The existing irritants must be removed at the earliest


June 23  - 29, 2003 




In the budget for financial year 2003-04 the GoP has placed special attention on construction industry to accelerate GDP growth rate and create new job opportunities. The focus is aimed at reducing poverty level. To accelerate the construction the GoP reduced excise duty by 25% and also reduced duties/taxes on other construction material. The policy is based on the premise that boom in construction sector directly and indirectly have the positive impact on at least 40 other industries.

While the announcement is aimed at increasing supply, it is also complemented with measures to increase demand for of housing units. The GoP has announced loan for government employees and also created enabling environment for extension of housing finance through commercial banks. The country suffer from acute shortage of housing units. As a result, there has been massive growth of katchi abadis. The growth of katchi abadis not only a source of pollution but also become hideouts for outlaws.

According to sector analysts the GoP is trying to improve working environment. The reduction in average lending rates has also led to reduction in mark up on housing finance rates. The average rate has come down from above 18% to around 10% per annum. Efforts are being made to change the debt equity ratio from 60:40 to 80:20. The recent experience of commercial banks of lending under housing finance facility has encouraged them to increase their exposure in housing sector.

Promulgation of Foreclosure Law has also improved the working environment. However, some banks say that they still do not feel comfortable in extending funds for purchase of housing units in certain ethnic localities. They fear that despite the Foreclosure Law they are not in a position to repossess the property. Even if they succeed in repossessing the property, finding a new buyer is next to impossible.

Legal title is another serious issue. Both the builders and buyers or real estate are responsible for the situation. Builders are often not able to execute sub-lease due to non-compliance of Building Control Laws. Buyers also prefer to buy property on Power of Attorney. Unless the title is clean, financial institutions are unable to finance the acquisition of such property because the property is the collateral.



However, financial institutions undertaking housing finance business term non-availability of utilities the most serious issue. Even if a builder succeed in abiding by the construction schedule, electricity, gas and water connections are not available. If the three basic facilities are missing no one likes to occupy such housing units. Therefore, if the government is serious in providing shelter in organized housing schemes, it must ensure availability of these facilities for each housing unit.

People wishing to acquire housing units say, "Availability of utilities is a serious issue but real issue is sky rocketing price of land." They say that the land price in municipal limits of cities has always been high, rather unaffordable. However, the inflow of money since year 2001 has pushed the price further up. Prices of open plots have gone up by 50% in all the decent localities over the last 18 months. This price hike is only due to entry of speculators in this trade.

One of the reasons for hike in land price is that provincial governments have not come up with new housing schemes. The schemes initiated nearly a decade back are still devoid of basic emenities. In some of the schemes the sponsors have not completed the development work and handed over the physical possession of plots to the allottees. If any one wishes to confirm this, he/she should travel on Super Highway, connecting Karachi and Hyderabad. A lot of blame for this goes to government for not ensuring that sponsors complete the job according to the schedule announced at the time of booking of plots. If the government is really serious in providing shelter to people it must ensure availability of land at affordable price.

As a first step the government should ensure that all the housing schemes initiated in the past hand over the developed plots to allottees at the earliest. To further promote construction of housing units in organized sector, the government must announce new housing schemes immediately. On the one hand it will ensure availability of land at affordable price, and on the other hand, resolve the issue of clear title of land.

At present only two housing finance companies, House Building Finance Corporation and International Housing Finance, are operating in the country. The GoP must encourage establishment of more such companies. Yet another suggestion is that financial institutions should be asked to extend funds to housing finance companies at rate not exceeding 3% per annum. The latest cut of yield was 1.1% at the latest auction by the central bank.