By Sohail Osman Ali, MD, HBFC
July 05 - 11, 2004

I have divided my article into three parts. The first gives an overview of the importance of the housing sector for Pakistan. The second part deals with the national housing policy 2001 which is an important first road map identifying what needs to be done to improve the sector. In the third part, I have highlighted real problems that need to be tackled immediately. I have included also a paragraph on HBFC, which at over 50 years is the oldest institution in South Asia providing housing finance to individuals.


It is universally recognized that the construction sector is an important engine of economic activity and growth. The construction sector is a major source of employment. For example, on an acre of land a builder usually puts up 100 apartment, which in turn gives employment to 300 laborers for 3 years earning monthly pay between Rs.3000 to Rs.5000 excluding overtime. Needless to say this purchasing power adds to economic growth, and employment leads to the lowering of costs connected to maintaining law and order.

Construction sector directly benefits over 40 allied industries and sectors including cement, steel, hardware, wood, sanitary fittings, aluminum, glass, flooring, pipes, brick, paint, and also printing, electrical, transport, reti bajri and so on.


The Federal Government recognized the importance of the construction sector and introduced National Housing Policy 2001. This policy serves as a road map of what requires to be done at different levels to give a boost to construction.

Issues that have been identified in the policy which need to be resolved include land titling, housing finance, construction sector, katchi abadis, infrastructure development, low cost housing, women in housing, institutional and legal framework etc.

The policy was prepared by a Housing Advisory Board consisting of nearly 40 members, half of whom were from the private sector including builders, bankers, town planners, provincial governments, HBFC and SBP.

The policy was notified through Gazette Notification on 24.7.2001 and adopted by each of the Provincial Governments. On 24.7.2001 Punjab Government formed an implementation committee. On 18.8.2001 the Frontier Government formed the implementation committee and on 30.8.2001 the Sindh & Balochistan Governments respectively formed implementation committees Each of these provincial implementation committees was headed by the Provincial Chief Secretaries.


On its part the Federal Government has played a proactive role and taken numerous steps to promote housing sector. These include:

Tax credit on housing loans of upto Rs.500,000 or 40% of income whichever is less, withdrwal of excise duty on wires and cables, reduction of excise duty on cement, exemption of GST on investment in water purification plants to name a few.

As a result of monetary policy SBP rates have come down dramatically. In addition, the State Bank has formed an advisory committee to promote housing finance.

However, many of the issues connected with the housing sector are deal with provincial and local governments and unfortunately matters are not moving as fast as we could like to see them.


National Housing Policy envisages that stamp duty and registration fees will not be more than 1% in total. But this is a provincial subject and the fees continue to remain at high levels. This in turn inhibits interest in ownership, and in order to avoid these high taxes many people are undertaking transactions on the basis of Power of Attorney, as a result of which no fees are earned at all by the government.

On the basis of an exercise conducted internally by HBFC last year, we found that 50% of property owners own properties on the basis of Power of Attorney.

In our informal discussions with provincial government officials we have learnt that with each reduction of stamp duty and registration fee revenues have increased rather than decrease. This is a very strong case for further reduction or elimination of these fees.

The Balochistan and Frontier governments respectively have raised the fees after adopting NHP 2001 rather than lower them.

The National Housing Policy 2001 envisages there will be no stamp duty or registration fee dealing with mortgage finance. This is an extremely important incentive and can encourage people to look it at home ownership through mortgaged finance. In this context, it was a good move when the Punjab government reduced fees from 2% to 1/2% during 2003.

I strongly believe that the lower fees will stimulate improved construction activity and also lead to documentation of the economy. A key reason why mortgaged financing is only 1% of GDP in countries like India and Pakistan whereas its 50% of the GDP in USA and 20% to 30% South East Asian countries is because of the exceptionally high fees, which inhibits acquisition of land and obtaining housing finance.


Due to the lack of stringent enforcement of building laws, illegal structures consistently come up. Subsequently, as a result of actions of concerned citizen groups or the regulators themselves, the illegal structures come down. This clearly highlights the need for potential buyers to ensure that the building is not in violation of any laws. The authorities should provide the public with a simple procedure to find out the status of the building they are interested in.

