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Role of migrants, remittances good chance in scaling up the housing sector

Pakistan’s housing backlog has reached almost 11 million units. 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 ten 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 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 Rs0.5 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. This presents a huge untapped financing opportunity for the banking sector, which, so far, has been least interested to cater to this segment. Not only banks, builders and developers remain reluctant to instigate a new budget residential project as they fear that many units will not be filled.

The previous governments have ‘ignored’ the problem for a very long time i.e. no real effort or viable solution has been designed to target the problem. By the close of Amnesty Scheme 2018 on July 31st, 2018, declarations from 5,363 entities had disclosed foreign assets worth Rs1,003 billion (US$8.1 billion), with a major share of declared assets located in the UAE. The total volume of Dubai properties is over Rs4,240 billion with annual investment and growth of Rs220 billion where Pakistani property agents, investors are counting them as over 5,000 individuals, entities. The authorities who have been investigating illegal accounts & properties set up abroad revealed that $350 billion or Rs43 trillion assets have been hidden abroad by Pakistani nationals.

One of the agendas of the present government is to build 5 million houses for the middle and lower income segments in 5 years through the private sector which apart from providing shelter, will boost construction industry and create jobs. If the present government is sincere in this project, then it should either manage to bring the funds back or ‘convince’ the entities involved to invest in local housing sector as well.

The role of migrants and their remittances could also play a vital role in revival of housing sector. After achieving economic stabilization, one of the main investment goals of immigrants and their recipient families revolves around their housing situation back home. Carrying out home improvement projects, the purchase of land for construction or the building of a home are their key goals. A house becomes a symbol of the economic well-being and a representation of the financial improvement that is being achieved through the migration.

 

In Bangladesh, non-resident Bangladeshis (NRBs) have also been provided facilities to invest in local companies. A quota of 10 percent has been fixed for NRBs in primary public shares, beside which the Ministry of Expatriates’ Welfare and Overseas Employment has fixed a quota for emigrant Bangladeshis in government housing projects. Similarly, the Privatization Commission gives overseas Bangladeshis the chance to purchase denationalized industries at lower prices. In Philippines, the Pag-IBIG Overseas Program is a voluntary savings and investment program that aims to provide OFWs opportunities for saving, availing a housing loan, and earning dividends. Members contribute a minimum amount equal to US$ 5 every month, and can avail housing loans of up to PHP 3,000,000.

In Pakistan, Overseas Pakistanis Foundation, a government organization for the welfare of overseas Pakistanis and their families, has been operational since 1979. The organization works in many areas to assist overseas Pakistanis, including the establishment of education and health institutions, and housing and industrial schemes, investment opportunities, and providing the necessary information and assistance to overseas Pakistanis. One of the initiatives for reaching out to immigrants is ‘housing fairs’ to be held in major cities which could bring in banks offering mortgages to immigrants.

A robust financial sector is the key to have sustained long-term growth. Within the financial sector, both infrastructure and housing finance are the pillars that support development of the economy. Housing and construction sectors are labor-intensive having backward and forward linkages. In developed countries, housing finance is one of the main drivers of the economy where percentage of housing loans to GDP is more than 50 percent. In developing countries like Thailand, it is about 15 percent; and in the South Asia region, India has corresponding ratio of 6 percent. Pakistan lags far behind with one percent. The mortgage market in Pakistan needs to overcome institutional bottlenecks to experience considerable transformation.

The writer is a Karachi based freelance columnist and is a banker by profession. He could be reached on Twitter @ReluctantAhsan

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