May 17 - 23, 2004






The Federal Finance Minister has, according to press reports, suggested to the concerned authorities to plan for a 'Land Bank' in every province. The idea is that the land owned by the provincial government, local development authorities (such as KDA, LDA) and Cantonment Boards could be pooled and released for development on a regular basis in order to meet the ever-increasing demand for housing. This might bring down prices in the real estate market and thus make it affordable for the middle class to build/buy homes. The Minister was chairing a meeting, at the State Bank of Pakistan (SBP) on 29th March 2004, with the bankers, the developers, the building contractors, provincial and local authorities as well as the suppliers of steel and cement. The issues hampering housing construction and financing activities were discussed at length. Closing the meeting, the Finance Minister thanked all the stakeholders and asked them to send concrete recommendations on the issues for consideration at the next high-powered conference on the subject scheduled in two weeks. Later SBP in a press release has also highlighted the proceedings of the meeting and the importance of housing and construction in terms of economic growth and job creation. The stakeholders gave their views on issues generally pertaining to land acquisition and legal matters; fiscal and taxation matters; availability of infrastructure facilities; and implementation status of matters already decided. The salient points are summarized below:

1. The Cement Manufacturing Association (CMA) informed the meeting that they are operating at 98% capacity, which is up from 66% of last year. According to CMA, the rise in PSDP, low interest rate environment, availability of housing finance, and the general feel-good environment have been responsible for the sharp rise in construction activity.

2. The Chairman, Pakistan Steel (PS) and the representatives of re-rolling sector highly appreciated the recent government decision to reduce the prices of steel products. They informed the meeting that prices of billets had declined from Rs 53,000 per ton and stabilized at Rs 38,000 to Rs 42,000 per ton. It was said that the PS is operating at 97% capacity. The Chairman informed that to augment supply of steel, the PS is importing 100,000 tons billet, which will be arriving soon. Various measures to further augment the supply of steel were also discussed.

3. The participants informed the Minister that in the past it was the high lending rates, which were primarily responsible for construction activity remaining outside the realm of bank financing. Now that rates have come down the issue facing the builders is the high price of land which have surged 50 to 100%, making it beyond the reach of middle class. The builders were very critical of the long time taken by the building control authorities to pass their plans as well as the time taken by the utility companies to issue No Objection Certificates.

4. The President of the Pakistan Banks Association (PBA) presented bankers' views on housing and construction. He said that the registrars needed to register equitable mortgages besides registered mortgages and this would require an amendment in the Registration Act of 1908. It was said that the PBA has already raised the issue with the SBP for help to convince the Central Board of Revenue/Government for overcoming the obstacle. Without clear title to the land and expired leases in older localities, banks are primarily giving loans to borrowers wanting to build homes in Defense Societies in Karachi and Lahore or in Islamabad.

5. It was suggested that there might be a transparent process where 30 years/99 years leases upon expiry are renewed automatically under a standing tariff instead of individual cases being approved as at present. Moreover, it was said, the land registration record in large cities and towns was defective and unless clear titles are available banks would not fund development projects. It was suggested that the land registration process in vogue in Defense Authority might be replicated everywhere for banks to get comfort in financing housing projects.

6. There were complaints from the participants that utility companies despite taking down payments in advance were making the clients wait for over a year before making their services available. Similarly, water and sewage facilities as well as roads were not being made available on a committed schedule. It was pointed out that over 8000 flats were awaiting electricity connection in Karachi alone. With a little effort from KESC to provide them power they could come into the market for sale.

7. The builders and contractors informed the Minister that they are willing to pay late penalty on government projects instead of paying Rs 38,000 per ton for re-rolled steel bars. They said their calculations were based on Rs 32,000 per ton and the Government must waive the 10% duty and 6% withholding tax on import of steel scrap, billets and ships for demolition. The construction magnates also suggested to the Finance Minister that the zero duty on import of new construction machinery needed to be extended to second hand machinery as well, since they do not have the financial strength to import new machinery.

Housing is basic human need after food and clothing. In spite of efforts by the governments of the day in the past, housing availability situation has not shown significant improvement in the cities and towns. Rather, housing units backlog now at nearly 5 million housing units has been on the increase. Overall high increase in population and shifting of large rural unemployed to the urban areas has further complicated the situation. Actions/decisions on the matters discussed in the SBP meeting with the Finance Minister, as well as on the stakeholders' concrete recommendations to be sent to the government, would go a long way in resolving the issues, which so far have been hampering progress in the housing construction sector. Only a revolutionary approach that is persistently pursued by the government by removing all obstacles and irritants can ensure accelerated construction and financing of houses at relatively much lower cost and within budgeted time. The present government is moving in this direction but many more remedial steps are needed to make this sector vibrant.

