Inadequate financing facilities do not allow low income people to own house resulting in proliferation of Kattchi Abadis

Nov 12 - 18, 2007

Lately, one could see a large number of advertisements appearing in the print media and beamed by television channels. The promoters aim at selling apartments in high rise buildings to elite of the elites. Cost of these apartments is simply not affordable for most of the people of Pakistan but no sooner did the advertisement appears in the media the booking is over with a few days.

Most of the people wonder who would purchase such expensive apartments and when these would be ready for the occupancy. They also wonder what will be the quality of life of the residents of these apartments in a city suffering from extensive load shedding and worst traffic jams. Despite all this there seems to be mad race going on because people have tons of money.

Thanks to the economic analysts who have been saying that per capita income on the residents of Karachi ranges from 10,000 to 20,000 US dollars. Remittances are above this but bulk of the amount received from overseas is being invested in real estate. Those who did not have the funds to buy an ordinary house now have the capacity to pay the asking price.

One of the factors supporting this point of view is skyrocketing prices of real estate in Karachi followed by Islamabad, Lahore and Rawalpindi. Prices of open plots in Karachi have gone up four to five times and there seems to be no end. The same is also true about price of apartments. Thanks to builders and developers searching for appropriate house for demolishing, prices of houses are also going up.

Those who could not afford to buy a house/apartment in main city become the potential buyers of housing units being constructed in suburbs of Karachi. On one side the municipal limited are touching Gharo and on the other side residential units are being built closer to Toll plaza on the Super Highway. Yet emerging favorite vicinity is the area being served by the Northern Bypass. The popularity can be gauged by the enormous response received by the Taser Town.

It goes without saying that Karachi suffers from the worst shortage of housing units, which has resulted in proliferation of Katchi Abadis. Unfortunately, the government has been regularizing such dwellings, which encourages the "land grabbers" to keep minting money. The ultimate losers are the government, the general public and utility companies.

The severity of this issue is evident from the delay in construction of Layri Expressway. Incidentally, the land grabber mafia is the main cause of frequent changes in design, demolishing of houses obstructing construction and also fleecing money from the residents of the areas.

One of the reasons for hike in land price and proliferation of Katchi Abadis is government's failure in providing land for construction of new housing units. Therefore, most of the builders and developers are forced to buy land on which some sort of construction also exists or have to get the permission changed from residential to commercial.

Initially the builders were constructing shops on the ground floor to bring down the cost per unit but with the hike in land price shops are made on first and second floors. As the height of buildings is going on so is the need for extra parking space, roads, and fresh water and sewerage lines.

As the need is urgent the builders are acting faster than the civic authorities. The result is that housing units are handed over before execution of the sub-lease, water, gas and electricity connections. Once these units are occupied supply of fresh water and disposal of sewerage water pose problems for the occupants as well as the residents of the area.

A common complaint is that sub-leases are delayed for years. One of the major causes of delay is violation of building bylaws. This not only hinders transfer of title but also diminishes probability of getting financing from financial institutions. Clean title is a must for acquiring mortgage finance. Though, the purchasers of property are regularly warned by the government not to buy any property without clean title, the cunning sellers take full advantage of desperation and ignorance of law of the buyers.

The two factors hindering development of mortgage finance in the country are 1) limited number and financing capabilities of the housing finance companies and 2) high interest rates. Ironically about half a dozen companies were granted permission to undertake housing finance business but most of these have closed their operations. The incidence of higher interest rate is due to non-availability of credit lines and lack of appropriate foreclosure laws.

Lately, some of the commercial banks have started extending mortgage finance but the quantum of business has not increased substantially. These institutions are more than cautious in extending housing finance. The reluctance is because of the nature of funds available with the banks and limited expertise. Evaluation of risks attached with property is very different to working capital loans. Incidentally, Pakistani bankers excel in working capital loans but have the least exposure with reference to mortgage finance.

According to some critics asking the commercial banks to extend housing finance is not justified and going beyond their basic mandate. Since bulk of the deposits is of less than one year maturity extending loans with ten or twenty year tenure could prove too risky.

Whereas the other believe that since mortgage finance constitute a very small percentage of total deposits commercial banks should be encouraged to undertake this business, particularly in the absence of housing finance companies in the country.

Since foreign investment, along with new construction technologies has come to Pakistan, the government's responsibility is to create conducive working environment for accelerating construction business in the country. There is no denial that a robust construction industry fuels growth of at least 40 different industries.