WB for low cost, market -based home loans
Wednesday, 30 January 2008

Staff Correspondent

The country needs to create long-term funding options for low-cost homes to make those affordable to a vast majority of middle and low income people, recommended a World Bank workshop on Monday.

In response, finance and planning adviser AB Mirza Azizul Islam called upon the banks and non-banking financial institutions to launch ‘Contractual Housing Savings Scheme,’ as proposed in a World Bank report presented at the workshop on ‘housing finance market’ at a city hotel.

‘In such a scheme, risks involved in housing finances will largely be assumed by depositors,’ he said. The adviser also acknowledged the need for proactive policies to ensure housing facilities for commoners rather than leaving it to the spill-over effects of economic growth.

The existing legal, regulatory and taxation frameworks are not facilitating primary and secondary housing finance market development, said the World Bank report.

The lending agency’s country director, Zhu Xian told the function that time had come for Bangladesh to develop a market-based housing finance system to help middle and lower income people buy homes.

Bangladesh Bank governor Salehuddin Ahmed proposed introduction of three rates of taxes: lower tax for low-cost housing, moderate tax for semi-luxury apartments and higher tax for luxury apartments.

He also recommended formulation of a new welfare-oriented housing policy as well as affordable housing finance schemes as national priorities. ‘Funds of insurance companies and provident funds may be used to raise housing fund,’ the central bank chief proposed.

Salehuddin said a dozen banks and 17 financial institutions signed participation agreements with the central bank to avail of the Tk 300 crore housing refinance scheme launched by the central bank in July last year. Under this scheme, someone earning below Tk 30,000 a month will qualify for a maximum of Tk 20 lakh loan to buy a flat not bigger than 1250 square feet in Dhaka or in any other city.

Annual interest is fixed at 10 per cent and the loan is repayable in 20 years with one year grace period. But the disbursement remained so far slow and totalled less than Tk 10 crore in six months till December 2007, officials said.

Financial sector experts suggested restructuring of the House Building Finance Corporation, the state-owned mortgage lender, for supporting both public and private housing schemes so that major cities, including capital Dhaka, could be saved from proliferation of slums. The corporation’s chairman Sajedur Rahman mentioned that the corporation was undergoing some reforms and planning to build low-cost houses targeting low-income buyers.

Construction of dormitories for workers is also among the development plans of the HBFC, he said. The World Bank report, presented by its senior economist Tatiana Nenova, recommended subsidies like the one provided by HBFC in the past to middle and lower income home buyers, should be introduced and traditional focus on higher income people should be changed to lower income people.

Housing sector leaders urged the government to ensure availability of land, major cost of housing beside the construction, and suggested public-private partnership with funds from multilateral lending agencies.

The finance adviser mentioned that the government was considering simplification and further modernisation of land registration system and a decision had already been taken to reduce the steps required for it for allowing a healthy growth of the housing sector. Both the adviser and the governor pointed out that the demand for housing in rural Bangladesh was eating up arable land. They felt that something had to be done in addressing the issue.

The government has already shown interest in the World Bank’s assistance for a detailed strategy for reforming housing finance market in Bangladesh through development of mortgage credit ensuring effective property rights and removing obstacles to commercial home loans.

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