Challenges and opportunities


Aug 05 - 11, 2002

A house is the basic need of every one. All countries take extra measures for promoting construction and ownership of houses. Pakistan is also keen to provide houses to its people. National Housing Policy - 2001, formulated by the government, has the concurrence of all the provinces. The Policy objectives are: (1) to accelerate housing activity and contribute towards employment generation and economic development; (2) to facilitate provision of housing inputs including land, finance, building materials, institutional and legal framework; (3) to analyse the culture of poverty and the forces generating ever-increasing slums and katchi abadis including political public, socio-economic, bureaucratic and environmental forces; (4) to promote ways and means for housing development by enhancing affordability, saving capacity, human tendencies and potential; (5) to provide safeguards against malpractice, bureaucratic inefficiencies, institutional weaknesses and mafia assaults and (6) to develop indigenous and cost effective approaches particularly for the low-income groups. To realize these objectives, actual implementation of appropriate measure is important.


According to 1998 Population and Housing Census in Pakistan, there were over 19.3 million housing units, of which 67.7 per cent were in rural and 32.3 per cent in urban areas accommodating total population of 131.5 million. Of the total houses, nearly 15.6 million (80.8 %) were owned, 1.7 million (9.0 %) rented, and 2.0 million (10.2%) rent-free. The percentage of owned housing units were higher in the rural areas compared to urban areas. However, the percentage of rented houses was significantly higher at 23.2 % in urban as compared to only 2.3 % in the rural areas.

On the basis of the World Bank's recommended occupancy rates of 6 persons per house, the total number of required housing units in the country would be roughly 24.3 million up to the end of June, 2002, based on the population of 146 million at present. Every year, 0.3 million new houses are added to the existing stock by the public and private sectors. On the other hand, 10 per cent houses of the total supply are depleted/destroyed/ demolished every year, resulting in to decrease in available housing units to 20.0 million housing units leaving a backlog of 4.3 million housing units. In order to make up the backlog and meet the shortfall in the next 20 years, the government estimates that overall housing production has to be raised to 500,000 units per annum from 300,000 units at present.

The increase in new houses to 500,000 units annually, offers big opportunities to HBFC, commercial banks and other financiers. Assuming self-finance to cover 50 % housing units each year, around 250,000 housing units will require loan assistance from HBFC and other institutions in the financial system. Total annual cost will be around Rs.50 billion, on the basis of Rs.0.2 million average loan per housing unit, of which Rs.20 billion (40%) may be met through loans, the rest of the cost to be met by the owners from own resources. Some construction industry experts value the annual housing market at Rs.15 million. Moreover, major repairs or replacement of mud houses with concrete construction, loans needs may further increase. Different assumptions will giver lower or higher funding estimate, but it is certain that funding needs for new houses are very high and there are big opportunities for all the financiers. This paper attempts to review the difficulties in the way of smooth construction of houses at present and offers suggestions to accelerate the financing of construction activities.


The federal government has already referred the Policy to the concerned organizations and the provincial governments for implementation. The provincial governments have set up committees under their respective Chief Secretaries to monitor progress on implementation of the Policy. Initially, progress on implementation has been slow largely due to the Devolution of Power, but now it appears the respective authorities are gearing up for promotion of housing. In order to meet the annual target of 500,000 new houses each year, it is essential to take concrete steps towards implementation of the housing policy, in letter and spirit. Actions on priority basis are required in the following areas:

a. The provincial and local governments may identify state and other lands in and around urban and rural settlements for housing developments at reasonable rates.

b. The government to allocate funding for infrastructure, amenities and other developments and to direct, for provision of trunk infrastructure, the utilities like Wapda, PTCL, SNGPL, SSGCL, KESC, etc.

c. The government to reduce stamp duties and registration fees.

d. The foreclosure laws may be reviewed and improved for earlier relief to the creditors. At present it is cumbersome and lengthy.

e. Rationalization and reduction of duties & taxes on major construction materials to be reduced to make construction more affordable.

f. The government to standardize and approve, for each category of plot and location, up to five construction designs. At present it is a big irritant and cause of delays in housing construction. It may be decided that in case the standardized designs are used, there is no need for formal approval of the construction plan / designs. The house builder should simply inform the civic authorities of the design selected for construction.

g. The provincial governments may consider granting proprietary rights to individuals and families residing in houses constructed on Shamlat and state land.

h. The dwellers of the Katchi Abadis may be given ownership rights and required to construct houses as per approved plans after payment of cost of land and other related charges.

i. The government to review rent laws. Non-payment of rent by the tenant should result into his ejection from the rented houses. At present the process is cumbersome and the landlords may have to fight the legal battle for years.


