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Revitalising the housing sector

Dec 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.