HOUSING FINANCE: THE GROWTH

It is no wonder that the housing finance market has grown by leaps and bounds

By NIHAL AKHTAR
Aug 30 - Sep 05, 2004

Five years back housing and other consumer good financing carried interest rates of 18% and 21% but now housing loans come as low as 7%. And almost every bank is offering housing finance for the purchase or renovate house at very attractive terms in comparison to only two institutions few years ago, one in the private sector i.e. IHFL and other HBFC a public sector entity.

While rates are not expected to fall further in fact they are expected to rise in the near term, especially in the context of rising oil prices the housing finance sector will continue to flourish because there is still surplus liquidity in the market.

The switch to consumer-based economy from saving based economy by present regime and liberalization of economy since 1999, consumers not only has a long list of goods and services to choose from but also the means to acquire them. And housing finance is probably the fastest growing segment in consumer lending. "Borrowing today in Pakistan is a means of achieving success and borrowing for a home is looked at very positively," says Ikramullah Shariff, Vice President and head of housing finance of PICIC. He further said that government had taken a very positive step to lower down the interest rates for housing finance and now every one could afford his own house. However, government should take steps for the revival of housing industry by offering maximum incentives for this sector in order to meet the demand for housing stocks otherwise the prices of properties will shoot up to a level making it unaffordable for a common man.

It is no wonder that the housing finance market has grown by leaps and bounds. It is estimated that all banks in the last fiscal year provided housing loans worth between Rs. 206,000 million.

With interest rates for fixed deposits and savings accounts declining for the past five year and are currently at the lowest, as such there is no advantage to saving or paying rent. More and more people are opting for house loans instead of paying rents.

Moreover, it would have been extremely difficult to get large loans of the kind in the past. It was not easy to get a mortgage, as a bank would not lend based on a lien on the property, but on the borrower's financial status and whether he could get a co-signatory or a guarantor for the loan. "Banks would come and interview you before you got anywhere close to even making an application. And foreclosing a property was not easy. That has changed in the past three years.

The present stock of housing is not sufficient to meet the demands and hence we see a sharp increase in prices of properties for the last several years, the other reason of price increase is the lower rate of return on saving schemes. The gap between demand and supply increases the prices of this commodity day by day and in order to control this price hike, both federal and provincial governments should take bold steps to revive the housing industry and provide incentives to investors so that funds both local as well foreign would be injected in this sector.

Besides a backlog of over 4.5 million housing units in the country, which has created a demand for the new housing units, the high rate of return on investment in the housing sector was another factor, which is causing price inflation in the housing sector. Currently, it is said that there are two most attractive avenues for making investment i.e. the stock market and the real estate business. Besides the genuine buyers, there are a large number of investors who are putting their money in the housing sector. In order to control unabated price hike, the government should made available its land at an affordable price so that the wings of the high soaring prices could be clipped at the earliest.

Besides all time high prices of the land and cost of construction, getting utility connections at an exorbitant rates is another major reason for adding fuel to fire. Providing utilities at an affordable rate is the responsibility of the state, however, it is unfortunate that housing projects completed two three years ago are still waiting for electricity or water connections. This is an area where special and immediate attention of the government is required to make the housing and the construction industry as the real engine of economic growth in Pakistan. It is the second instance when the housing and the construction industry were well poised for a boom in Pakistan. Resultantly, economic activity was also visible in over 80 industries allied to the construction and the housing sector creating jobs for the millions of skilled and semi-skilled people besides huge number of unskilled labor who also fetch their bread from this industry. In order to make things moving, there is a need that such bad laws, which are hampering movement in this industry, should be rectified in the larger national interest.

Owning a house has always been a dream of a common man, however, the increasing prices are taking the dream away from the shelter-less as the cost of even a small house is now out of the reach of the middle-income group. The construction industry was pinning high hopes in the leadership of newly elected Prime Minister Shaukat Aziz who has the vision to make thing move in the right direction.