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.
SITUATION, BACKLOG AND FUTURE TARGETS:
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
ACTIONS FOR CREATING CONDUCIVE ENVIRONMENT:
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:
The provincial and local governments may identify state and other lands
in and around urban and rural settlements for housing developments at
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.
The government to reduce stamp duties and registration fees.
The foreclosure laws may be reviewed and improved for earlier relief to
the creditors. At present it is cumbersome and lengthy.
Rationalization and reduction of duties & taxes on major
construction materials to be reduced to make construction more
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
The provincial governments may consider granting proprietary rights to
individuals and families residing in houses constructed on Shamlat and
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.
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 FINANCING FOR CONSTRUCTION OF HOUSES:
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:
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
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.
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
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
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.
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.
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.
FOR ENCOURAGING NEW FINANCIERS TO HOUSING CONSTRUCTION:
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:
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.
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.
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.
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.
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.
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.
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
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