AFFORDABILITY & ACCESS TO FINANCE
Pakistan has a housing backlog of almost 10 million units (source: ABAD’s Real Estate Research, 2016 and Lamudi’s White Paper 2017). Only one percent of the housing units developed annually cater to 68 percent of Pakistan’s total population, comprising people who earn a maximum monthly income of Rs30,000. On the other hand, almost 56 percent of housing units target 12 percent of the population, comprising individuals with a monthly income of Rs100,000 and above. Currently, the housing shortage is estimated to be over nine million units with demand growing at a rate of 0.6 million new units per year. Constructing 0.6 million new housing units a year just to meet fresh demand is a huge task. And if we add to it 0.5 million units to clear the backlog in the next 20 years keeping in view a State Bank of Pakistan (SBP)-estimated backlog of 10 million units, there is a need to build 1.1 million units per year. This means fresh loaning of approx. Rs300 billion a year to meet only fresh demand (even if we assume that an average housing unit is built at a cost of just Rs 0.5 million). Thus at least Rs250 billion a year is needed to gradually clear up the backlog. By 2025, the shortfall is predicted to swell to 20 million residential units.
There are various reasons for the underperforming housing sector in Pakistan, some of which are:
- Urban migration on a massive scale.
- Exponential population growth.
- Traditionally people lived in ‘joint family systems’ now there is a trend to live separately.
- The government has ‘ignored’ the problem for a very long time i.e. no real effort or viable solution has been designed to target the problem.
- Private developers are not interested in targeting lower income segment—it’s perceived as too high-risk.
- Cost of living is high in cities, and consequently, savings at low income level are negligible or non-existent.
One of the main bottlenecks is the underdeveloped mortgage sector — just 0.5 percent of GDP. With a more accessible home loan market, many more Pakistani people could find the capital for their first-time home. The main problem lies in the housing-finance to GDP ratio, which in Pakistan is one of the lowest in the world at just one percent compared to the seven percent in India. Unless lower middle-class people get access to home loans, there will continue to be a problem with the construction of new properties for this lower-tier segment. It is a vicious circle; people can’t get home loans so they can’t even buy low-cost affordable houses and demand remains low for cheaper housing schemes to be built, developers remain reluctant to instigate a new budget residential project as they fear that many units will not be filled.
Pakistan’s real estate is witnessing a steady growth as the country struggles with lack of urban planning and a host of basic facilities that ensure quality of living. Well-planned and systematically-organized housing societies catering to the need of predominantly the upper middle class are quickly rushing in to fill the gap.
The modern housing societies in their essence should provide for all the facilities that the poorly planned or unplanned and ever sprawling metropolises drastically lack including all the basic necessities of life. The standard of living may differ from one housing society to another but a real estate customer usually expects quality, reliability and all the basic facilities that are needed in life. Like every other business sector, real estate should ensure quality products and services as value for the customers’ money. The real estate industry needs to turn up the competition to lead the sector into healthy reforms, ensuring quality and affordability; and to encourage fresher ideas to facelift the industry.
Projects in Lahore
- DHA Lahore. Demand up 10%
- Bahria Orchard. Demand up 7%
- Johar Town. Demand up 5%
Projects in Karachi
- Bahria Town Karachi. Bahria Town is the largest housing scheme in Karachi and property prices have been on a steady incline since it opened to the public. As of March 2016, over 104,000 residential units were sold. Demand up 10%.
- Fatima Golf Residency. This one is a premium choice for Karachiites. This housing scheme was a favorite for property investors that were before the new capital gains tax laws, which force an investor to hold a property for at least four years. Demand up 14%.
- DHA City. The Defense Housing Authorities’ flagship residence was an investor’s favorite in 2016. Demand up 10%.
Projects in Islamabad
- DHA Islamabad. The only real winner this year was DHA posting some significant prices hikes throughout the year—on average 8 percent.
- Gulberg Housing Scheme. At just 20 minutes’ drive to the airport the demand for Gulberg is constant and explains why this area has avoided the stagnation of other competing housing schemes in the locality.