Rising interest rate shatters dream of low-cost housing

KARACHI: The dream of cheap housing in the country may remain only a dream as the interest rate hikes have undermined the low-cost housing programme.

Financial institutions are charging as high as 15-18 per cent interest on housing loans despite low-rate supply of liquidity from the World Bank through a refinancing company.

“We have disbursed Rs2 billion to the House Building Finance Company (HBFC) for promoting low-cost housing in the country,” Pakistan Mortgage Refinance Company (PMRC) CEO Mudassir Khan told Dawn.

The company received AAA credit rating for long term and A1+ for short term on Wednesday.

The PMCR receives liquidity from World Bank at nominal rates which is not disclosed but the PMCR chief said Rs2bn has been given to HBFC at 8.5pc.

“HBFC will loan to end customers by keeping its own margin of profit but it has assured of capping the housing loan rate at 12pc,” said Khan.

Currently, the Karachi Inter-Bank Offered Rate is around 11.5pc for one year which does not allow financial institutions to extend loan at low interest for housing. The prime minister is looking to build 5m low-cost houses in the next five years but sky rocketing interest rates and inflated building materials make the dream very difficult to achieve.

Bankers believe that with the induction of new State Bank governor from the International Monetary Fund, interest rate would further rise to reduce the fiscal expansion.

“The HBFC will extend loan for 20 years with a maximum amount of Rs2.5m,” said Khan, adding banks were not able to lend for such a long period while their rates would be also higher than HBFC.

He said that during these 20 years, rates would not be revised upward with increases in policy rate while it could be revised downward if they decrease.

The PMRC is also providing loans at cheaper rates to banks in Pakistan for housing projects and banks have started lending at rates calculated by considering the risk factor.

He said that PMCR is not directly participating in the prime minister’s low-cost housing projects but would support indirectly. The government’s housing scheme has already been launched in Islamabad and Balochistan.

The lack of funds in government’s exchequer due to a revenue shortfall of Rs350bn will make the scheme even more difficult to materialise.