The meeting at the SBP discussed the issues largely pertaining to large stakeholders who are well organized. However, it is felt that the issues confronting the individual would-be house owners were not adequately addressed. These individuals, though number in millions, are not organized to be able to properly submit their difficulties and grievances to the government for redress. Tackling of their grievances and certain other allied issues would also help boost the housing construction/finance activities in the country. These issues are listed below for consideration by the government and other stakeholders.



1. Land is needed for building any residential or commercial building. In some cases the builders of houses already own a piece of land but in majority of the cases suitable land for housing construction is required. The provincial governments/development authorities might concurrently announce new housing schemes in different towns and cities and allocate large extracts of land for the purpose. The land may be allotted to the needy house owners on merit in a transparent and open manner, at reasonable prices, with provision to make full payment up front or in installments, at the option of the applicants. The supply of plots of land and the construction of the houses can get a big boost if all the Kachhi Abadis are regularized and the title documents compulsorily given to the occupants within a month or so. In case the private landowners wish to start housing schemes on their land, they might also be allowed to do so but after their (town) plans/development plans including selling prices for different categories of plots are duly approved by the authorities. These steps could make available sufficient number of plots at reasonable prices for building houses in different towns and cities, at affordable cost.

2. Proper title documents are essential for the protection of the rights of the property owners. Therefore, the government may consider streamlining and expediting the procedure for preparing the title documents and their provision to the owners within a short time of the transaction for the sale/allotment of land for housing construction. This would also help in early finalization of the loan applications by the banks and DFIs. The fees, charges, etc associated with the sale/transfer of plots of land is big burden on the house owners and need to be reduced. These days some of the city governments have contracted out the rights to collection of such fees to the private contractors, some of which reportedly fleece the property owners and delay the process on flimsy grounds. The government may take steps to protect the people from doubtful/high-handed practices of such contractors.

3. Housing construction cannot be properly undertaken unless the earmarked land has been properly developed by the city government by providing water and other facilities/utilities at site. The government can help facilitate the process. In many cases the city government might look to the government for financial allocations to finance the development work. Timely provision of electric, gas and telephone connections would encourage construction activity.

4. Approval of the site/building plan/design at present is considered time-consuming and costly. Construction cannot start without such an approval. The provincial governments would be doing a big service by streamlining and standardizing the process. It is suggested that based on popular designs in a given locality for different plot sizes, standardized building designs might be prepared by the town planning and construction experts and pre-approved by the authorities. Each prospective house builder/owner should be free to start construction using any of the pre-approved design and inform the city government of the design selected for record purposes. Special approval may be required in rare cases where the owners wish to build according to a design that drastically differs from all the pre-approved designs. This would cut the time, effort and cost involved in the construction of houses.

5. Barring exceptions, the banks/DFIs have not been offering the best financing deal to the private individual house owners who deserve to be treated equitably and fairly. The banks in some cases prepare documents that are heavily tilted and the hapless house owners do not have much say or choice. The value of the plots of land is arbitrarily fixed lower than the market. Added to that is the practice in some of the lender institutions that fix the rental value arbitrarily on the higher side to ensure higher income to them. This way the prospective house builders/owners are placed at a disadvantage, the adverse impact of which is felt until the loan is finally repaid in full. Apart from the measures discussed earlier, transparency and fair practices by the financiers can further encourage house builders to avail loaning facilities from these institutions. Complete sets of legal and security documents used by the creditors need to be provided to all applicants up front along with the Application Form for loan assistance. The SBP might consider scrutiny of these documents as well as other practices and procedures to ascertain that the borrowers are treated fairly and in a transparent manner.

6. In addition to cost of land, prices of construction material such as cement, steel, etc. have increased to the discomfort of the prospective house-builders during the last few years. Housing construction can get a boost if the government taxes on the construction material are reduced. The authorities might also put in place a system so that benefits of reduction in taxes duly reach the house owners.

7. A large number of rent dispute cases are presently before the courts in various towns and cities in the country. This has substantially inhibited construction of houses by the rich for the purpose of renting out and the finances diverted partly to other uses. There is need to streamline the whole process, which is equitable to both the parties and the disputes might be settled within weeks if not in days. This would open an appropriate investment venue for regular rental income to the retired people who these days are getting very low returns from their deposits with the banks.

8. The government might consider providing training opportunities and refresher courses for engineers in order to upgrade their professional skills on modern lines and enable them prepare low-cost construction plans in the housing sector. The need of the hour is to introduce such technology, which costs less but promises equally durable houses.