Many practical steps are needed, including suitable amendments in the relevant laws


By Muhammad Bashir Chaudhry
Jan 06 - 12, 2003




The Lahore Development Authority governing body on 16th December 2002 reportedly approved a housing scheme for low-income groups that will be situated adjacent to the LDA scheme for the government employees, on Raiwind Road and will comprise 2,000 three- and five-marla plots. The body decided to invite applications for allotment of plots in the low-income groups housing schemes in February next. It was also decided to create a separate setup for developing the scheme for overseas Pakistanis and receiving applications from them. LDA initiatives for developing new housing schemes are timely. However, in view of the shortage of houses in the low-income segment of society, LDA and other similar development authorities are urged to take up more such schemes in future.

The State Bank of Pakistan organized a seminar on housing at Karachi on Dec.11-12, 2002. Many stakeholders participated and a number of papers highlighting different aspects of housing including problems and bottlenecks were read. The Prime Minister's Advisor for Finance inaugurated the seminar. He highlighted the need for building new houses and the impact that construction of houses shall have on industry, employment generation and poverty reduction. The efforts on the part of the government and the SBP are appreciated. However, many practical steps are needed, including suitable amendments in the relevant laws to make the legal framework conducive and for liberalizing policy for allocating suitable land particularly for the low-income people. There was discussion on opportunities to mortgage financiers on the one part and the construction industry on the other; however, more attention should also have been given to the ways and means for provision of houses to the low-income groups, who may not be eligible for bank loans under the traditional rules of housing finance.

At the end of the seminar, the SBP governor reportedly set up a task force to finalize recommendations for submission to the government for consideration. The suggestions contained in this article would assist the task force in the assignment particularly the housing for the poor and the destitute, whose needs deserve greater attention at all levels.

Housing backlog started developing on independence. Inflow of refugees could not be accommodated in the available stock of houses. Efforts to provide modest houses started from Karachi that was gradually extended to other parts of Pakistan. However, scope of this initiative was too small to cope with the housing shortage. As time passed, the vested interests made the construction of houses more difficult. Because of the problems with the tenants and the rent cases, the well-to-do people chose only to build a better and larger house for the family. Moreover, there were procedural delays and high transfer / registration fees. All this raised construction cost up to 10-20 %.

A small segment of the society that has regular employment and reasonable monthly cash inflow can easily borrow for building a house. According to a World Bank report nearly one-third of population in Pakistan is below the poverty line. The poor people, if they do not own a house already, have little chance of building a house for them in normal ways. For the poor and the destitute, it is impossible to build a house with money borrowed from HBFC or private commercial banks, as they do not have the 'equity' to show to the banks for loan eligibility. For all borrowers, the fear of ejectment is ever present, more so now due to uncertainty of employment and the tightening of the loan recovery laws.



According to Population and Housing census, due to negligence in the past, the housing backlog had reached up to over 4.3 million units by 1998. The annual additional requirement of housing estimated at 270,000 units, makes the backlog as 5.38 million housing units today. It is felt that due to gradual disintegration of joint family system in most of the areas in Pakistan, the actual backlog may be higher. The World Bank's recent estimates place Pakistan's population at 155 million in 2002, as the country failed to reduce the birth rate, which at present is 2.5 %. Of the total population, 32.6% is living below the poverty line with per head income of $420 (Rs 25, 000) per annum. Due to higher birth rates, the need for new houses each year is going to be much higher in the coming years. For effectively tackling housing shortages, birth rate has to be brought down considerably.

The target of building of 500,000 new houses each year is a tall order. Special measures are required for arranging the finances particularly for the low-income people. The stakeholders and the well-to-do people should join hands for building modest housing units, using economical building techniques and local construction materials coupled with remedial steps for improving legal, procedural and administrative framework, as under:

a. The government may introduce house-building loans for all its employees for constructing modest houses. The facility to be available at all levels and ranks. All other authorities and institutions may also be asked to provide or arrange similar facilities, if not already done.

b. Rent laws may be reviewed and made conducive for the construction of more houses for renting out purposes. Court cases may be settled within maximum 30 days of filing of the case. Housing sector will then attract large investment from local and Pakistani expatriates and it will afford big opportunity to people who wish to have regular rental income. Part of the bank deposits may also be channeled to houses construction.

c. Property registration process may be simplified ensuring its completion in a few days. As most of the people are not educated, people may be protected against frauds and cheating.

