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A massive opportunity in sight

SBP relaxes citizens by introducing unique housing finance scheme

05:13 PM | 28 Jan, 2021
A massive opportunity in sight

The recent housing finance scheme being offered by the State Bank of Pakistan may be a once in a lifetime chance for a common citizen to climb the housing ladder.

The intent of this scheme was to give a much-needed stimulus to the construction sector and to increase home ownership rates (part of broader plan to increase the middle class). This scheme certainly builds up to be a “win-win” for the masses, the government, and the business community.

To quote Dr Hafeez Pasha (a renowned economist) “This is the first time we have negative real interest rates since the 1950s”. Take into perspective that you are literally being paid to borrow money. The State Bank has further subsidized the cost of borrowing for mortgages so heavily that it seems untrue.

Taking my base case, people who qualify for tier 1 - a property assessed can be worth a maximum of 3.5 million PKR and must have an area of less than and equal to 125 square yards. The maximum loan amount that could be attained after the banks credit analysis of applicant is 2.8 million PKR.

Now I will list down all the benefits of this scheme. The interest rate being offered on this loan is 5 percent, the discount rate currently stands at 7 percent and the current inflation rate is around 9 percent. The borrower enjoys a positive yield of 400 basis point on the principal he/she borrowed, hence the more the amount borrowed, the better. This is a fixed rate loan with a 5 percent markup for the first 5 years and 7 percent for the next five years. This is the first time in the history of Pakistan a fixed rate loan of such a lengthy tenure is being offered and that too, at a markup lower than the discount rate. 

There is speculation in the market that the discount rate might be revised upwards to 9.25 percent by mid-year. The construction cost attributes most to the price of the housing unit in this price bracket. The construction cost of housing is not going to get cheaper any time sooner. The supply chain disruption, unparalleled demand by China, a housing boom globally in first world nations doesn’t add up well for housing.

Most commodities used for construction have gone significantly up in value most notably copper, iron, steel, and timber. Add on to that the cost of freight which has more than doubled recently, importing these raw materials now comes at a greater cost.

The demand for housing in big cities outstrips the supply and you can bet that price appreciation of this asset would be comfortably above the rate of inflation. Needless to say, this is the greatest opportunity a common man could capitalize on right now. 

An avid reader of books penned by the likes of notably Benjamin Graham, Jim roger, Ray Dalio and many other, the author is a university student pursuing a combined bachelor’s in Economics and Mathematics. He has a deep interest in analyzing and rooting out investment opportunities from the markets across the board, ranging from real estate, commodities, equity markets globally and locally.

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Pakistani rupee exchange rate to US Dollar, Euro, Pound, Dirham, and Riyal - 27 Feb 2024

Pakistani currency remains largely stable against US dollar in the open market on February 27, 2024 (Tuesday).

US Dollar rate in Pakistan

In the open market, the US dollar was being quoted at 279.4 for buying and 282.3 for selling.

Euro currently stands at 303 for buying and 306 for selling while British Pound rate stands at 351.5 for buying, and 355 for selling.

UAE Dirham AED hovers at 76 whereas the Saudi Riyal saw slight increase, with new rates at 76.7.

Today’s currency exchange rates in Pakistan - 27 Feb 2024

Source: Forex Association of Pakistan. (last update 09:00 AM)
Currency Symbol Buying Selling
US Dollar USD 279.4 282.3
Euro EUR 303 306
UK Pound Sterling GBP 351.5 355
U.A.E Dirham AED 76 76.7
Saudi Riyal SAR 74.2 75
Australian Dollar AUD 181 183
Bahrain Dinar BHD 742.91 750.91
Canadian Dollar CAD 207 209
China Yuan CNY 38.82 39.22
Danish Krone DKK 40.56 40.96
Hong Kong Dollar HKD 35.7 36.05
Indian Rupee INR 3.37 3.48
Japanese Yen JPY 2.10 2.18
Kuwaiti Dinar KWD 905.46 914.46
Malaysian Ringgit MYR 58.49 59.09
New Zealand Dollar NZD 173.05 175.05
Norwegians Krone NOK 26.36
 
26.66
Omani Riyal OMR 725.54 733.54
Qatari Riyal QAR 76.74 77.44
Singapore Dollar SGD 207 209
Swedish Korona SEK 27.04 27.34
Swiss Franc CHF 317 319.5
Thai Bhat THB 7.76 7.91

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