Washington DC September 4 2022: International Monetary Fund (IMF) encourages a direct and well-targeted budget subsidy program for the low cost house financing under Kamyab Pakistan Program (KPP).
Gov’t of Pakistan identified several structural impediments facing the housing and construction sector, including: (1) land title documentation; (2) real estate regulatory authorities; (3) availability of long-term financing; (4) foreclosure laws; and (5) credit scoring. While headway is being made to address some of these constraints, Gov’t recognize the need for more work, in partnership with private sector participants and representatives from provincial governments. To this end, Gov’t established a working group comprised of relevant stakeholders in June 2022 that is tasked with producing a comprehensive strategy paper offering solutions by end-December 2022.
Till 30th June 2022, banks have received request for loans amounting of PKR 514.49 billion, out of which commercial banks approved financing of PKR 235.95 billion against which only PKR 99.81 billion has been disbursed, data of State Bank of Pakistan revealed.
IMF welcomed the establishment in June 2022 of the working group tasked with developing solutions to the structural impediments to the housing and construction sector development.
IMF agreed with the Government of Pakistan that improvements regarding land title documentation, real estate regulatory authorities, foreclosure laws, and credit scoring bear potential for enhancing the availability of financing and allowing greater access for the less privileged population. Fund noted that continued collaboration with private sector participants and representatives from provincial governments will be crucial to find workable solutions which can be executed by the responsible authorities.
Staff also reiterated that instead of prudential action to stimulate housing lending, a direct and well-targeted budget subsidy program for the vulnerable parts of the population would be a more effective way to achieve social policy objectives with fewer potential risks.
At the same time, IMF stressed that lending targets on housing present risks to financial stability and the prudent allocation of credit. IMF urged the authorities to discontinue the mandatory housing lending targets for banks, initially introduced in 2020 and now set to increase from 5 to 7 percent effective end-2023; and the reduction in capital adequacy risk weights applied to real estate investment trusts, as they entail financial stability risks and a misallocation of credit.
