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Conditions for Housing finance in Pakistan
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State Bank of Pakistan Eases Conditions for Housing Finance

The State Bank of Pakistan (SBP) relaxed financing conditions for housing units in under construction projects.

The State Bank of Pakistan (SBP) issued a circular dated February 25, 2022 to ease the conditions for house financing. It said that in order to further facilitate buyers of housing units in under construction projects, requirement of builder / developer to avail construction financing is being relaxed.

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“Accordingly, purchasers of housing units in under construction projects may avail housing finance against their housing units in projects where builder/developer has not availed construction financing,” the SBP said.

In such cases, the builder/developer will have to create mortgage charge over project’s land in favor of bank / DFI through an agreement. The charge will only be vacated after completion of the project and transfer of housing units to the purchasers. Moreover, the builder/developer will comply with all other provisions of subject guidelines, it added.

Any bank/DFI can provide housing finance to a purchaser of a housing unit in such under construction projects.

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However, if the purchaser wants to avail financing from a bank/DFI other than the mortgagee bank/DFI, then it will have to obtain NOC from the mortgagee bank/DFI in this regard.

Moreover, financing bank/DFI of such purchasers will also be required to enter into bilateral arrangement with the mortgagee bank/DFI to secure its risk.

With regard to the requirement of informed consent under guidelines, it is clarified that the builder/developer will be responsible to arrange written informed consent from the customers who intend to purchase housing units from their own sources without availing mortgage finance.

The letters of written consent of such purchasers will be submitted to the bank/DFI in original by the builder/developer.

The builders/developers are developing and marketing a number of multi-story projects of housing units across the country. Although these under construction projects are exposed to project completion risk and performance risk of builders/developers, many individuals are attracted to book housing units in these projects owing to their affordability and option of payments through installments.

Housing finance Loan in Pakistan

However, the banks/DFIs have traditionally shied away from financing to the housing units in under construction projects due to issues in availability of legally enforceable title documents and registration of mortgages as per requirements of Prudential Regulations (PR) for Housing Finance.

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It may be noted that banks/DFIs extend project financing to builders/developers for construction of multistory housing projects after adequately securing their project and builder risks through mortgage of project land and other securities. Utilizing these already established security arrangements with the builders/developers, the banks/DFIs may also extend housing finance against housing units in multistory housing projects. This will expand options of affordable housing to the individual borrowers. This will also facilitate banks/DFIs in ensuring repayment/ settlement of their project financing through conversion of the same in housing finance.

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