d. The fees for property transfer registration may be reduced substantially. In many places, the civic authorities collect their own fees in addition to fees levied by the revenue authorities. All fees combined should not be more than one per cent of the cost of property involved.

e. Austerity measures may be introduced at all levels in the nation. In the construction of houses, the functional utility should matter most. There may be certain upper limits of covered area beyond which the creditors may not finance. For the sake of argument let us say 2000 sqft should be the upper limit for any self-occupied house. This would spread the available credit amount for building of more houses. It may be declared that instead of building a posh house, the families should, using the same amount of money, build a modest house for self-use and a small house for renting purpose.

f. For different plot sizes, construction designs may be standardized. For each size and location 3-5 designs may be prepared keeping in view the socio-cultural values of the people. The house owners should have the choice to adopt a standard design and inform about it to the civic authorities for record.

g. The development authorities / civic authorities all over the country may be required to develop residential plots particularly for the low income people. The utility companies may be bound to provide connection to the authorized housing societies on priority basis. It has been reported that the federal government has recently stressed the urgency of the revival of housing construction and passed instructions for taking appropriate measurers.

h. The government may develop education, health, water, sanitation facilities, etc. for these new housing societies using own funds supplemented by funds from different international and local donors. This would ensure provision of healthy atmosphere for development purposes.



All classes and segments of society will benefit from these measures, which would also enhance their saving and buying capabilities. In the improved legal framework scenario, the people with money and ability to borrow from the banks would readily go for construction of houses, both for self-occupation as well as for renting out purposes. There will be vast opportunities for construction industries as well.

The measure listed above and implemented sincerely would, in the absence of further special measures, be less beneficial to the low-income people. These people are not so luckily placed. They do not have the capacity of self-financing or the capability to take a bank loan for the purpose. They are very much part of the Pakistani nation and must be supported. They would be able to become part of our society after they own houses, which are a pre-requisite for development of proper frame of mind as to civic sense and other responsibilities. We as a nation have to think out how best to provide opportunity of owning a house to each one of them. These people would not expect charity. The following approach may help them an opportunity to have a house of their own:

1. The development authorities / civic authorities may specially earmark land for housing societies of low-income people. The plots of land might be allotted on receiving of a small down payment. The balance amount to be paid in installments. Construction activity on the plots to be started only after full payment has been made by the allotees to the authority.

2. The government regularly receives loan / grant funds from the World Bank, IMF, ADB and many other bilateral donors for poverty alleviation, health, education and sanitation projects in the country. A substantial part of these funds may be earmarked for developing civic and physical infrastructure in the planned housing societies developed for the low-income classes.

3. Low-income people who already own plots of land may be offered interest free construction loans from special funds contributed by the government and supplemented by resources from the foreign donors. Three-marla plot size and maximum 300sq.ft. covered area or similar such limit can be prescribed for loan entitlement. Loan may be disbursed in installments as per physical pre-determined construction milestones. The owners may be allowed to contribute their equity by their labour to be utilized in the construction of the houses.

4. Building engineers and other allied professionals may form bodies to provide professional services to these people at nominal fees. Properly designed and supervised houses will be stronger and look much better.

5. Failure of the house owners to timely servicing of the loan may not normally result in foreclosures of the house immediately. They may be allowed 2-3 years time to improve their finances and start servicing the loan. The creditors may enhance their equity to the level of inflation occurring in the meantime.

6. These house owners need to be provided skill training and offered micro credit facilities by institutions such as the Micro-finance banks, Khushhali Banks, etc. This way they would gradually join the mainstream of society.

7. The government may encourage institutions such as construction industry, builders, trusts, etc. to offer micro credit facility to these people for enabling them build the houses.



8. The efforts of special fund set by the government can be supplemented by other institutions / Corporations / authorities, both local and foreign, who can help built houses in their special area of interest. Some of the cases may be handled as under:

a. Large industries, oil / gas exploration companies, etc. may decide to build small houses that are partly paid by the people though their labour in the industry or the project concerned.

b. The specialized funds such as Zakat, Workers Welfare, etc. may chalk out plans to encourage construction of houses to low-income segments of the society in various parts of the country.

The bankers and other stakeholders are looking for profitable opportunities in housing finance. For realizing reasonable benefits they should help improve the legal and procedural framework for the promotion of housing sector. This way all shall benefit.