Remember when home mortgages became a distinct possibility for hopeful homeowners across Pakistan, who had been saving precious coins for years to be able to afford a piece of land they could call their own? Let’s talk about that. The year was 2020 and the country was run by one Mr Imran Khan, these watch buckling leader who had a dream to build an ambitious 5 million homes across the country. Mock one might, but there was a plan behind it. Unfortunately, it got derailed far too abruptly. Whatever happened to it?

The same year, a grand launch of the Mera Pakistan Mera Ghar, a mark-up subsidy scheme, was spearheaded by the Central Bank. The scheme would “enable banks to provide financing for the construction and purchase of houses at very low financing rates for low to middle-income segments of the population”. The only eligibility criteria to qualify for said loan was to be a first-time home buyer. The loan tenor could last between 5 and 20 years which was fairly flexible and the loan was structured around four tiers of mortgage financing.

To quickly review: Tier 0 (T0) offered loans through microfinance banks for non-NAPHDA projects, with a maximum of Rs 2 million (loanable amount) for houses up to 125 sq yds or apartments up to 1,250 sq ft. Tier 1 (T1) was available through banks for NAPHDA projects, with a cap of Rs 2.7 million for houses or apartments up to 850 sq ft. NAPHDA was the Naya Pakistan Housing Development Authority set up in Jan of 2020 to plan, develop, deliver, and manage real estate projects across Pakistan as well as provide regulatory support to builders and developers such as one-window facilitation to speed up project approvals. Essentially, only NAPHDA projects had a cap on home prices.

Next is Tier 2 (T2) mirrored T0 for non-NAPHDA projects, with a maximum loan of Rs 6 million, while Tier 3 (T3) supported larger properties, allowing loans up to Rs 10 million for houses up to 250 sq yds or apartments up to 2,000 sq ft.

Interestingly, there was no cap on housing prices for T0, T2, and T3, with the exception of T1 which was allowed a maximum price of Rs 3.5 million. The eligibility criteria also did not include any restrictions on which income groups could access these loans. It wasn’t necessary therefore that only those first-time homeowners that belonged to the low and middle-income segments, the target group for this scheme as marketed by the SBP, could access the subsidized loan. The only two restrictions were: size of the loan and size of the property; neither sufficient enough to guarantee that the scheme was utilized by the intended audience. You know, the low and middle-income group.

The subsidy was significant too. For the first five years, folks would pay 3% (Tier 1), 5% for Tiers 0 and 2% and 7% mark-up for Tier 3. For the next 5 years, 2% would be added to the markup, so the rates become 5%, 7%, 7%, and 9% for Tier 1, 0, 2, and 3 respectively. As a result, imagine a homeowner who bought a housing unit under a non-NAPDA project under Tier 2. If the financing amount was Rs1 million, the monthly installment they would pay was less than Rs7000, and the highest allowed financing amount of Rs6 million, the monthly installment was Rs39,597. The Rs6 million was the financing amount with no limits to Loan-to-Value and therefore buyers would pitch in a significant sum by way of equity and afford a decent enough property, with Rs6 million under a subsidized loan. It’s a sweet deal for any middle-income home buyer.

Along with this, the SBP made significant headway from a regulatory perspective. Relaxed debt burden ratios, standardized documentation such as loan applications across banks, exempting banks from verifying informal income models and allowing low-cost housing finance secured by third-party personal guarantees for up to one year, developing a standardized income proxy model for banks to verify informal incomes, and launched online complaint management. In addition, the SBP made it mandatory for banks to give mortgage and home financing loans, so banks had no way but to cough up.

What’s really fascinating is how fast this rather elaborate plan crumbled, when it easily could have been taken up by another government and repackaged. The last update from NAPHDA is that of the 154,000 low-cost units constructed under the low-cost housing model, about 31,000 were financed under MPMG. That’s just 20 percent of the total. Meanwhile, the SBP stopped reporting any data or numbers after June 22, wrapping up not only the fiscal year but also the scheme. Perhaps, the assumption here is that the scheme stopped when the PM exited in April 2022. They also did not have enough funds to subsidize the scheme, because remember, the subsidy was not budgeted for longer than a year.

Now see our illustration that shows SBP’s credit data where a huge jump in net borrowing against mortgages is visible at the start of 2021, slowly dissipating after June-22, and becoming negative for the first time in February 2023. By April 2023, all bets were off. Unfortunately, the SBP does not provide any details on the number of loans doled out in order for one to evaluate the extent of the scheme’s success, for starters. This column has covered this extensively between 2020 and 2022 and highlighted various missed opportunities with this scheme, its peculiar if well-meaning design, and the gaps in the philosophy of the Naya Pakistan Housing Program. In addition, this column also questioned the validity of the claim that it was in fact targeted at low-income and middle-income households. There is no evidence to support that or any other fact to the contrary. There were deeper questions asked on data gaps and additionality (did this scheme add to the housing stock or just bring existing projects under its subsidized umbrella) and did this scheme solve a problem, any problem? SBP data shows that by June 22, 46 percent of the amount requested was approved and 42 percent of the amount approved was disbursed (this is monthly data). A cumulative Rs100 billion were disbursed under MPMG, of the approved amount of Rs236 billion. Assuming that the average loan size was Rs3 million—assuming a low LTV—the total number of borrowers under this scheme that ran for two years is 78,000 people.

So between 2020 and 2022, 78,000 Pakistanis availed a subsidized loan facility to build a home for their families, the rest of us remaining none the wiser. It doesn’t amount to much. Here is the glass half-full for the eternal optimists: the banks had two years to learn how to extend home loans to Pakistanis, especially to informal income earners, given that the market has doled out a substantial number of mortgages, in so far as learning is concerned. Before this scheme, home loans were virtually absent from the market and banks were too risk-averse to even think about venturing that way. At the same time now, the regulatory environment has been created from scratch and if any future government, alongside the SBP, took up the mantle of providing home financing, the groundwork has been laid out.

A lot of work will have to be done sure, and in a high-interest, low-growth environment when banks can’t even give out car loans, home loans would be a distant dream. But if we ever start talking about housing and mortgages in the future, we will have a failed mark-up scheme to build on, and that’s not nothing.