Housing finance: Government’s ‘lip service’ not achieving much

Country is short of more than 8m units, backlog growing fast due to low supplies

KARACHI:

Leading builders believe the recent growth in the housing finance sector is not even close to meeting the growing housing demand in the country; and the central bank data affirms their statement.

Outstanding housing finance has shown growth for the seventh consecutive quarter (Jul-Sep 2015), according to recent data issued by the State Bank of Pakistan (SBP).

Total outstanding housing loans of all banks and development finance institutions (DFIs) reached Rs58 billion in September 2015, showing a year-on-year (YoY) growth of Rs5.1 billion or 9.6%.





Although, in percentage terms, the growth seems outstanding, but in actual terms the reality is different.

Pakistan’s mortgage-to-GDP ratio is embarrassingly low, at just 0.48% by the end of September 2015, according to the latest data available by the SBP. Moreover, the country’s mortgage-to-GDP ratio has continuously been contracting for the last few years. It has come down to under 1%.

“Despite all efforts of the SBP and the private sector, we are not getting the desired results,” Association of Builders and Developers of Pakistan (ABAD) Chairman Muhammad Hanif Gohar told The Express Tribune.

Soon after taking over, the present government, taking ABAD leadership on board, announced giving incentives to the construction sector, promoting low-cost housing and constructing 500,000 housing units in different cities of the country. It, however, failed to achieve anything significant on the housing front in two and a half year’s tenure.



“The private sector (ABAD) is doing its best by giving recommendations on all major issues, but it is the government that is not moving forward. Much depends on government policies now,” said the chairman of ABAD - an association of over 800 leading construction companies of the country.



“The government is not moving beyond lip-servicing. The situation will not change until the government makes up its mind to start delivering what it promised for the growth of the sector,” added Gohar.

There is no exact data that can ascertain the actual shortage of houses in Pakistan and most of the studies are just based on estimates.

However, according to a World Bank study carried out in 2009, there was a shortage of 7.5 million housing units in Pakistan, which is increasing by 0.35 million housing units every year.

ABAD representatives say the shortage of housing units is more than 8 million and the backlog is growing because of low supplies of new units.

Apart from House Building Finance Company (HBFC), a public sector housing finance institution, Islamic banks’ lending in housing loans has surged in recent years.

“We want our clients to move to Islamic banks but those banks provide loans on finished units. These banks should instead be offering these loans during the construction process to boost the sector’s activities,” suggested Gohar.

His observations relate to the third quarterly data of July to September 2015 in which over 62% of the total housing loans fell into the category of outright purchase, whereas construction and renovation products had a share of just 25.9% and 11.5%.

HBFC’s share in total outstanding housing loans is 24%, which is still significant.

Some say the government can boost construction activities if it only provides more funds to HBFC for lending on low interest rates compared to banks.

“Overall housing finance has shown a good growth. But it will grow significantly only once the government provide at least Rs15-20 billion to HBFC and assures that all private banks would allocate at least 5% of their total lending for housing finance,” said ABAD former senior vice chairman Salim Kassim Patel.

Published in The Express Tribune, January 3^rd, 2016.

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