Commercial banks have received a lukewarm response from the public to the government’s recently relaunched housing finance scheme, largely due to the limited size of financing on offer compared to prevailing property prices, particularly in major urban centres, market participants said.

In an effort to address Pakistan’s widening housing deficit, the government allocated a subsidy of Rs5 billion for the current financial year. Subsequently, the State Bank of Pakistan (SBP) rolled out a subsidised housing finance scheme that allows a maximum loan of Rs3.5 million for the purchase of housing units and plots, as well as for the construction and renovation of residential properties. However, banking, real estate and construction experts argue that the current financing cap is misaligned with ground realities, where even small apartments in large cities such as Karachi, Lahore and Islamabad are priced well above the scheme’s ceiling. As a result, banks have seen limited uptake, undermining the scheme’s broader objective of boosting home ownership and stimulating construction-led economic growth.

Experts are urging the government and the SBP to revisit the policy framework and introduce a more customer-friendly structure that reflects market prices and the needs of middle-income households. They also stress the importance of pairing housing finance reforms with a broader investment-friendly strategy to revive the construction sector, a key driver of employment and allied industries. Rafia Lakhani, a construction design and management expert, said the government should actively encourage foreign developers with experience in low-cost housing to invest in Pakistan. “The housing deficit has surged beyond 12 million units nationwide. Addressing this challenge requires not only financing but also modern construction techniques and efficient urban planning,” she said.

Lakhani noted that in many developed economies, vertical housing projects are designed with climate-resilient exteriors and space-optimised interiors to maximise capacity within limited urban land. “Adopting innovative, low-cost and climate-friendly construction models can simultaneously reduce the housing shortage and help Pakistan adapt to extreme weather events and natural calamities,” she added.

Affordability remains a critical constraint. According to the latest data from the World Population Review, Pakistan’s housing affordability index has declined to 0.4 from 0.5, indicating a sharp deterioration in affordability amid rising property prices, elevated mortgage rates and a persistent shortage of housing units. The report places Pakistan below regional peers, with Bangladesh posting an affordability index of 0.7 and India at 0.8. Industry stakeholders believe that without a substantial increase in financing limits, the current scheme will fail to gain momentum. Ibrahim Amin, Chairman of TriStar International Consultants, a real estate valuation and engineering firm, said the SBP should enhance the loan ceiling under the “Mera Ghar Mera Ashiana” scheme and allow greater collaboration between banks and developers to launch affordable housing projects within cities and in peri-urban areas.

“As the housing deficit grows every year, demand for property has increased, pushing up land and construction costs. This has effectively priced out a large segment of the population from even small housing units in major cities,” Amin said. In contrast, he noted that demand remains subdued in smaller cities due to limited employment opportunities, inadequate healthcare and education facilities, and weak urban infrastructure. Amin argued that raising the financing limit to Rs10 million would materially change the scheme’s impact. “With a higher loan cap, a significant portion of the middle class and overseas Pakistanis would be able to acquire decent housing. This would not only improve living standards but also trigger a construction boom, generating employment and supporting overall economic growth,” he said.

Market participants point out that Pakistan has already witnessed the potential of subsidised housing finance in the past. In October 2020, the SBP introduced a subsidised markup housing finance scheme for the first time, structured across three income categories. After several revisions, the initiative gained rapid traction, with banks receiving financing applications amounting to Rs514 billion within just one and a half years.

Under that earlier scheme, borrowers could access financing of up to Rs10 million at subsidised markup rates ranging from 5% to KIBOR plus 2.5%, with repayment tenures of up to 20 years. The programme was widely credited with reviving construction activity and increasing formal mortgage penetration in a market historically dominated by cash transactions.

The scheme was later discontinued by the subsequent government, citing elevated policy rates, fiscal constraints and a shortage of funds to sustain markup subsidies. In September 2025, the current government relaunched the housing finance initiative, but with a sharply reduced financing limit, which experts say has diluted its effectiveness.