Revitalising the housing sector
From SHAMIM AHMED
17 - 30 , 2001
The Federal cabinet, at its meeting chaired by the
Chief Executive Gen. Pervez Musharraf in Islamabad last week approved
the National Housing Policy 2001, which envisages the government's
role as a facilitator and regulator to stimulate economic activity,
employment generation and harness individual and private potential for
generation of resources.
The policy outlines inputs required for
revitalising the housing sector, including financial and legal
measures, indigenous production and use of building materials and
construction techniques. It also specifies policy guidelines for low
cost housing, slums and Katchi Abadis, rural housing and institutional
and legal framework with clearly defined roles of federal, provincial
and local governments in the housing sector.
Explaining the salient features of the new policy,
the Minister for Housing and Works, Mr. Abbas Sarfraz told newsmen
that the State Bank of Pakistan has issued revised instructions to
commercial banks allowing them to provide mortgagee financing for
construction of houses to the extent of Rs.5 million for a maximum
period of 15 years. HBFC has been authorised to undertake activities
for raising funds.
The banks have been allowed to have an exposure
under housing finance to the extent of 5 per cent of their net
advances which is a substantial amount keeping in view net advances of
Rs. 886 billion of commercial banks as on 31.12.2000. The State Bank
of Pakistan has conveyed no objection on the promotion of Housing
Finance Institutions to encourage savings and provide credit from
community based finance and other sources. Further the banks/HBFC are
being asked to devise procedure for the same.
The State Bank of Pakistan has also conveyed its no
objection for increasing the annual disbursement of HBFC loans from
the present Rs.1.2 billion to Rs.7 billion over the next 5 years.
However, it would be subject to the ability of the HBFC to raise
resources enabling to disburse the amount to the extent of the desired
level without any credit line from the State Bank.
The government of Punjab and Sindh are
rationalising stamp duties/registration fees. Duties on construction
machinery, ship building scrap and coal fired cement plants have been
reduced. Mark up on housing loans have been made tax deductible up to
25 per cent of income tax.
The provincial governments have been asked to
identify deh lands which could be transferred to individuals and
families residing on them. A committee constituted by the Ministry of
Housing and Works, which includes representatives from provincial
governments, architects and M/0 Environment LG and RD, will shortly
submit recommendations on the issue. The State Bank has allowed HFIs
to float long term bonds for housing finance.
Housing has already been declared as a category C
priority industry and is entitled to concessionary rate of 10 per cent
import duty on machinery not manufactured in Pakistan. The Ministry of
Housing and Works, in coordination with the provincial governments,
would develop a package for improving the living conditions in katchi
abadis and slums.
The dangerously located slums should be shifted to
an alternate location on state land within the cities under a smooth
and organised manner. For this purpose low cost housing schemes should
be developed. The master plans under the housing policy should be
prepared for the metropolitan and major cities by the provincial
governments within three years and development plans for district
level cities, towns and union councils should be prepared by the local
governments and union councils within two years.
The Secretary, Ministry of Housing & Works told
newsmen that new Housing Policy has provided attractive incentives to
private sector to play its role in government's endeavour to provide
housing facility to each citizen. The policy had been developed after
detailed consultation from experts from private sector besides active
involvement of the provincial governments. The government has decided
not to launch any new housing scheme. Over 500,000 houses are required
at present and this shortage is being increased by over 200,000 units
every year. "Here is an opportunity for the Private Sector to
come forward and make use of liberal incentives and credit facilities
being offered by the government," he added.
It is apparent from the perusal of the new policy
that considerable emphasis has been laid on promotion and facilitation
of house-building with loan financing from the banking sector and
through development of Housing Finance Institutions (HFIs) in the
private sector. At the same time greater scope has been allowed to the
House Building Finance Corporation (HBFC) from a new, purposeful
approach. This will, however entail its own restructuring besides
expanding loan financing from Rs.1.2 billion, as now to Rs.7 billion
over the next five years. For this purpose recourse will be allowed to
mobilization of savings and other financing instruments from the
capital market, independent of lines of credit from the State Bank.
It will, however, be noted that it does not carry
and pretension of commitment for financing initiatives by the federal
or the provincial government for the construction of low cost houses
in the public. This approach makes a vivid contrast with such populist
projects like much publicised "Mera Ghar" scheme. It will be
recalled that the schemes initiated by the previous government with
allotment of state lands at impressive locations all over the country,
were only to end up as an exercise in futility. There can be no
denying the fact, that the involvement of the State either at federal
or provincial levels can hardly be feasible evidently because of the
resource gap in their budget.
It will, however, be noted that enough provision
has been made to address this predicament from well-conceived
incentives and other measures for tackling this problem by the banking
sector and financial institutions. This should go a long way toward
ensuring their active participation in the promotion of housing
construction, especially for low cost housing which has its own
importance in elimination of slums and 'katchi abadies' from large
cities and other places in the urban areas. It is encouraging to note,
therefore, that the central bank of the country has already allowed
the commercial banks to offer mortgage lending. To make the scheme
feasible, housing construction maximum limit for a single project has
been set at Rs. 5 million. At the same time, the total banks advances
on this account have been allowed up to 5 per cent of total advances
of the banking system Moreover, borrowers for housing construction
loans have been allowed tax deduction of up to 25 per cent of their
tax liabilities in respect of mark-up.
For further facilitation of credit for housing,
raising of funds by the Housing Finance Institutions has been allowed
by issue PTCs and TFCs in the capital market or by attracting
community-based funds. The same approach has been recommended for
self-financing for the expansion of HBFC's operations in this spheres.
However, the move in this sphere will appear more ambitious than
practical. For it cannot be put to work effectively until such time as
it is privatised from a matching effort with the induction of private
sponsors or bankers. For the HBFC has ceased to remain eligible to
line of credit on confessional rates by the State Bank of Pakistan
since 1994, thus evidently left to operate on its own resources, as
built up an recoveries of its earlier loans and profits earned on the
loans advanced to its customers.