Introduction
The Roshan Apna Ghar scheme is an initiative by the State Bank of Pakistan (SBP) for non-resident Pakistanis to acquire properties in their home country. Under the scheme, overseas Pakistanis can complete their transactions remotely and digitally with their investment being fully repatriable. Non-resident Pakistanis can now purchase or obtain financing for houses in Pakistan through the Roshan Digital Account.
The Roshan Apna Ghar scheme has opened numerous investment opportunities for real estate and allied industries such as construction and housing. Considering the potential of the scheme, the Iqbal Institute of Policy Studies (IIPS) organised a webinar titled “Roshan Apna Ghar: A home, back home.” This blog presents the findings of the webinar.
Concept of Roshan Apna Ghar and the Vision Behind It
The State Bank of Pakistan launched the Roshan Digital Accounts to facilitate overseas Pakistanis in connection with the banking system of Pakistan in September 2020. Over the years, overseas Pakistanis have contributed handsomely to the country’s economy through remittances. This year, the country’s remittances reached an all-time high of 31.2 billion USD. Under the RDA scheme, more than 2 million non-resident Pakistanis have been registered with the banking system, and more than 440,000 accounts have been opened. Moreover, around USD 4,794 million have been remitted to RDA accounts. A large share of these remittances has also been invested in the Naya Pakistan Certificates, an instrument that offers attractive returns on investments.
The Roshan Apna Ghar is an additional product under the Roshan Digital Accounts scheme which aimed to provide a platform for overseas Pakistanis to invest in real estate digitally and remotely. The scheme also provided financing for purchasing or renovating new or used homes in Pakistan. Traditionally, if overseas Pakistanis wished to invest in real estate back home, they had to visit physically for market survey, inspection, and making transactions. With Roshan Apna Ghar, they now have the facility to request the bank to inspect and provide resources for investing in any property.
Banks are able to make evaluations and check the details of all beneficiaries, also confirming that no party to the transaction is on the UN’s terror watchdog list. If everything goes smoothly, the overseas investor can now nominate any person to complete the sale and transfer of property on their behalf. Additionally, it must be kept in mind that all these processes are now digital.
Up till now, all the investments coming into the real estate sector of Pakistan were not easily repatriable. There were no formal channels to transfer money in case of maturity of investments. This created difficulty for overseas Pakistanis, and many remained reluctant to invest in the country’s real estate thereof.
Investments made through the Roshan Apna Ghar scheme are completely repatriable even after a month. The only restriction is on the repatriation of capital gains, which too can be sent after 3 years of making the purchase. This is mainly to stop speculation in the real estate market. However, there is no restriction to use the capital gains to invest in stocks or other real estate projects. To further ease and facilitate overseas investors, a simple full and final taxation scheme is applied to all transactions, limited to 1 per cent of the amount at the time of sale or purchase. The investor need not file any returns after that.
Under the Roshan Apna Ghar scheme, banks have already done their due diligence on critical real estate projects, which are being offered on their websites as pre-approved projects. These are projects where all approvals and ownership documents are verified, along with the developer’s track record. Banks have assigned a score out of 100 to each project, and the investor has a choice to move ahead with any of the listed projects with relative ease. This process provides much-needed comfort and confidence to overseas Pakistanis while investing in real estate.
Another star feature of the Roshan Apna Ghar scheme is the financing aspect. Those NRPs who have invested in the Naya Pakistan Certificates and have significant cash balances in their Roshan Digital Accounts can take lien-based financing on homes and under-construction units. It is a fast process as all applications are digitally processed. The required documents are also very few, and transactions are matured in a maximum of five to six days. Projects for these first groups were financed up to 95 per cent of the value and at a rate of Karachi Interbank Offer Rate (KIBOR).
There is also the option to obtain normal mortgage financing from the banks for those who do not have investments in Naya Pakistan Certificates or cash balances in RDA accounts. The property purchased is offered to the bank as collateral with financing rates at KIBOR + 1.5 per cent. This is the first time that under-construction properties have been allowed for financing in Pakistan.
Obligations and Incentives of the Banking Sector
The former government of Pakistan had given immense importance to the housing and construction sector. There is a huge demand and supply gap in the real estate sector, and the State Bank of Pakistan had partnered with commercial banks to make a product that helped boost the construction sector. Some of the initial steps taken by the former government include the amendment of foreclosure laws as commercial banks were reluctant to enter the housing finance sector; the launching of a markup subsidy scheme on housing finance loans; setting up of a committee that meets on a fortnightly basis to address the challenges of the industry; development of income proxy models for informally employed people; standardisation of documents; e-tracking of applications; and ensuring a constant check on activities of the banking sector. A tremendous number of incentives and benefits have been given to developers and realtors.
