July 2 - 8, 20

A desire of an affordable house sounds like a castle in the air for a common person in Pakistan. Price and rent of a decent house are not affordable for the majority of people. There is a huge shortage of housing units in the country. Ensuring affordable housing within the buying power of people is not possible without the participation of property developers who are disinclined towards unprofitable project that low-cost housing appears to be thus far.


"The key challenge around affordable housing is finding a model that delivers profits, [through incentivising more private sector participation], scales up, and creates an engine that delivers socioeconomic impact alongside housing development," states a presentation titled Affordable Housing for All released by McKinsey & Company during the World Bank Housing Finance Conference held in Washington in May 2012.

Highlighting 16 countries from Africa, America, Middle East, and Asia having aggregate shortages of 35 million units representing $600 to $700 billion in value, it terms affordable housing a global opportunity that can give a boost to direct and indirect employments and many industries including cement, steel, plumbing, electrical equipments, paint, wood, and banking and finance.

As far as Pakistan is concerned, the global management consulting firm estimates affordable housing shortage value for the country at seven billion dollars, much below neighbouring India, China, and Iran where the current shortages represent $67 billion, $55 billion, and again $55 billion markets, respectively. The shortages in India, China, and Iran were estimated as 7.5 million units, 4.6 million units, and 1.8 million units, respectively in 2011.

Population of Pakistan is growing rapidly. The country is the sixth most populous country in the world, making the third highest annual net addition to the world's population following India and China, said Pakistan Bureau of Statistics in its latest report.


Because of the relentless urbanization, the country's 10 major cities majorly Karachi and Lahore holding over 60 per cent of total population of these cities, will have to bear up under 30 per cent population growth rate during 2010 and 2020, a government report quoted UNHabitat as noting. Average numbers of households per house in Pakistan are also high when compared with the international standard. For example, average six persons live in a house in the country and per room density stands at 3.5 persons contrary to an internationally accepted standard of 1.1 persons per room.

These data speak volume of the state of housing sector in Pakistan and enhance the need of building less-expensive dwellings to give people proper shelters, unavailability of which encourages unplanned urbanization and concentration of slums.


Private sector feels hesitant when asked to fork out some money for low cost housing schemes. Return on investment is low. Low rental yield in Pakistan is presented as a justification of reluctance of investors to invest in properties in urban centres. Rental yield that is property value divided by rent is reported to be less than what it is in the well developed real estate markets in the world. If rental yield is higher than interest rate on loans, then it is a good omen for progressive real estate sector, analysts said.

In Pakistan, benchmark interest rate stands at 12 per cent and obviously interbank rate is above that. On the other hand, rental yield is calculated in between four to five per cent in cities. It seems a logical decision on the part of profit-seeking investors to invest in government securities or KESC bonds for returns of 10 to 15 per cent than in avenues that give out lower capital gains.


Presenting potential solutions to 'the key challenge around affordable housing', McKinsey emphasizes on delivery of sustainable economic profits from affordable housing that it suggests should be like 15 to 20 per cent margins and 40 to 50 per cent internal rate of returns (IRRs).

Further, it advises one million homes every five years to be effected on public-private property development model. One million homes also translate into 10 million jobs and one to two per cent GDP (gross domestic product) impact, it believes.

"A [value] platform across parameters such as price, product, location, development, strategy, infrastructure, construction techniques, technology, suppliers, financing, and community needs to be developed that can deliver an economically viable model."

Value platforms through building housing units at a massive scale with technologies and alternative materials, have been implemented, for instance, by the largest homebuilder in Brazil that builds about 40,000 to 50,000 units per annum, real estate developer Orascom in Egypt, Tata Housing in India that gives out price point of $10,000 per unit or $15 to $20 per square feet, suggests a table.

Government can also play a catalyst to afford decent affordable houses for the people of Pakistan. Apart from rectifying building codes and laws under objections, it should also allocate and ensure utilization of funds for the integrated housing programme in the country. Maybe a little out of context but the example of Brazil, quoted in the presentation, should be taken as a possible solution for the undersized housing sector of Pakistan. The Brazilian government earmarked $20 billion for construction of three million housing units in the country, providing loan at five to eight per cent interest for up to 90 per cent of housing value, reducing construction costs through removal of taxes, and encouraging suppliers to engineer alternative materials, etc. The South American country has the housing shortage of 1.8 million units.