SBP to issue guidelines for under-construction housing units financing

KARACHI: The central bank has decided to issue guidelines to encourage banks/development financial institutions (DFIs) to extend housing finance to the units in under-construction projects for which they have already entered into arrangements of project financing with builders/developers, a statement said on Thursday.

These guidelines for financing of housing units in the under-construction projects have been developed, considering the current market norms of buying/selling of housing units in the under-construction projects by addressing the issues of legally enforceable rights and responsibilities.

While the guidelines comprehensively cover various aspects, all payments to the builder/developer for the completion of the construction/project would be routed through an escrow account maintained by the bank/lead bank of the consortium, it said.

It also said the builder’s/developer’s equity and purchasers’ equity contribution and subsequent payments of the purchasers through mortgage financing would be routed through the same account.

Accordingly, the State Bank of Pakistan (SBP) has decided to exempt banks/DFIs extending housing finance for the under-construction housing units from the requirements as specified under the Regulation HF 8: Creation of Mortgage for Housing Finance. This exemption will be available till the arrangement of completion certificate, NOCs, approvals, utility connections and registered title deed between builder/developer and buyers of housing units.

To avail this exemption, the banks/DFIs will; however, be required to meticulously comply with the provisions of the guidelines for financing of housing units in the under-construction projects.

The builders/developers are developing and marketing a number of multistoried 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 the option of payments through installments.

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

The banks/DFIs extend project financing to builders/developers for the construction of multistoried housing projects after adequately securing their project and builder risks through mortgage of project land and other securities, the statement said.

Utilising these already established security arrangements with the builders/developers, the banks/DFIs may also extend housing finance against units in the multistoried housing projects. This will expand the options of affordable housing to the individual borrowers and would also facilitate the banks/DFIs in ensuring repayment/settlement of their project financing through conversion of the same in the housing finance.