The non-resident Pakistani market remained largely untapped. There was a huge potential in this market which is hindered by money laundering and counter-terrorism financing issues. The Roshan Apna Ghar scheme brings the necessary regulatory relaxations to boost investments in the real estate sector. By ensuring that no physical presence of the non-resident Pakistani is required, the banking industry has come up with a breakthrough in the sale and purchase of real estate.
With the number of remittances increasing, due to the Roshan Digital Account, the scheme can be termed ‘accepted’ by the ex-pats and the commercial banks. This can majorly be attributed to the scheme being highlighted on international forums, digital marketing campaigns, social media, and participation in expos. It should also be stressed that marketing alone did not achieve the desired results, as effective handholding of non-resident Pakistanis also aided in creating the environment that enabled and facilitated the ex-pat’s understanding and adoption of the product.
Graana.com proposed the following measure; firstly, targeting existing RDA customers and signing memorandums of understanding with overseas associations of Pakistanis. Secondly, delivering a good customer experience. Thirdly, the spread of word of mouth would bring multiple people towards the product, and if banks are timely in providing their services, positive sentiment towards the product will be established. Fourth, banks must also try to digitise the entire process of investing in real estate from overseas. Fifth, complaint management is also another essential aspect of delivering a successful product. Lastly, there had to be an optimisation of processes involved, such as reducing stamp duties on mortgage creation, verification of documents be made easier, and reduction in the overall turnaround time. Therefore, by placing the customer at the heart of the process, it can be hoped that Pakistan will bridge the demand and supply gap in the real estate and construction sector.
On the incentives side, the real estate sector has tremendous potential. The financial inclusion of overseas Pakistanis in the banking system can be a gold mine for future products. As a tax on low-cost housing schemes had also been reduced till 2023, investments in these projects are becoming more lucrative for overseas investors. The mortgage market is effectively non-existent in Pakistan and is still in its infancy stages. This provides an excellent opportunity for banks to engage with other allied sectors to develop a financial ecosystem in the country.
Incentives and Opportunities in the Real Estate Sector for Overseas Pakistanis
The Roshan Apna Ghar was the most significant initiative as the former government had worked towards facilitating overseas Pakistanis. Using the Roshan Digital Accounts, non-resident Pakistanis easily remitted their money back to the country. And now, under the Roshan Apna Ghar scheme, they can also invest in the real estate sector remotely and digitally.
They also have the option to obtain financing at attractive rates based on lien and n0n-lien traditional mortgages. Non-resident Pakistanis are the biggest asset of the country’s economy. Coming towards the real estate sector, more than USD 10 to 12 billion have been invested in the industry through remittances from overseas Pakistanis. The biggest challenge in doing so has been verifying multiple documents and the approvals required for the development of projects. The Roshan Apna Ghar scheme allows the industry to streamline this whole process.
In terms of recent positive developments in the real estate sector, cities are starting to implement bye-laws and develop master plans; a Real Estate Regulatory Authority (RERA) has now become an Act, and the former Prime Minister had provided a relief package for the construction industry including a fixed tax regime for low-cost housing projects under the Naya Pakistan Housing Program (NPHP), development and regulation of Real Estate Investment Trusts (REITs), and digital mapping of lands in significant cities – all highlighting the importance that was given to this sector by the former government. Therefore, the Roshan Apna Ghar scheme was in line with the former Prime Minister’s vision to streamline investment in the real estate sector of Pakistan.
Coming towards the challenges in the real estate sector, more than 70 per cent of complaints lodged in the Prime Minister’s citizen portal app had to do with real estate. More than 60 per cent of all court cases in Pakistan are related to the real estate sector. Apart from these structural challenges, whenever non-resident Pakistanis invest in Pakistan, they do not find facilitation in their processes. Real estate is closely tied to the economy of a country. Moreover, the construction sector alone is worth USD 750 billion, and development in real estate can create more than 15 to 20 million jobs in the allied sectors. However, for this to happen, the challenges of real estate must be looked upon holistically.
The biggest challenge NRPs face while investing in Pakistan is that they don’t have a verification system for the unit or plot of land they purchase. This is primarily due to a lack of planning, regulation, and access to information in the real estate sector. The former Prime Minister’s step toward digital cadastral mapping of all land units in major cities has become a revolutionary change for the industry. However, for projects like malls and apartment buildings, there is a need for a verification system that ensures that the units being sold are also according to the approved layout plan. Implementing a Real Estate Regulatory Authority (RERA) will also be the first big step towards that process.
Conclusion
The Roshan Apna Ghar scheme is a positive step taken towards facilitating investments in the real estate sector of Pakistan. The program has multiple features which make investments very lucrative. The whole process can be digitally and remotely utilised. The increase in remittances through RDA accounts shows that ex-pats welcomed the initiative, however, the politico-economic turmoil is diminishing their trust which needs to restored.
