Following its January 2 circular limiting the exposure of banks/development finance institutions (DFIs) to the real estate sector to 10% of their aggregate advances and investments, the State Bank of Pakistan (SBP) on Monday said the directive will not apply to the financing carried out under government housing schemes and initiatives. The SBP insisted that banks/DFIs still have a `substantial cushion’ available for promoting housing finance in Pakistan even after linking their exposure with the level of aggregate advances and investments, excluding investments in government securities. According to the earlier circular, the real estate sector’s exposure limit equalled 10% of advances and investments minus investments in government securities. As per the SBP’s definition of the real estate sector, it includes individual/family-owned houses for the purpose of self-occupation or renting out (non-commercial usage) as well as builders, developers, contractors, corporations, property dealers and any other person dealing in residential, commercial and industrial real estate. Additionally, debt instruments and shares/units issued by the Real Estate Investment Trusts (REIT) also fall into the category of the real estate sector. Applicable with immediate effect, the central bank requires banks/DFIs to put in place appropriate internal limits and standards for exposures secured by real estate. Provisional data available on the SBP website shows the outstanding position of credit/loans to the real estate sector amounted to Rs108.9 billion at the end of November last year. Similarly, the amount of loans/credit extended to borrowers from the construction sector was Rs54.6 billion at the end of November. According to banking sector analysts, few banks have higher than 10% exposure to the real estate sector in terms of their aggregate advances and investments. Therefore, the SBP’s move is unlikely to hurt housing finance in Pakistan . However, the Association of Builders and Developers of Pakistan (ABAD) has criticised the central bank’s decision, calling it counterproductive to the revival of the country’s housing and construction industry. Quoting from an SBP report, ABAD Senior Vice Chairman Saleem Kassim Patel said the country is already facing a shortage of 7.5 million housing units. ”The housing demand in the large cities is 30% of the total housing demand in the country,“ he said, noting that the imposition of the upper limit on investments into the real estate sector will hurt the industry. Patel also suggested that the SBP should direct financial institutions to set aside a minimum of 5% of their total advances for the housing sector.
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