The central bank has decided to issue guidelines to encourage banks/development finance institutions (DFIs) to extend housing finance to units in projects under construction for which they have already entered into project finance agreements with builders/developers, according to a statement. issued on Thursday.
These guidelines for financing housing units in under-construction projects were developed by addressing issues of legally enforceable rights and responsibilities while taking into account current market norms of buying/selling housing units in under-construction projects.
Read Also: Govt decides to scale back Kamyab Pakistan Programme initiative
While the rules cover a wide range of topics, it stated that all payments to the builder/developer for the completion of the construction/project would be channelled through an escrow account held by the consortium’s bank/lead bank.
It further stated that the builder/equity developer’s and the purchasers’ equity contribution, as well as the purchasers’ subsequent payments via mortgage finance, would be routed via the same account.
As a result, the State Bank of Pakistan (SBP) has decided to exclude banks/DFIs providing housing financing for under-construction housing units from the criteria outlined in Regulation HF 8: Mortgage Creation for Housing Finance. This exemption will be available until the builder/developer and buyers of housing units have agreed on a completion certificate, NOCs, permissions, utility connections, and a registered title deed.
To qualify for this exemption, banks/DFIs must strictly adhere to the conditions of the rules for financing housing units in under-construction projects.
Across the country, builders/developers are creating and selling a variety of multistory home developments. Despite the fact that these under-construction projects are subject to project completion risk and builder/developer performance risk, many people are drawn to book housing units in these projects because to their affordability and the flexibility of making payments in instalments.
However, banks/DFIs have typically shied away from financing housing units in under-construction projects due to difficulties with the availability of legally enforceable title papers and mortgage registration in accordance with the Prudential Regulations for Housing Finance.
According to the statement, banks/DFIs provide project financing to builders/developers for the development of multistory housing complexes after appropriately insuring their project and builder risks through mortgages of project land and other assets.
 to extend housing finance to units in projects under construction...){kind=link}