This sector has started picking up noticeably


May 19 - 25, 2003



House financing business, having tremendous scope for investment and business opportunities for the financial sector was so far the exclusive domain of the House Building Finance Corporation (HBFC) in Pakistan.

This important area of economic activity was almost paralyzed some three years back due to various reasons mainly due to extremely depressed economic conditions within the country as well as global economic recession. The scheme launched by the government to dig out the hidden and undocumented wealth proved fuel to the fire consequently adversely affected the construction and the real estate sector throughout the country.

However, after the new housing policy announced by the government after realization the role of real estate sector in the growth of economic activity this sector has started picking up noticeably.

The State Bank of Pakistan which encouraged the role of the commercial banks in the construction and the real estate sector, large commercial banks are showing their keenness to extend house financing to such a level which was never witnessed in Pakistan which indicates that a boom in the real state sector is in the offing.

Bank Alfalah, according to informed sources, is coming out with an aggressive marketing campaign in this sector with the first ever financing range of Rs10 million.

The Bank Alfalah focusing the large cities as the target markets of their products for housing finance. Initially the House financing will be launched in the designated branches of Karachi, Hyderabad, Multan, Lahore, Faisalabad, Islamabad and Peshawar. The scheme would be gradually extended to other cities keeping in view the experience gained in initial branches. This house financing scheme will be available to the salaried, self-employed and high network individuals.

Another attractive aspect of this scheme is that affordability by keeping the mark up rate on the lower side which include SBP discount rate plus 2 per cent i.e. 9.5 per cent.

Similarly, other commercial banks are also intended to arrive in the real estate sector indicating a boom is to strike back in this sector in near future. The HBFC, according to informed sources, is also actively considering to enhance the present limit of Rs2 million to Rs5 million shortly.

Availability of funds and simplification of procedures which have already been made are the basis for reactivating the housing sector in the country.




The significance of housing sector for generating economic activity is reflected in the fact that the annual demand for new housing units in the country is estimated over 700,000, however, due to financial constraints the maximum number of housing units built every year never exceeded to 400,000 leaving a gap of 300,000 housing units per annum. As a result of this carried out backlog, according to an estimated, the country needs at least 6 million new houses to meet the shortfall.

To meet such a huge demand for house financing, the only organization active in this area is House Building Finance Corporation (HBFC) which according to general public opinion miserably failed to deliver the goods and produce the desired results in the past.


The Ministry of Law and Parliamentary Affairs has approved the Force Majeure law for recovery of the loans from the willful defaulters. Under the law, speedy trial courts will also be constituted for early settlement of the disputes.

The State Bank of Pakistan has provided the copies of the bye laws to commercial banks which are intended to enter the housing finance sector. Appreciating the efforts of the Ministry of Law and the State Bank of Pakistan, Hafeezur Rehman Butt, Chairman Association of Builders and Developers of Pakistan said that the approved law by the ministry is likely to greatly help encouraging the commercial banks in the house financing sector in near future. He was, however, of the opinion that arrival of the large banks like National Bank, United Bank, Habib Bank and Muslim Commercial Banks are extremely important to make it a success story.

Elaborating his point of view ABAD Chairman said that since these banks have a large network spread all over the country, they can easily meet the demand of the consumers from large urban centers to remote areas of the country.


One of the major reasons for defaults and stuck up loans in the past is said to be the high lending rates. In the current scenario when the commercial banks are sitting on the huge piles of money and looking for the borrowers, there was a general trend of gradual decline in the lending rates in Pakistan also. Hafeezur Rehman Butt suggested that instead of fixing the minimum lending rates, it should be left to the market forces to decide. When the commercial banks and other financial institutions will operate in this area, the state of healthy competition would naturally help bring the lending rate at an affordable level. It is believed that in the backdrop of effective law and protective policies for offering secure loans, the different commercial banks are likely to come in a big way in this sector which would ultimately help lowering the lending rates.