The government is working on more attractive incentives to promote housing finance schemes in Pakistan including a proposed income tax exemption/tax incentive on income earned from such projects, income tax relaxation for long term finance and reduction in capital value tax (CVT), stamp duty and registration fee to make houses sale/ purchase transactions more affordable, especially in case of low value properties.
Sources told Business Recorder here on Sunday that in pursuance of the directions of the Prime Minister for promotion of housing finance, certain schemes were announced in the budget. Before launching these schemes State Bank of Pakistan (SBP) suggests that a number of impediments affecting the efficacy of running the housing sector smoothly need to be removed.
Sources said that housing has profound significance in the long-term economic development of the country. At least 40 industries and 70 percent of unskilled labour force are associated with construction industry. There is immense shortage of housing units in Pakistan, which is estimated at around 10 million units, when accumulated aggregated number becomes around 9,00,000 units every year. Although, housing costs are reasonably high for middle class and upper class segments of the society, but it is the lower income class, where its impact is felt more profoundly. Assistance for housing can make a significant difference in the economic well being of low-income families.
Realising this scenario, federal government has announced a number of initiatives Prime Minister''s low income/cost housing scheme is a commendable plan in this regard. However, the Prime Minister''s housing scheme would cater to limited number of citizens due to budgetary constraints. In the long-run it is imperative to develop and promote financial institutions which support housing finance on sustainable basis.
Sources said that the housing finance is one of the priority areas identified by SBP and various initiatives have been taken to support this priority sector. Key initiatives taken, in this regard, are as follows.
Firstly, mortgage Refinance Company (MRC) is now in its final phase of incorporation. MRC will ensure availability of long term funding for financial institutions and would address the issue of maturity mismatch.
Secondly, Prudential Regulations (PRs) for housing finance have been issued. This initiative has been taken to motivate banks, to extend housing finance, through changes in provisioning and reserve requirements.
Thirdly, for facilitating the housing supply agents, the builders/developers guidelines for financing to housing /developers have been issued to banks/DFIs. It is hoped that through supply of bank finance, builders/developers would be able to increase the supply of affordable housing units.
In conjunction with the above initiatives, SBP is also taking efforts for capacity building of the industry.
According to the working paper of Finance Division, the SBP has given following proposals:
To save time and costs of banks, there is a strong need for strengthening the foreclosure laws. Additionally, measures may be taken for effective implementation of existing foreclosure laws by Banking Courts for quick disposal of housing finance litigation cases.
Sources said that the number of Banking Courts needs to be increased. The judges already posted in Banking Courts need to be imparted refresher training on banking matters and foreclosure issues. The Registrar, Supreme Court may be requested to help appoint judges in Banking Courts who are qualified and trained in the field of banking. Moreover, some of the Banking Courts do not have judges. Vacant position of judges in Banking Courts should he filled immediately.
Provincial Governments should be persuaded to reduce CVT. Stamp duty and registration fee on Conveyance Deed and Mortgage Deed, to make house sale/ purchase transactions more affordable especially for low value properties.
Keeping in view the critical nature of housing builders/developers in the development of housing sector in Pakistan, the Government may provide income tax exemption/ tax incentive on income derived from affordable housing projects. The role of financial institutions is of utmost importance as they act as funding avenues for not only individuals but for housing builders/developers as well. In case to motivate financial institutions to extend finance towards housing sector, it is suggested that income tax relaxation may be provided to these institutions with respect to the income derived from long term finance for housing projects, sources added.
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