The government and the State Bank of Pakistan have a big role in the financing of construction of houses. The following measures may be considered in this regard:

a. HBFC may, with a view to become customer friendly, revise its loaning procedures, guidelines and formats of different legal and other documents. HBFC may also to train and motivate its personnel for customer service.

b. HBFC determines the construction cost of the house and monthly rental value in its sole discretion. There are chances that the investment of the owners is shown at lower level and the monthly rental at a higher level. Both these measures can put the house owner at a disadvantage vis-a-vis the HBFC when it comes to determining the investment of each party and the share in the monthly rent. Moreover, the HBFC fixing customer upper age limit at 55 years and the collection of cheques for future payments are cause of concern for the customers. These and similar other practices may be changed for transparency and fairness.

c. HBFC existing level of loans has been stated around Rs. 1.2 billion. In five years, annual loan volume is projected to rise to Rs. 7 billion. Using average loan of Rs. 200,000 per housing unit, one can guess that presently HBFC is handling 6,000 new loans each year. In five years time, number of new loans will rise to 35,000 each year. HBFC will have to undergo major restructuring to be able to handle at least six-fold workload.

d. HBFC may be on the privatization list like other DFIs. In view of the type of financing and the customers, perhaps it may be better if its operations are unbundled on provincial basis, by incorporating four successor companies. The provincial government might retain majority ownership but the management control may be given to the private sector. This may bring sea change in the efficiency and financing of housing construction.

e. In view of the high target of new houses for the next 20 years, the government may consider measures to enhance availability of housing finance on easier terms to larger number of customers, without prolonged delays. The SBP may require the banks and DFIs to make minimum 5% of total annual loans to the housing sector. This will open up new opportunities and promote housing construction.

f. The SBP may allocate separate credit lines to the HBFC for the bulk financing and for the individual house owners. The SBP may also consider such credit lines to the commercial banks, from its own resources, or the credit lines obtained for the purpose for the multilateral agencies. In each case, the margin allowed to HBFC or the commercial banks and the DFIs should be commensurate with the credit risk profile of Pakistani customers. The existing SBP practice of allowing 1.5 to 2.0 % margin is not adequate and may not promote housing construction.

g. The lenders should be lending on merit. The borrowers have to be credit worthy with capacity to repay on time. The government and the SBP may emphasize compliance with prescribed lending guidelines. Foreclosure is good as a threat to defaulters but is not an effective tool for effecting full recovery. Capacity for good loaning has to be developed in the lending institutions.


The backlog and the new housing units needed every year may not be adequately tackled through traditional methods. Other appropriately methods need to be explored and used suitable safeguards. The following are some of the options:

a. Private Individuals as Investors (not the usual Builders) may wish to build small houses and rent them out for regular income. This can be a big source for housing finance throughout Pakistan, provided these individuals are assured that the Rent Laws will be changed so that the tenants in rent-default are thrown out if they miss maximum three month rent. Tax concessions may also be allowed to these small financiers. They need to be encouraged. Mark-up rate on the housing loans may be brought in line with the net return to investors received from the National Saving Schemes. These measures are expected to give a boost to the housing finance and construction.

b. The government and the SBP may consider subsidized micro loaning facilities for rural housing construction through institutions like Micro-finance banks, the Khushhali Bank, Zakat funds, etc. These steps may be more relevant for the rural areas of Sindh and Balochistan, where housing situation is grave.

c. Employees Old-age Benefits Institution, the Workers Welfare Fund and other similar funds may consider making investment in housing schemes, as per prescribed procedures. The houses so constructed may be given to the workers in a transparent and fair manner.

d. The industries producing construction materials may diversify to housing construction, initially for their workers and later to the general public. They may go for deferred payment say for 5-10 years. This may increase industrial activity.


a. House Loan Defaulters- Normally, the defaulters deserve no sympathy. However, when it comes to house loan defaulters, one has to be more considerate. The government and the SBP may explore certain insurance or guarantee programmes that can be relied upon to save the defaulter family from being thrown out on the footpath.

b. HBFC housing finance is said to be on partnership basis. HBFC and the private investor are joint owners. As time passes, the loan gets reduced and so does the monthly rent that is collected in lieu of interest by the bank. In case of default for say about one year, the bank may allow the defaulter cure time to improve his / her finances to be able to start repayment. To the extent the bank has not been paid, the bank may increase its share in the total investment. In foreclosure, the banks may consider some relief to the families, which do not have any other place as shelter over the head.

c. The Builders and the Small Investors: The builders play an important role in housing construction. They need to be encouraged and allowed to make fair return on their investment. However, it is said that some of them do not stick to the delivery schedule or the agreed cost. The construction quality is poor as compared to the one shown in the brochures, at the time of bookings. The house owners are obliged to incur substantial extra cost for the final finish or electricity wirings, pipe fittings, etc. The government / SECP / SBP may consider steps to end such mal-practices/ exploitation, if any. Independent agencies may be appointed to monitor the contract compliance by the Builders.


Housing backlog is big and will get bigger if the actual construction in any year is lower than the target. The government, the SBP, the SECP, the HBFC, other bankers, the Builders and the small investors are urged to streamline the procedures and facilitate the financing and construction of houses. Housing construction is relatively an easier way for economic development, employment generation and the alleviation of poverty. Moreover, the beneficial impact of construction will be spread over all areas of the country.