CALL FOR STEPS TO STEP UP HOUSING ACTIVITY

KANWAL SALEEM
(feedback@pgeconomist.com)

Apr 2 - 8, 20
12

Association of Builders and Developers of Pakistan (ABAD) proposed the government to form strategic board with ABAD as a key master to coordinate with different government departments and utility companies to streamline all processes and give recommendations to promote the construction industry, while presenting recommendations for the federal budget 2012-13.

Through the proposal, it was recommended to the government (both federal and provincial) to ensure the maintenance of law and order and eradicate the menace of land grabbing, encroachment, kidnapping for ransom, threat to life and property of builders and their staff and create conditions essential for attracting domestic and foreign investment.

Development of infrastructure would avoid projects to suffer. No questions should be asked about the source of funds in case of investments in housing sector same as done for investments in stock exchanges.

The government should ensure implementation of all recommendations of the National Housing Policy 2001 for the development of construction industry. The presumptive tax on construction companies should not be more than one per cent on yearly receipts.

Reducing stamp duties and registration fees to an aggregate of one percent would increase government revenue and make the construction affordable for a common person, as more documentation will take place. Such duties and taxes should not be charged on housing mortgages and reduced for construction materials.

Banks and DFIs should extend credit facilities for balancing, modernization, and replacement of the machinery used in housing and construction industry.

The State Bank of Pakistan (SBP) should direct commercial banks to allocate a certain percentage of credit to housing sector and minimum five per cent of annual investment in housing mortgage from all commercial banks.

The House Building Finance Company Limited (HBFCL) and other financial institutions should prepare and introduce annual packages of minimum Rs10 billion at preferential mark-up to provide affordable credit to low-income groups for apartments smaller than 1,500 square feet and 120 square yards bungalows.

Bridge financing and bulk financing of housing projects should also be introduced by HBFCL and its annual disbursement of loans should be substantially enhanced to Rs20 billion to overcome the housing shortage.

Zero-rated duty should be allowed for the import of new and used construction machinery including tower cranes and batching plants, elevators/lifts and escalators, generators 100 KVA and above, solar panels and allied equipment for self-generation of energy, and the equipments related to water treatment and reverse osmosis for the construction industry.

Research on materials should be promoted for housing and construction by providing concessions and concessional finance. Initiatives should be taken for general economic recovery and public and private collaboration for the development of construction industry. Affordable housing programme should also be supported to quickly bridge the gap of backlog.

Builders and developers already pay taxes of up to seven per cent including stamp duty, registration fee, capital value tax, and others. Any addition to these dues like sales tax on services in the provincial budget for 2011-12 will make property expensive and out of reach of the common person. Builders and developers are not service providers and have been wrongly included in this category.

The government must initiate steps to accelerate the housing activity and contribute towards employment generation by facilitating the provision of housing inputs including land, finance, building materials and others.

The housing sector is believed to affect an economy in various ways, one of which is socioeconomic linkage. It implies that if majority of the population has access to adequate housing, they are more likely to participate economically, socially and politically in their communities. Housing sector poses substantial potential for employment generation for the poor segments of the society. Nearly 60 to 70 industries are linked, with the housing and construction sector in Pakistan, thus providing substantial additional employment opportunities by contributing through a higher multiplier effect with a host of beneficial forward and backward linkages in the economy. With high employment opportunities and growth rate, the government of Pakistan stipulates that increasing the housing supply can not only reduce the housing shortages, but also give a boost to the 60 plus allied industries associated with it.

According to the World Bank, HBFCL (previously House Building Finance Corporation Limited) is the only institution that caters to the financing needs of middle- and low-income groups in the country, handling 76.67 per cent of the total number of mortgage clients. Given that overall Pakistan has the lowest outreach in South Asia (after Afghanistan), HBFCL has come out as the biggest housing finance institution because of its huge outreach compared to the other housing finance providers. It would therefore appear that HBFCL is the key housing finance institution that needs to be strengthened and supported to effectively address the housing shortage issue.

According to recent trends, the urban population has seen tremendous growth. There are approximately 10 urban centers in Pakistan with Karachi and Lahore being the two biggest centers. Both these cities alone constitute around 62 per cent of the total population of these 10 cities.

A report titled, State of the World's Cities 2008/2009, by UN-HABITAT, estimates that the population in these cities will collectively grow at the rate of 30 per cent between 2010 and 2020. Out of this highly concentrated urbanization trend, over 45 per cent of the total urban population is believed to be living in slums. This high concentration of slum households in Pakistan can be associated with a variety of factors including lack of investment in infrastructure, housing sector, poverty and instability.

Urban growth is a result of a combination of factors namely geographical location, natural population growth, rural-to-urban migration, infrastructure development, national policies, corporate strategies, and other major political, social and economic forces. Keeping in view the rapid urbanization of population, the need for the government and financial institutions to respond adequately and timely to this resultant increase in demand is critical.