Low Uptake in Pakistan’s Revamped Housing Finance Scheme

Commercial banks have recorded subdued participation in the government’s recently reintroduced subsidised housing finance scheme, primarily due to a significant disparity between the permissible loan ceiling and actual property valuations in major urban centres.

To mitigate Pakistan’s escalating housing deficit, the federal government earmarked a Rs5 billion subsidy for the ongoing fiscal year, prompting the State Bank of Pakistan (SBP) to roll out the scheme. It permits financing of up to Rs3.5 million for acquiring houses or plots, as well as for construction and renovation purposes.

However, stakeholders from banking, real estate, and construction sectors observe that this cap falls far short of prevailing market prices in Karachi, Lahore, and Islamabad, where even modest residential units command substantially higher values. This misalignment has curtailed demand from intended beneficiaries and weakened the scheme’s capacity to advance home ownership objectives or invigorate construction-related economic activity.

Industry voices have recommended that the authorities and SBP undertake a comprehensive review of the programme parameters, with particular emphasis on calibrating financing limits to reflect current market dynamics, especially for middle-income segments. They further advocate structural reforms to revitalise the construction industry, which remains a critical driver of employment and linked economic sectors.

Per data from the World Population Review, Pakistan’s housing affordability index has deteriorated to 0.4 (from 0.5 previously), underscoring declining accessibility amid escalating property costs, elevated financing charges, and ongoing supply shortages. Comparatively, the index stands at 0.7 in Bangladesh and 0.8 in India.

Participants maintain that absent a meaningful upward revision of the loan threshold, the scheme is poised to see limited traction. They draw contrast with the prior Mark-up Subsidy Scheme launched in October 2020, which permitted loans up to Rs10 million at concessional rates over 20-year tenures, attracted applications worth Rs514 billion in 18 months, and demonstrably stimulated construction and mortgage penetration. That initiative was later suspended owing to fiscal pressures and monetary tightening. The current iteration, relaunched in September 2025 with a markedly reduced ceiling, is widely viewed as less effective in tackling the country’s widening housing shortfall.