under ‘Mera Pakistan Mera Ghar’ in underconstruction projects, this may also help builders enhance stock of latest apartments or flats across the country,” the SBP said.

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