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Who would finance backlog of around a million housing units in Pakistan?

The claims of prosperity and progress made by the incumbent government belie the reality. Almost 50% of the total population of 208 million lives below the poverty line in Pakistan. And those considered bourgeois also face difficulty in meeting both ends meet these days. So where is that prosperity? What kinds of goggles are required to see, touch or at least feel that prosperity? A very big question, indeed!!!

Let alone owning a house in Pakistan by the majority of the population, even the so-called bourgeois find it difficult to maintain the living standards being enjoyed by them for the last decade or so.

There is backlog of around a million housing units in Pakistan at present and the demand for additional 300,000 housing units increasing with every passing year.

The question remains who is going to solve this problem once and for all. Could the banks alone do it and are they doing it? Is the Central Bank doing something in this regard? What has been done so far by the so-called democratic forces making empty promises with the masses during the election campaigns and also during the public gatherings now and again? The poor suffer the most.

Eight men own the same wealth as the 3.6 billion people who make up the poorest half of humanity, according to a report published by Oxfam to mark the annual meeting of political and business leaders in Davos. Inequality is trapping hundreds of millions in poverty; it is fracturing our societies and undermining democracy.

Pakistan faces economic challenges and poverty is one of the acute issues in Pakistan. Homeless individuals are the real weapon who may bring troubles unimagined.

Just a few months ago, a World Bank delegation, including representatives of Pakistan Mortgage Refinance Company (PMRC), met the president of a leading bank in Pakistan and disclosed that the World Bank will provide funds for housing projects that will reach banks through PMRC. The World Bank will provide Pakistan with support to expand conventional mortgage lending, increase housing finance for the low-income segment, build capacity and ensure technical assistance for housing policy. It was discussed that housing finance has vast development potential and there is need for low-income housing projects in Pakistan. It was disclosed that if the government provided free-of-cost land, a small house comprising one room with attached bath, kitchen and veranda could be built costing around one million rupees.

A couple of years ago, the central bank disclosed that housing shortage had reached nine million units in Pakistan and the formal financial sector caters only up to 2 per cent of all housing transactions, which is the lowest ratio in region. The State Bank’s Quarterly Housing Finance Review released in January 2015 stated that there was shortage of around 8 million housing units in 2009, which had been accumulating by 0.34 million units every year. The same report said the informal lending caters up to 10-12 percent of transactions for housing. The property development industry suffered from low public confidence. Financial weaknesses and the absence of clear and fair business practices had affected its credibility, contributing to the reluctance of financial institutions in providing development and construction finance. The Central Bank disclosed in the same report a couple of years ago that the financial institutions were reluctant to enter this market, which in turn caused scarcity of finance and constraints in the supply of housing.


Looking at this situation depicted by the SBP, one can gauge big gaps in the system. Again, the question remains who is going to fix the system? One can hardly find a difference between the situation depicted a couple of years ago and the current situation.

House rents have spiked beyond affordability in Karachi, Lahore, Islamabad and many other cities and towns owing to the influx of people from rural areas to urban areas in search of livelihood which otherwise is a challenge in rural Pakistan.

Recently some Chinese investors offered $1 billion investment in two mega housing schemes in the Khyber Pakhtunkhwa (KPK). This is indicative of the potential in the sector and there are signs that the Chinese may expedite their investment activities in the housing sector of Pakistan. In addition to the CPEC related investment, the Chinese investors must be eyeing the colossal gap in the housing sector and the huge returns on investment. Now, the task of State Bank of Pakistan may be to streamline and chalk out the strategy for financing in the sector.

There is prevalent assumption that at an estimated size of Rs7 trillion, Pakistan’s real estate market has been operating like an informal, yet parallel stock exchange. How true is it? Well, it is to be answered by the competent authorities. The decision by the government to bring the property sector in the ambit of the Companies Act of 2017 may prove better for the masses.

Consistent and prudent policies with sincerity and implementation would bring about solutions to the perennial problems. If the policy makers flip-flop, the status-quo would prevail. The Federal Budget 2015-16 announced that the minimum tax builders were required to pay for the construction and sale of residential buildings was suspended; bricks and crushed stone (crucial building materials) were given a sales tax exemption until June 30, 2018, and Customs Duty on the import of construction machinery was reduced to 10%. In the Federal Budget 2016-17, property taxes were increased and the outdated District Commissioner (DC) rates for property valuation were replaced by the FBR determined market values for documentation and taxation purposes. In the federal budget for FY18, a special tax regime was withdrawn. Builders believed this withdrawal, coupled with two other budgetary measures, will push up the cost of construction.

Based on the so-called economic growth coupled with the ever-increasing debt-liabilities and the amount of debt-servicing, may be beyond affordability, it would be prudent to hold result-oriented international events for investment in the housing sector which would ultimately eliminate housing backlog and create manifold employment opportunities for the unemployed skilled, semi-skilled and burgeoning unskilled work force.

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