ACCELERATING THE HOUSING CONSTRUCTION AND FINANCE
Housing construction has the potential for accelerating economic activity including employment generation
By Muhammad Bashir Chaudhry
May 19 - 25, 2003
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 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. Other factors such as delays in the transfer of property title, approval of the site plan, etc have also inhibited the construction of houses on large scale for self-use or for renting out purposes. Housing construction has the potential for accelerating economic activity including employment generation. Only a revolutionary approach that is persistently pursued by the government by removing all obstacles can ensure accelerated construction of houses. The Punjab government appears to be moving in this direction as is evident from press reports of the following developments:
a. The provincial government officials and the high ups of some commercial banks have been negotiating modalities of a housing project, which will be managed by the private sector. An advisor to the Punjab Chief Minister reportedly said at Lahore that the government would facilitate negotiations between financial institutions and credit seekers and that the modalities of the project are likely to be finalized shortly. Mark up on the financing is said to be quite low. The venture would generate business activity in the province besides overcoming scarcity of the housing units in the major cities.
b. A United Bank delegation, led by its President, called on the Punjab Chief Minister and briefed him about funds availability for various development projects in the province. The chief minister reportedly advised the delegation that the government was planning to make the role of domestic banks and financial institutions more effective in agriculture and industrial financing. He said that the resources generated through privatization would be used for investment in education, health, housing and transport sector.
c. The government will provide 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 training would be given to them inside the country and abroad. This was said during a meeting at Lahore presided by the provincial minister for housing and public-health-engineering. The minister reportedly said the engineers were utilizing old and conventional techniques of construction as a result of which the housing and public health engineering projects were costing heavily. The need of the hour was to introduce such technology, which could be low cost and less time consuming, but qualitative and durable.
Housing finance in Pakistan has been largely provided by the House Building Finance Corporation (HBFC), and some other private sector local and foreign banks/institutions. However, their efforts could not arrest the backlog in the housing-units that continued increasing. These days due to easy liquidity, the nationalized and private banks/financial institutions — both local and foreign — wish to enter the housing finance market in a big way. Now that the government of the Punjab is reportedly taking interest in facilitating the housing finance process, the lenders might draw attention of the government to the factors that have hampered the housing construction in the past. The exercise might be broad-based by the Punjab government to know the real issues faced by the construction sector and to find probable solutions. For this purpose private house owners/individuals and construction experts may also be associated. Once the obstacles to housing construction are removed and the applicable procedures are simplified/streamlined, housing construction activities would start in a big way.
Apart from generating accelerated economic activity, this new approach might promise completion of the houses at relatively much lower cost and within time. The salient factors that need to be taken up in the diagnostic meetings among the stakeholders and for which remedial actions are to be taken by the Punjab government are briefly discussed below.
Land is needed for building any residential or commercial construction thereon. In some cases the builders of houses already own a piece of land but in majority of the cases provision of suitable land for housing construction is required. The provincial government might concurrently consider 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 to make payment in installments, at the option of the applicants. The supply of plot of land and the construction of the houses can get a big boost if the Kachi Abbadis are regularized and the title documents compulsorily given to the occupants within a month or so. In case private landowners wish to start housing schemes they might also be allowed to do so but after the town plans including selling price are duly approved by the provincial government. These steps might make available sufficient number of plots for building houses in different towns and cities.
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 the plot of land for housing construction. This would also help in early finalization of the loan applications by the lender banks and financial institutions. The fees associated with the sale/transfer of plots of land is a big burden and need to be reduced with a view to accelerate housing construction. These days some of the city governments have contracted out the rights to such fees. There are complaints that some contractors fleece the property owners and delay the process on flimsy grounds. The government may reduce the fees levied on transfer/sale of housing land and also protect the people from the doubtful practices of the contractors.
Housing construction activity cannot be properly undertaken unless the extracts of land earmarked for housing purposes have been properly developed by the city government by providing water and other facilities/utilities at site. The provincial governments can help facilitate the process in order to accelerate the construction activity. In many cases the city government might look to the provincial government for financial allocations to finance the development work. Timely provision of electric, gas and telephone connections can also boost the construction activity.
Approval of the site/building plan/design at present is considered time-consuming and costly. Construction cannot start without such an approval being available. The Punjab government would be doing a big service by streamlining and standardizing the process. It is suggested that for each category of plot-size, up to five site/building plans/designs may be standardized by the town planning and construction experts. 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. The step will cut lot of time and cost involved in the construction of houses.
Barring a few exceptions, the banks/financial institutions 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 towards them and the hapless house owners do not have any say or choice. The value of the plots of land is arbitrarily fixed lower than the market while the banks' share is shown higher. 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. The government of the Punjab would be doing a big service to the people of the Punjab (and also the people of other provinces by setting healthy examples of better procedures and practices) by improving procedures/practices and removing the bottlenecks such as described above. The government might consider setting one-window desks preferably at the commercial banks for dealing all matters relating to housing finance and construction.
Construction cost has gone up in the past few years. Prices of construction material such as cement, steel, etc. have increased to the discomfort of the prospective house-builders. Housing construction can get a boost if the government taxes on the construction material are reduced.
A large number of rent dispute cases are presently before the courts in various cities in the country. This has inhibited construction of houses by the rich for the purpose of renting out. This has to a great extent blocked the construction activity and the finances have been diverted partly to other uses. There is need to streamline the whole process. The provincial governments are urged to review the respective laws and regulations. The whole process might be made equitable to both the parties and the disputes might be settled within weeks if not in days. These steps may open an appropriate investment venue for regular income to the retired people who these days are getting very low return from deposits with the banks.