Recently in another attempt to block illegal construction, Sindh Board of Revenue issued a circular on 8th May 2004, whereby it is a prerequisite that an NOC must be obtained from KBCA prior to registration of lease or sub-lease. This had led to further delays or inconvenience for the public in the documentation, and the process added more weeks to the time.

There is a need for setting up of One Window facility by the provincial governments in each city to reduce hassle and the turn around time in obtaining documents. The Punjab Governor had issued such a directive around January 2004 but this remains to be implemented

Lack of consistent policy was highlighted once again when on 1.6.2004 the Town Nazim of Gulshan-e-Iqbal Karachi levy tax of 11/2% on transfer of immovable properties. This has had a direct effect on our financing in Karachi, Gulshan-e-Iqbal, Gulistan-e-Jauhar and Scheme 33.

In order to promote the housing sector there is a crying need for the concerned authorities to look at the issues in entirety. In other words if the government is planning to develop an area it should not simply work on mapping, allotment and sale of plots, but approach the project as a Package deal.

In other words all aspects of infrastructure development should be examined and provided including water, sewerage, electricity, transport and roads.

To give you an example on the importance of infrastructure, I will take the case of Karachi where nearly 50% of HBFC disbursements has taken place. In Surjani Town, built around 15 years ago, because of lack of infrastructure you will see empty plots all the way to the horizon. You will see hundreds of empty houses, rows of empty flats unoccupied because of lack of infrastructure.

HBFC has financed here, but over 96% of our customers numbering around 7,500 familis are in default for nearly Rs.400 million.

As a result of the Sindh Land Utilization Ordinance 2001, title of land allotted and back dated to 1988 was cancelled. As a result, HBFC has blocked disbursements of over Rs.360 million to around 2,500 families.

It is ironical that there are families who have been living in buildings for over 8 years whom we can not give home repair loans, because as a result of this Ordinance they have lost title to their properties.

Resolution of these major issues will give an overnight boost to the construction sector.

With low returns from government securities, rental income could be a valuable source of income for people to look to when they retire. However, the inhibiting factor is that rental laws are currently perceived to be very one sided and tilted in favour of the tenant. The people will only be encouraged to develop their empty plots, rent out empty flats or add portions to their houses for rental purpose only if these laws are changed and made more evenly balanced.

On the basis of a survey we conducted at HBFC of 28,110 flats we found 28% of these or 7,856 flats were empty. According to another report there are around 200, 000 empty plots in Karachi and an estimated 100,000 empty flats.


At HBFC, in order to contribute towards promotion of housing sector, we have taken various steps. HBFC has been turned into a multi product company and we provide facilities for home construction, purchase, and repair. We have introduced builder finance and set the per party limit at Rs.850 million, but can finance larger projects by arranging syndicated finance. For customer convenience we have introduced numerous transparency measures. These have included setting a goal for our employees which is "to be a leading financial institution providing service in a reliable, efficient and customer friendly manner" . Transparency measures have included placement of posters and brochures at the entrance of all our offices for the information of customers, an in house developed and informative website, www..hbfc.com.pk. One Window facility in Karachi, Lahore, Islamabad and other District Offices which are attached to our Zonal Offices. I am pleased to say that despite the fact that during 2003 for the first time in our 50 years history we were competing with 16 other financial institutions offering housing finance, we disbursed Rs1.5 billion, a record disbursement in over a decade. In the 6 months ended 30th June 2004, we disbursed over Rs.1.2 billion, a record half year disbursement in our 50 years history. Our recoveries during 2003 were Rs.2. 8 billion, which was a record recovery in our history.


It is my belief that the construction sector is perceived as a federal government subject and, therefore, not enough attention is being paid to streamline and improve it at a provincial and local governments level. There is an urgent need for all concerned to act collectively in promoting the construction sector so that its full potential is realized and the whole nation benefits.

Editorial note: The circular issued by the Board of Revenue of May 8 was challenged in the Sindh High Court. On July 2, 2004 the Sindh High Court allowed registration of sale deed in respect of buildings constructed before promulgation of the Sindh Building Control Ordinance 1979, without no-objection certificates by the KBCA pending final abjudication of the matter.