INTERNATIONAL HOUSING FINANCE LIMITED
An over view of housing industry
MUHAMMAD ALI SIDDIQUI, Executive Vice President
June 26 - July 02, 2006
Globally, the construction and housing industry account for 10-12% of GDP and 7% of employment. The housing and construction industry has enormous forward and backward linkages and according to a modest estimate, 35-40 industries move in tandem with this sector. Therefore, the industry has the greatest employment generation potential (Employment Elasticity is 0.8). It can also create low-paid jobs of Chowkidars and ordinary construction workers to medium-paid jobs of Masons, Carpenters, Electricians, Painters, Plumber etc; and highly paid jobs for architects, engineers, designers, decorators, contractors etc. It is for this reason that the government has identified this sector as one of the five major drivers of growth and is reflected in the National Housing Policy-2001 and the Prime Minister's Initiatives under the "Housing for All" Program.
Macroeconomic stability or instability and the housing sector are inextricably linked. From a regional perspective, the mortgage markets in South Asia are small and fragmented with the unorganized sector continuing to play a dominant role, especially at the lower income segment.
The housing is a major need in Pakistan, both for rural and urban populace, and a hybrid of micro and housing finance can meet the unfulfilled demand of a vast segment of our society. The demand for housing finance in the country is enormous and there is a huge backlog of housing units in the country. The private housing and financial sectors are playing their due role and proposing good measures for the promotion of housing industry in the country.
Pakistan has over 19.3 million Housing units in the country. About 24.8 million Housing units for a population of 148.7 million people are required. Hence, a shortfall of 5.5 million homes is estimated as of end June 2004. On an annual basis, we need 570,000 units against the actual supply of 300,000. Thus, there is an annual shortfall of 270,000 units and the backlog is rising. A number of measures have been taken by the Government for reviving the housing and construction sector, which has been declared a priority industry. The government has also announced various incentives in the National Housing Policy for providing affordable housing for the poor. A rapid growth in housing finance will significantly contribute to the economy in the form of additional employment and support a variety of allied industries.
The housing sector in Pakistan provides opportunity to invest Rs 150 billion annually for the next 20 years, just to meet the housing requirements of the growing population. This calculation has been made by housing analysts believing that to make-up the backlog and meet the shortfall in the next 20 years overall housing construction has to be raised to 500,000 housing units per annum.
Despite the fact that most of the countries have a strong agrarian economy, the thrust in GDP growth in the recent period has emanated from the services sector, accounting for 40% to as high as 60% of GDP.
The importance and reliance on the Housing Finance across the globe can be gauged from the following chart.
In the realm of housing finance, the success of the present focus of instituting a market based housing finance system in Pakistan can be gauged by the fact that during the last couple of years the number of banks offering housing finance has been swelled to twenty six and during March 2003 and December 2005 they have been able to increase their exposures to housing finance from Rs. 1.9 billion to Rs. 33.7 billion (approximately). Commercial Banks
Currently, the total housing finance portfolio in the formal sector in Pakistan is estimated at PKR 53 billion, bulk of which is contributed by the Commercial Banks which in turn holds around 63% of the total market share of outstanding mortgage loans.
I am of the view that now is the right time for specialized housing finance companies to play their due role in the housing finance industry as true providers of housing finance in the country especially to the low end segment of the society.